ST晨鸣B：2026年半年度报告（英文版）

(a joint stock company incorporated in the People's Republic of China with limited liability) Stock Code: 1812

2026 INTERIM REPORT

I Important Notice, Table of Contents and Definitions

The board of directors (the “Board”), the directors (the “Directors”), and the senior management (the “Senior Management”) of the Company hereby warrant the truthfulness, accuracy and completeness of the contents of the interim report, guarantee that there are no false representations, misleading statements or material omissions contained in this interim report, and are jointly and severally responsible for the liabilities of the Company.

Jiang Yanshan, head of the Company, Zhu Yanli, head in charge of accounting, and Zhang Bo, head of the accounting department (Accounting Officer), declare that they warrant the truthfulness, accuracy and completeness of the financial report in the interim report.

All Directors have attended the board meeting to review this interim report. This interim report has been reviewed by the Audit Committee of the Company.

The Company is exposed to various risk factors such as macro-economic fluctuation, adjustment of state policy and competition in the industry. Investor should be aware of investment risks. For further details, please refer to the risk exposures of the Company and the measures to be taken to address them as set out in Management Discussion and Analysis.

The Company does not propose distribution of cash dividends or bonus shares, and there will be no increase of share capital from reserves.

I Important Notice, Table of Contents and Definitions

Table of Contents I Important Notice, Table of Contents and Definitions 1 II Company Profile and Key Financial Indicators 5 III Management Discussion and Analysis 9 IV Corporate Governance, Environment and Society 33 V Material Matters 38 VI Changes in Share Capital and Shareholders 60 VII Bonds 68 VIII Financial Report 69

I Important Notice, Table of Contents and Definitions

Documents Available for Inspection

(I) The financial statements signed and sealed by the head of the Company, the head in charge of accounting and the head of the accounting department;

(II) the interim report signed by the legal representative;

(III) the original copies of all of the documents and announcements of the Company disclosed on the designated website as approved by the China Securities Regulatory Commission during the reporting period;

(IV) the interim report disclosed on The Stock Exchange of Hong Kong Limited; and

(V) other relevant information.

I Important Notice, Table of Contents and Definitions

Definitions

II Company Profile and Key Financial Indicators

I. Company profile

II. Contact persons and contact methods

III. Other information

1. Contact methods of the Company

Whether the registered address, office address, postal code, website, email and others of the Company changed during the reporting period

☑ Applicable ☐ Not applicable

2. Information disclosure and places for inspection

Whether the information disclosure and places for inspection changed during the reporting period

□ Applicable ☑ Not applicable

There was no change of the websites of the stock exchanges and the names and websites of the media where the Company discloses its interim report, and places for inspection of the Company's interim report during the reporting period. Please refer to the 2025 annual report for details.

II Company Profile and Key Financial Indicators

III. Other information (Cont'd)

3. Other relevant information

Whether other relevant information changed during the reporting period

☑ Applicable ☐ Not applicable

During the reporting period, the Company changed its investor hotline number and facsimile number. After the change, the investor hotline is 0536-5135888 and the facsimile number is 0536-5135688.

For details, please refer to the relevant announcement disclosed by the Company on CNINFO on 14 April 2026 (Announcement No.: 2026-026) and the announcement disclosed by the Company on the website of Hong Kong Stock Exchange on 13 April 2026.

IV. Major accounting data and financial indicators

Retrospective adjustment to or restatement of the accounting data for prior years by the Company

□ Yes ☑ No

II Company Profile and Key Financial Indicators

V. Differences in accounting data under domestic and overseas accounting standards

1. Differences between the net profit and net assets disclosed in accordance with international accounting standards and China accounting standards in the financial report

□ Applicable ☑ Not applicable

There was no difference between the net profit and net assets disclosed in accordance with international accounting standards and China accounting standards in the financial report during the reporting period.

2. Differences between the net profit and net assets disclosed in accordance with overseas accounting standards and China accounting standards in the financial report

□ Applicable ☑ Not applicable

There was no difference between the net profit and net assets disclosed in accordance with overseas accounting standards and China accounting standards in the financial report during the reporting period.

VI. Items and amounts of extraordinary gains or losses

☑ Applicable ☐ Not applicable

II Company Profile and Key Financial Indicators

VI. Items and amounts of extraordinary gains or losses (Cont'd)

Details of other gain or loss items that fall within the definition of extraordinary gain or loss:

□ Applicable ☑ Not applicable

The Company did not have details of other gain or loss items that fall within the definition of extraordinary gain or loss.

Explanation on the extraordinary gain or loss items as illustrated in the Explanatory Announcement on Information Disclosure for Companies Offering Their Securities to the Public No.1 – Extraordinary Gains or Losses defined as its recurring gain or loss items

☑ Applicable ☐ Not applicable

III Management Discussion and Analysis

I. Principal activities of the Company during the reporting period

1. Industry Overview

The Company operates within the paper and paper products industry. As a large pulp and paper manufacturer in China featuring a complete industrial chain, leading scale, and a high degree of pulp and paper integration, the Company operates multiple production bases across Shandong, Guangdong, Hubei, Jiangxi, Jilin and other regions. It offers a diverse range of machine-made paper products, with core products including cultural paper, coated paper and white cardboard. The Company ranks at the forefront of the industry in terms of production capacity, product quality, technical equipment, and brand influence.

The paper industry is a crucial foundational sector of the national economy and is essential for sustaining daily livelihoods. It is distinctly characterised as a technology-capital-resource intensive industry. Its product applications penetrate all aspects of social and economic activities. They are deeply integrated into the defence and military industry (special functional materials), cultural communication (publishing and printing), industrial and agricultural production (supporting materials), modern logistics (packaging products) and other key areas of the national economy and are closely related to everyday consumer spending. As a typical cyclical industry, the prosperity of the paper industry is closely tied to the broader economic trend. The consumption level of paper and paperboard has become one of the important indicators to measure a country's level of modernisation and civilised development, and is widely recognised by the international community as a “social and economic barometer”.

During the reporting period, new production capacity in the domestic paper industry continued to be put into operation, driving a continuous expansion in overall market supply. With varying demand across downstream application segments, the industry as a whole remained in a phase of bottoming out amidst cyclical volatility and adjustments. Against this backdrop, phasing out obsolete and inefficient production capacity, deepening the green and low-carbon upgrade of the industry, and promoting the industrial structure towards quality improvement and efficiency enhancement remained the core development directions for the transformation and upgrading of the paper industry. In terms of supply, the successive commissioning of new production capacity in regions such as South China and Jiangxi drove a continuous rise in market supply in the first half of the year, sustaining the overcapacity pressure across the cultural paper and white cardboard markets. In terms of demand, influenced by policies such as the implementation of education burden-relief policies and strict controls over the total number of supplementary teaching materials, coupled with the ongoing substitution of traditional art books and promotional flyers by digital reading and online advertising, the overall demand for cultural paper and coated paper remained weak, putting product prices under pressure. Despite being in the traditional low-demand season for white cardboard, the continuous advancement of the “paper-over-plastic” policy and the EU plastic ban offset the impact of sluggish domestic demand to a certain extent. In terms of cost, wood pulp, as the core raw material, served as the dominant cost driver for the industry. According to SCI, wood pulp supply was generally ample in the first half of 2026, and pulp inventories at eight major domestic ports remained at a high level of over 2.30 million tonnes for an extended period. Such ample market supply pushed the overall price benchmark of pulp into a sustained downtrend. In particular, average prices for softwood pulp declined year on year, dragged down by weak demand for cultural paper, while hardwood pulp prices rose slightly, supported by inelastic demand for blending and substitution in paper production. In the second quarter, prices for both types of pulp moved downward in tandem. In terms of policy, high-standard industry policies continued to be introduced throughout the reporting period, with regulatory constraints becoming increasingly stringent. With the paper industry listed in the national carbon market expansion plan, tightening carbon emission control policies raised the carbon-related operating costs for small, energy-intensive paper enterprises, compelling the accelerated elimination of inefficient and obsolete capacity. The 50% VAT rebate policy for the comprehensive utilisation of waste paper, which came into effect in July 2026, further tightened regulatory oversight over the industry’s waste paper recycling and reuse operations. Cost pressures intensified for small and medium-sized paper enterprises without proper recycling qualifications or compliant operating practices, while the cost competitiveness of compliant industry leaders was further enhanced. At the same time, the implementation of the new Ecological and Environmental Code in August 2026 comprehensively raised the emission control standards for pollutants such as wastewater, solid waste, waste gas and odour across the industry. Small paper manufacturers lacking supporting environmental protection facilities or failing to meet environmental standards would be forced out of the market at an accelerated rate. The implementation of these series of industrial policies continued to drive industry resources towards leading enterprises with an integrated pulp and paper layout, balanced multi-category production capacity, and a comprehensive environmental compliance system. According to official data from the National Bureau of Statistics, from January to June 2026, China’s paper and paper products industry generated revenue of RMB689.79 billion, representing a year-on-year increase of 5.5%. Operating costs amounted to RMB607.73 billion, representing a year-on-year increase of 5.2%, while total profits amounted to RMB19.61 billion, representing a year-on-year increase of 27.5%.

III Management Discussion and Analysis

I. Principal activities of the Company during the reporting period (Cont'd)

1. Industry Overview (Cont'd)

Looking ahead to the second half of 2026 and beyond, the paper industry is expected to embark on a positive development trajectory, characterised by a gradual recovery from the cyclical bottom and continuous optimization of the industry landscape. Industry growth is transitioning from extensive capacity expansion to a high-quality development model focusing on green transition, high-end positioning and integrated industrial chains, with structural growth opportunities becoming increasingly prominent across the industry. As China's green manufacturing system continues to improve, the paper industry is optimising and iterating its product structure towards higher value-added and premium offerings, accelerating the development of new quality productive forces. Meanwhile, with the deepening advancement of digital and intelligent transformation across the industry, the digital and intelligent capabilities of the entire industrial chain continue to upgrade, and technology-empowered innovation will continue to consolidate the core drivers for cost reduction, quality improvement and efficiency enhancement across the industry. At the same time, supported by a macro environment of a continuously improving domestic consumption loop and a steady recovery in domestic demand, the profitability benchmark of the paper industry is expected to rise steadily.

Going forward, the Company will closely align with the “One-Two-Five” development strategy. Leveraging the competitive advantage of its fully integrated industry chain, the Company will deepen its presence in its principal activities of pulp production and papermaking, enhance refined cost management, strengthen end-to-end cost reduction and efficiency enhancement as well as all-round new product development, accurately capture structural growth opportunities in the industry, uphold a prudent operational approach, and continuously drive the Company towards high-quality and sustainable development.

2. Business overview of the Company

The Company is a large modern conglomerate principally engaged in pulp production and paper making and committed itself to implementing a pulp and paper integration strategy. The Company has production bases in Shandong, Guangdong, Hubei, Jiangxi, Jilin and other places, and is the first domestic paper making enterprise that achieves a balance between pulp production and paper making capacity. Its machine-made paper products cover more than 200 types, including culture paper, coated paper, white cardboard, copy paper, industrial paper, special paper, and household paper. It is the enterprise with the largest variety of products and the most complete products in the domestic paper industry. During the reporting period, the machine-made paper business was the major source of revenue and profit of the Company.

During the reporting period, the Company proactively adapted to market changes and strengthened refined management. Through a series of measures including formulating clear strategic operational objectives, streamlining its organisational structure, improving management systems, as well as coordinating and optimising logistics and transportation, advancing process technology upgrades, improving independent equipment maintenance capabilities, and expanding diversified sales channels, the Company achieved a balance between production and sales, further reduced costs and enhanced efficiency, and significantly narrowed its overall operating losses. At the same time, relying on the full resumption of operation and production across various production bases, the Company achieved a substantial year-on-year increase in production and sales volumes, and a significant year-on-year decrease in suspension losses. In addition, the Company actively negotiated with creditors for further interest rate reductions, resulting in a marked decrease in finance expenses. Coupled with the divestiture of all assets related to the financial leasing business in the fourth quarter of the prior year, which contributed to a significant year-on-year decrease in credit impairment losses and asset impairment losses for the reporting period, the Company recorded revenue of RMB6,865 million and net profit attributable to shareholders of the Company of a loss of RMB786 million from January to June 2026. Looking ahead, the Company will steadfastly implement the “One-Two-Five” strategic development plan and remain committed to its goal of “building a top-tier management team and delivering outstanding business performance”. With a focus on “cost reduction and efficiency enhancement, product innovation, and compliance prevention”, the Company will strengthen team building, deepen management reform and innovation, optimise the industrial ecosystem chain, restructure the production management system, step up efforts to dispose of non-core assets, cultivate brand credibility, and go all out to achieve high-quality and sustainable development of the Company.

I. Principal activities of the Company during the reporting period (Cont'd)

3. Major products and their application

Major brands of machine-made paper products of the Company and their applications are set out below:

III Management Discussion and Analysis

I. Principal activities of the Company during the reporting period (Cont'd)

1. White cardboard of “LIYA” series, white cardboard and ivory cardboard of “LIPIN” and “POPLAR” series, high bulk cardboard and ivory cardboard of “LIZZY” and “BAIYU” series, and super high bulk cardboard of “LIYING” and “BAIYU” series

2. Food package board of “LIYA” and “LIZZY” series

3. Major products and their application (Cont'd)

III Management Discussion and Analysis

II. Analysis of liquidity, financial resources and capital structure disclosed in accordance with the listing rules of Hong Kong Stock Exchange

As at 30 June 2026, the Group's current ratio was 18.43% . The quick ratio was 8.70% . The gearing ratio (i.e. total liabilities divided by total assets) was 96.09% .

There was no significant seasonal trend for capital requirements of the Group.

The Group's sources of capital primarily came from cash inflow generated from operating activities, and borrowings from financial institutions.

As at 30 June 2026, the total bank borrowings of the Group were RMB28,920 million (as at the end of the prior year: the total bank borrowings of the Group was RMB28,512 million). As at 30 June 2026, the Group had monetary funds of RMB187 million (as at the end of the prior year: RMB210 million) in total (For the breakdown of monetary funds, please refer to VIII. VII. 1 Note on Monetary Funds in this report).

In order to strengthen financial management, the Group had established a comprehensive and rigorous system of internal control for cash and liquidity management. The Group was in a strong position in terms of both liquidity and solvency. As at 30 June 2026, the Group had 8,946 employees. The total staff remuneration for the first half of 2026 amounted to RMB486.9419 million (The Group had 8,992 employees in 2025. The total staff remuneration for 2025 amounted to RMB864.9744 million).

There will be no major investment project of the Company during the second half of 2026.

The Company's existing bank deposits were primarily used for production and operation, engineering projects and investment in technology research and developments.

For details of the assets with restricted ownership of the Group as at 30 June 2026, please refer to VIII. VII. 24. Assets with Restricted Ownerships or Right to Use in this report.

III Management Discussion and Analysis

III. Analysis of Core Competitiveness

After innovation and development for more than 60 years, the Company has created a strong brand influence and cultivated a solid comprehensive competitiveness. It promotes product upgrades, enhances R&D strength and improves core competitiveness by creating competitive advantages in an industry chain featured with pulp and paper integration. The details of the core competitiveness of the Company are as follows:

1. Advantages of pulp and paper integration

The Company has unwaveringly implemented a pulp and paper integration strategy. At present, its major production bases located in Shouguang, Zhanjiang, and Huanggang are equipped with chemical pulp production lines. It is the first modern large-scale paper making company that basically realises wood pulp self-sufficiency in China. A complete supply chain not only creates cost advantage for the Company, but also safeguards the safety, stability and quality of upstream raw materials, and renders strong support for the Company to maintain its long-term competitiveness.

2. Scale advantages

The paper industry is a typical capital-intensive and technology-intensive industry that follows the laws of economies of scale. The Company's large-scale production bases can be found in the major markets in Southern, Central, Northern, and Northeast China, where reasonable production scale creates the marginal cost advantage. Meanwhile, by leveraging the scale advantages, the Company has built an international logistics centre and railway dedicated lines and docks, and constructed a comprehensive logistics service platform covering container shipping, bonded warehousing, transfer and storage at stations and terminals, realising the improvement of logistics efficiency and the stability of logistics costs.

3. Product advantages

The Company is an enterprise that offers the widest and the most complete product range in the paper industry in China. The product series include culture paper, white cardboard, coated paper, copy paper, household paper, thermal paper, etc. The Company has attached great importance to technology research and development. By introducing the most advanced pulping and paper making technology and equipment in the world, it persists in technological innovation and work process optimisation, so as to help improve product quality and structure upgrade, continuously improve the brand value of Chenming, and enhance brand benefits.

4. Industry layout advantages

Closely centring on the pulp and paper integration strategy, the Company has integrated resources and established its production bases in the core target market to promote the coordinated development of all regions. Currently, the Company adopts the market-oriented approach and has production bases in Shandong, Guangdong, Hubei, Jiangxi, Jilin and other places. With all products sold at close distances, the Company substantially reduces transportation costs while improving service efficiency, achieving a “win-win” between the Company and its users.

5. Advantages in technical equipment

The Company highly values the introduction and upgrades of technical equipment, actively pushes equipment and technology upgrade forward, and has built pulping and paper making production lines with industry-leading scale as well as advanced process and equipment capabilities. The Company's major production equipment has been imported from internationally renowned manufacturers, including Metso and Valmet of Finland, Voith of Germany, Andritz of Austria, etc. and reached the advanced international level, thus ensuring production efficiency and product quality.

III Management Discussion and Analysis

III. Analysis of Core Competitiveness (Cont'd)

6. Advantages in research and innovation

The Company has scientific research institutions including a post-doctoral working station, a collaborative innovation centre for cleaner production and refinery of light industry bio-based products, and the Shandong Pulp and Paper Making Engineering Lab. At the same time, the Company actively carries out in-depth industry-university-research cooperation with prestigious domestic universities and research institutes, continuously improves technical innovation capabilities and scientific research and development levels, and develops a series of new products with high technology contents and high added value as well as proprietary technologies. As at the end of the reporting period, the Company had obtained more than 500 national patents, including 46 invention patents, 7 national new products, 16 scientific and technological progress awards above the provincial level, 5 national scientific and technological projects and 76 provincial-level technological innovation projects. The Company took the lead in obtaining the ISO9001 quality system certification, the ISO14001 environmental protection system certification and the FSC-COC international forest system certification among domestic peers.

7. Advantages in environmental governance capacity

The Company has actively upheld the concept of “lucid waters and lush mountains are invaluable assets”, adhered to the development idea of “placing green development and environmental protection as its priority”, always regarded environmental protection as the “life project”, clung to the green development model of clean production and resource recycling, and earnestly shouldered the corporate responsibility for environmental protection. In recent years, the Company and its subsidiaries have invested more than RMB8 billion in total in environmental protection, and have constructed the pollution treatment facilities including the alkali recovery system, reclaimed water treatment system, reclaimed water reuse system, white water recovery system and black liquor comprehensive utilisation system. The Company adopts the world’s most advanced “ultrafiltration membrane + reverse osmosis membrane” technology to complete the reclaimed water recycling membrane treatment project, which is the largest reclaimed water reuse project in the domestic paper industry. The reclaimed water recycle rate attains the industry-leading level. Meanwhile, in response to the “dual carbon” policy, the Company actively introduces photovoltaic power generation and biomass power generation, continuously optimises the energy structure and improves the level of low-carbon production.

IV. Analysis of principal operations

Overview

Whether it is the same as the disclosure in the principal activities of the Company during the reporting period

☑ Yes □ No

Please see “I. Principal activities of the Company during the Reporting Period” for relevant information.

Year-on-year changes in major financial information

Unit: RMB

III Management Discussion and Analysis

IV. Analysis of principal operations (Cont'd)

Year-on-year changes in major financial information (Cont'd)

Significant change in structure or source of profit of the Company during the reporting period □ Applicable ☑ Not applicable

There was no significant change in structure or source of profit of the Company during the reporting period.

IV. Analysis of principal operations (Cont'd) Components of revenue

Industries, products or regions accounting for over 10% of revenue or operating profit of the Company

☑ Applicable ☐ Not applicable

III Management Discussion and Analysis

IV. Analysis of principal operations (Cont'd) Components of revenue (Cont'd)

Under the circumstances that the statistics specification for the Company's principal operations data experienced adjustment in the reporting period, the principal activity data upon adjustment of the statistics specification as at the end of the reporting period in the latest year

□ Applicable ☑ Not applicable

III Management Discussion and Analysis

V. Analysis of non-principal operations

☑ Applicable ☐ Not applicable

Unit: RMB

III Management Discussion and Analysis

VI. Analysis of assets and liabilities (Cont'd)

1. Held-for-trading financial assets (excluding derivative financial assets) 38,791,121.74 -9,398,839.96 -166,453,639.67 -1,121,171.90 28,271,109.88

2. Major assets overseas

□ Applicable ☑ Not applicable

3. Assets and liabilities measured at fair value

☑ Applicable ☐ Not applicable

Whether there were any material changes on the measurement attributes of major assets of the Company during the reporting period

□ Yes ☑ No

III Management Discussion and Analysis

VI. Analysis of assets and liabilities (Cont'd)

4. Restriction on asset rights as at the end of the reporting period

Unit: RMB

III Management Discussion and Analysis

VII. Analysis of investments

1. Overview  Applicable □ Not applicable Investments during the reporting period (RMB) Investments during the corresponding period of prior year (RMB) Change 98,000,000.00 646,248,442.80 -84.84%

2. Material equity investments acquired during the reporting period

☑ Applicable ☐ Not applicable

Unit: RMB

3. Material non-equity investments during the reporting period

□ Applicable ☑ Not applicable

III Management Discussion and Analysis

VII. Analysis of investments (Cont'd)

4. Financial asset investment

(1) Security investments

☑ Applicable ☐ Not applicable

(2) Derivative investments

□ Applicable ☑ Not applicable

The Company did not have any derivative investments during the reporting period.

5. Use of proceeds

□ Applicable ☑ Not applicable

The Company did not use any proceeds during the reporting period.

III Management Discussion and Analysis

VIII. Disposal of material assets and equity interest

1. Disposal of material assets

□ Applicable ☑ Not applicable

2. Disposal of material equity interest

☑ Applicable ☐ Not applicable

III Management Discussion and Analysis

IX. Analysis of major subsidiaries and investees

☑ Applicable ☐ Not applicable

Major subsidiaries and investees accounting for over 10% of the net profit of the Company

Unit: RMB

Acquisition and disposal of subsidiaries during the reporting period

☑ Applicable ☐ Not applicable

Particulars of major subsidiaries and investees

During the reporting period, all production bases resumed operation and production in full with a significant year-on-year increase of sales volumes, while losses due to production stoppages fell substantially year on year, thereby significantly reducing net losses of Zhanjiang Chenming and Shouguang Meilun year on year. Moving forward, the Company will continue to implement measures to reduce costs and improve efficiency, further optimise its product mix, enhance product quality, and step up efforts to develop overseas markets, thereby achieving a balance between production and sales, and further improving corporate profitability.

III Management Discussion and Analysis

X. Structured entities controlled by the Company

□ Applicable ☑ Not applicable

XI. Risk factors of the Company and the measures to be taken

1. Macroeconomic policy risk

As a crucial basic raw materials industry within the national economy, the paper industry's development is closely tied to national macroeconomic policies. In recent years, relevant competent authorities have issued a series of policies and regulations, including the Policy on the Development of the Paper Industry, aiming to improve the industrial structure, elevate product technology, promote energy conservation and emission reduction, and phase out outdated capacity. These have provided strong policy support for the industry's high-quality development. As China continues to transform and upgrade its economic structure and deepens the implementation of strategies such as the “dual-carbon” goals and environmental governance, future policies of the paper industry may undergo further adjustments. For instance, stricter requirements regarding environmental standards, raw material supplies and capacity controls could be introduced, potentially impacting the Company's production and operations as well as technological upgrades. Furthermore, shifts in macroeconomic policies, such as fiscal and financial policies, bank interest rates and import/export regulations, will also affect the Company's operations and development.

In response to the aforesaid risks, the Company will strengthen its policy analysis and closely monitor dynamic shifts in national industrial, fiscal and financial policies. It will remain anchored to its core direction of developing its principal business of pulp production and papermaking, adhere to an innovation-driven strategy, and align with policy directives to optimise its industrial structure and regional footprint. By building a highly collaborative and efficient industrial system, it aims to address the risks associated with industrial policy adjustments. Meanwhile, the Company will continue to strengthen lean management, control costs and expenses, broaden financing channels, optimise its capital structure, and improve overall operational quality to counter any risks arising from macroeconomic policy adjustments, including those in fiscal and financial domains.

2. Environmental risk

The transition towards green and low-carbon practices has become the core strategic direction for high-quality development in the paper industry. In recent years, the government has continuously intensified environmental governance, leading to increasingly stringent environmental requirements. Relevant competent authorities successively issued a series of policy documents, including the Guiding Opinions on Accelerating the Establishment and Improvement of a Green, Low-Carbon and Circular Economic System and the Opinions on Accelerating the High-Quality Development of Manufacturing Service Industry, to guide the green transformation of the industry. The Ecological and Environmental Code of the People's Republic of China, adopted on 12 March 2026 at the Fourth Session of the 14th National People's Congress and effective from 15 August 2026, establishes six fundamental principles, namely prevention first, systematic governance, ecological priority, green development, public participation, and liability for damage, and coordinates governance over pollution prevention and control, ecological protection, and green and low-carbon development, providing a legal basis for the green transformation of energy-intensive and high-emission industries. As national environmental standards rise, companies in the industry further increase their investments in pollution control, which may raise the operating costs in the short term.

In response to the aforesaid risks, the Company firmly implements the national “dual carbon” policy and adheres to the development philosophy of “placing green development and environmental protection as its priority”. The Company integrates environmental requirements throughout its entire production and operational processes, widely adopting new technologies for energy conservation and emission reduction to ensure clean production and compliant waste discharge. At present, the Company adopts advanced “ultrafiltration membrane + reverse osmosis membrane” technology in the world and has completed a reclaimed water recycling membrane treatment project. The reclaimed water recycle rate exceeds 75%, with the treated water quality meeting drinking water standards. Meanwhile, the Company actively explores innovative models for comprehensive resource utilisation and circular industrial development by building a circular economy ecosystem of “resource – product – renewable resource”. It continuously refines its internal environmental management system and strengthens full-process environmental monitoring and dynamic control to prevent compliance risks.

III Management Discussion and Analysis

XI. Risk factors of the Company and the measures to be taken (Cont'd)

3. Risk of price fluctuation of raw materials

The major raw materials of the paper industry are wood pulp and wood chips. Given China's relative shortage of wood resources, the industry relies heavily on imported wood pulp and wood chips, making its development susceptible to fluctuations in international prices of wood pulp and wood chips. If the price of raw materials fluctuates sharply in the future, it will bring uncertainty to the control of production costs of papermaking enterprises, which will affect the business performance of these enterprises.

In response to the aforesaid risks, the Company remains committed to its strategic layout of a fully integrated pulp and paper industrial chain. By operating its own wood pulp production lines at its production bases in Shouguang, Zhanjiang, Huanggang and other regions, the Company ensures the stability and autonomy of its upstream raw material supply, thereby reducing reliance on external procurement. Meanwhile, the Company has established a robust supply chain management mechanism, comprehensively advancing the digitalised, standardised, and refined construction of its procurement processes, boosting procurement transparency and operational efficiency. It has implemented refined category-based management and control over procurement lots, systematically improved its supplier database, and strengthened the competitive mechanism among suppliers to secure optimal pricing, thereby effectively enhancing the quality of supplies and cost control, while minimising the impact of fluctuations in raw material prices on its production and operations.

4. Risk of intensified market competition

Although the paper industry has seen an accelerated phase-out of outdated production capacity after several rounds of environmental policy enforcement, this has continuously optimised the overall industry landscape and further improved market concentration. However, there remains the phenomenon of a large number of enterprises within the industry, structural and cyclical overcapacity for certain products, a predominance of mid-to-low-end products, and product homogeneity. During the reporting period, the cultural paper market shrank due to market conditions, with selling prices dropping to historical lows, and the intensified competition in the industry also posed potential pressure on the Company's profit margins.

In response to the aforesaid risks, the Company focuses on technological innovation and product upgrading as its core drivers, continuously improve its production equipment, processing design and manufacturing techniques, and deepen its lean production management system to comprehensively enhance product quality stability and generate brand value. Meanwhile, the Company remains market-oriented, accurately identifying changes in downstream consumer demand to optimise its product portfolio. By manufacturing highly marketable products that meet diverse customer needs, the Company strives to develop a product structure characterised by high quality, precision, specialty, differentiation, and personalisation, to increase product added value and profitability. In addition, the Company leverages market competition to drive team performance, strengthen the professional capabilities of its sales workforce and expand its diversified sales channels, comprehensively enhancing its risk resilience to hedge against market competition volatility.

III Management Discussion and Analysis

XI. Risk factors of the Company and the measures to be taken (Cont'd)

5. Capital risk

The paper industry is capital-intensive. In recent years, the industry has seen concentrated capacity expansion, insufficient downstream demand and prominent supply-demand imbalances. This has caused a continuous decline in the prices of major paper products, especially white cardboard, resulting in lower profitability for paper enterprises. Against this backdrop, enterprises with high debt levels face increased operational pressure during industry downturns. If they encounter situations such as loan delays by financial institutions or the withdrawal of strategic investors, it could trigger temporary liquidity shortages. This, in turn, may lead to risks such as debt defaults, frozen accounts, litigations and other issues that could impact the Company's operations.

In response to the aforementioned risks, the Company focuses on its principal responsibilities and operations, comprehensively deepens reforms and innovation in internal management, and vigorously advances measures to reduce costs and enhance efficiency throughout the entire process, thereby steadily improving the profitability of its principal activities. Meanwhile, it has adopted a range of measures to broaden its financing channels, proactively engaged with creditors, maintained regular communication, and actively negotiated and implemented optimised repayment plans, including loan extensions, interest rate reductions and extended interest settlement cycles, to effectively reduce financial costs and alleviate the Company's debt repayment pressures and operational burdens. In addition, the Company has stepped up its efforts to dispose of non-core and underperforming assets, continuously optimising its asset structure, increasing cash inflows, and enhancing its risk resilience to ensure the Company's operations are sustainable and stable.

XII. Development and implementation of a market value management system and a valuation enhancement plan

Whether the Company has developed a market value management system?

☑ Yes □ No

To effectively strengthen market value management as a listed company, further standardise market value management practices, fully safeguard the legitimate rights and interests of the Company, investors and other stakeholders, and response to the encouragement under the Guidelines No. 10 for the Regulation of Listed Companies — Market Value Management for listed companies to establish a market value management system, the Company has formulated the Market Value Management System of Shandong Chenming Paper Holdings Limited in accordance with the Company Law of the People's Republic of China, the Securities Law of the People's Republic of China, the Rules Governing the Listing of Stocks on Shenzhen Stock Exchange and other relevant laws and regulations, which was considered and approved at the twelfth meeting of the tenth session of the Board held on 31 March 2025.

For details, please refer to the Market Value Management System of Shandong Chenming Paper Holdings Limited disclosed on CNINFO on 1 April 2025 and the overseas regulatory announcement disclosed on the website of Hong Kong Stock Exchange on 31 March 2025.

Whether the Company has disclosed a valuation enhancement plan?

☑ Yes □ No

To enhance the Company's investment value and shareholder returns, promote a reasonable reflection of the Company's intrinsic value in investment value, boost investor confidence, safeguard the interests of all shareholders, and facilitate high-quality development of the Company, the Valuation Enhancement Plan of Shandong Chenming Paper Holdings Limited was considered and approved at the twelfth meeting of the tenth session of the Board held by the Company on 31 March 2025. The specific measures under the Valuation Enhancement Plan are as follows:

III Management Discussion and Analysis

XII. Development and implementation of a market value management system and a valuation enhancement plan (Cont'd)

(i) Financial optimisation

1. Debt restructuring: The Company will take the initiative to communicate with its creditors for extension of loan terms and reduction of interest rates, so as to alleviating the pressure on loan repayment in the short term. Provincial debt committees were established to agree on no loan cancellations or delays and further negotiate new credit facilities in the form of a syndicated loan specifically for resumption of operation and production, and interest rate reductions and extensions of debts to ensure sufficient liquidity for operations and production resumption of the Company.

2. Asset disposal: The Company will make every effort to revitalise and dispose of its existing assets. The Company will strengthen the disposal of non-core assets, establish an asset management centre, adjust and optimise internal management, divide asset disposal management areas by region, and assign responsibilities to individuals to improve the efficiency of asset disposal. The Company will also step up efforts to recover outstanding debts, and pursue debtors with realisable assets through negotiation or legal means. For accounts receivable that are difficult to recover, the Company will resort to judicial channels to resolve the issues, and striving to improve its liquidity.

3. Cost control: The Company will strengthen internal management, streamline production processes, and reduce costs in raw material procurement, energy consumption, and labour. For example, the Company will secure favourable procurement prices via long-term and stable cooperation with suppliers, and adopts advanced production equipment and technology to boost productivity and lower per-unit production costs.

(ii) Business optimisation

1. Productivity recovery and adjustment: The Company will accelerate the resumption of production at Shouguang, Zhanjiang, Jilin and other key production bases, striving to achieve resumption of work and production as soon as possible to improve operating cash flow. The Company will adjust its product mix according to changes in market demand by reducing excess production capacity and increasing production focus on high-value-added products such as special paper to improve profitability.

2. Technological innovation and R&D: The Company will increase investment in the R&D of green paper products and special paper production technologies to develop new products with strong market competitiveness. Leveraging its advantages of “pulp and paper integration”, the Company will develop pulp and paper products with greater environmental benefits and high performance, so as to meet the market demand for green and environmentally friendly paper products, and enhance added value and market competitiveness of products.

III Management Discussion and Analysis

XII. Development and implementation of a market value management system and a valuation enhancement plan (Cont'd)

(iii) Market and brand development

1. Market expansion: The Company will strengthen market research to gain deeper insights into domestic and international market demands, while expanding into emerging markets. Leveraging its advantages in scale and product quality, the Company will intensify promotional efforts in global markets to increase export share and enhance its international market influence.

2. Brand building: The Company will build a good corporate brand image by improving product quality, enhancing after-sales service, and participating in public welfare initiatives. The Company will actively promote its green and sustainable philosophy as well as technological innovation achievements to enhance its brand awareness and reputation, thereby increasing consumer recognition and loyalty toward its products.

3. Investor relations management: The Company will regularly disclose updates on information including operational performance and development strategies while strengthening communication and engagement with investors. Through investor roadshows, industry seminars and other events, the Company will showcase its growth potential and investment value to bolster investor confidence and attract more long-term investors.

4. Information disclosure optimisation: The Company will ensure the timeliness, accuracy and completeness of information disclosure by releasing operational data, key project progress, strategic plans and other information on a regular basis to meet investor needs to know. Through periodic reports, interim announcements, investor briefings and other channels, the Company will demonstrate its core competitiveness and growth prospects to the market.

(iv) Strategic investment and cooperation

1. Strategic investor introduction: The Company will actively engage with domestic and international strategic investors to introduce capital, technology and management expertise, and optimise its shareholding structure and corporate governance. The introduction of strategic investors will provide additional resource support for the Company, thereby facilitating business development and valuation enhancement of the Company.

2. Industry consolidation and collaboration: The Company will pay attention to high-quality enterprises within the industry and pursue mergers, acquisitions and restructuring as and when appropriate to achieve resource integration and scale expansion, thereby strengthening its competitive position in the industry. The Company will also enhance collaboration with upstream and downstream partners to establish long-term, stable relationships, jointly navigate market changes and realise mutual benefits.

In conclusion, the Company firmly upholds an investor-centric philosophy, diligently implements its valuation enhancement plan, and remains committed to long-term, sustainable, healthy and high-quality development. By reinforcing accountability, the Company effectively safeguards the interests of its investors.

XIII. Implementation of the “Quality and Return Enhancement” action plan

Whether the Company has disclosed its “Quality and Return Enhancement” action plan?

□ Yes ☑ No

IV Corporate Governance, Environment and Society

I. Changes of Directors and Senior Management of the Company

□ Applicable ☑ Not applicable

There was no change of Directors and Senior Management of the Company during the reporting period. Please see the 2025 annual report for details.

II. Profit distribution and conversion of capital reserves into share capital during the reporting period

□ Applicable ☑ Not applicable

The Company does not propose distribution of cash dividends and bonus shares, and increase of share capital from reserves for the interim period.

III. Implementation of the equity incentive plan, employee shareholding plan or other employee incentive measure of the Company

☑ Applicable ☐ Not applicable

1. Equity incentive

In order to further improve the corporate governance structure of the Company, promote the establishment and improvement of long-term incentive and restraint mechanisms, fully mobilise the enthusiasm, responsibility and mission of the directors, core technology and business key personnel, and bond the interests of Shareholders, the Company and individual operators together effectively, making all parties to attend to the long-term development of the Company and work together for it; at the same time, in order to further promote the long-term behaviour of decision-makers and operators, promote the sustainable and steady development of the Company, and maximise the value of the Company and shareholders, the 2020 Restricted A Share Incentive Scheme was formulated, on the premise of fully protecting the interests of Shareholders and on the principle of income equivalent to contribution, and in compliance with the relevant requirements under the laws and regulations such as the Company Law and the Securities Law, regulatory documents and the Articles of Association, combined with the existing management systems of the Company, including the remuneration mechanism and performance appraisal system.

The validity period of the Incentive Scheme shall commence on the date on which the registration of the grant of the restricted shares is completed and end on the date on which all the restricted shares granted to the participants are unlocked or repurchased and cancelled, which shall not exceed 60 months. On 14 July 2020, the Company completed the registration of the restricted shares granted under the Scheme with the Shenzhen Branch of China Securities Depository and Clearing Corporation Limited. The lock-up periods of the restricted shares granted under the Incentive Scheme shall be 24 months, 36 months and 48 months from the date of registration of the restricted shares under the grant. The Incentive Scheme lapsed from 14 July 2025.

In November 2024, pursuant to the 2020 Restricted A Share Incentive Scheme (Draft), the Company made payments to all participants for the repurchase of restricted shares not yet unlocked for the third unlocking period under the 2020 Restricted A Share Incentive Scheme, and handled the share repurchase and cancellation procedures in accordance with the procedures. As at the end of the reporting period, the procedures for the share repurchase, transfer and cancellation of the 6,900,000 restricted A shares held by 2 participants (both of whom have resigned) with the Shenzhen Branch of China Securities Depository and Clearing Corporation Limited were still not completed as they were subject to judicial freeze. Save as disclosed above, during the reporting period, no other participants held any options or awards under the scheme.

2. Implementation of the employee shareholding plan □ Applicable ☑ Not applicable

3. Other employee incentive measure □ Applicable ☑ Not applicable

IV Corporate Governance, Environment and Society

IV. Disclosure of environmental information

Whether the listed company and its major subsidiaries are included in the list of enterprises subject to mandatory environmental information disclosure?

☑ Yes □ No

Number of enterprises included in the list of enterprises subject to mandatory environmental information disclosure (entities) 7

IV Corporate Governance, Environment and Society

V. Social responsibility

An enterprise is not merely a market entity with independent legal personality, but also a core carrier of responsibilities for bearing people's livelihoods and safeguarding social stability. Looking back on the arduous journey of resuming operation and production across various production bases, the Company has developed a deeper understanding of its social responsibility mission as an industrial enterprise. During the reporting period, the Company firmly anchored its overall development under Party-building guidance. In alignment with the overall deployment of the Company's Party committee and the new management team, it reshaped the corporate culture of Chenming in the new area, consolidated the enterprise spirit of “self-revolution, adaptive innovation, and revitalisation”, drove the full resumption of production across its five major production bases, implemented a refined cost reduction and efficiency enhancement system, deepened internal organisational structure reforms, stabilised its operational fundamentals, and consistently maintained a positive operational trajectory. The Company strictly adhered to its core corporate culture of “virtue and dedication, benevolence and inclusivity, unity and innovation, symbiosis and mutual success”, comprehensively balancing the legitimate rights and interests of stakeholders including shareholders, creditors, employees, customers, and suppliers. Grounded in a path of sustainable development driven by a low-carbon circular economy and green manufacturing, the Company fulfilled its responsibilities as a listed company through practical industrial operations, striving to create a mutually beneficial landscape of enterprise development, employee well-being, shared partner growth, and broader social progress.

1. Protecting the rights and interests of shareholder and creditors

During the reporting period, the Company strictly complied with the laws and regulations including the Company Law of the People's Republic of China, the Securities Law of the People's Republic of China, and the Code of Corporate Governance for Listed Companies. It placed great emphasis on investor relations management, treated all shareholders equally, and effectively safeguarded the legitimate rights and interests of minority investors, including their rights to information, participation and voting. To facilitate efficient access to public information, the Company maintained regular investor communications via an investor hotline, the EasyIR platform of the Shenzhen Stock Exchange, an email, and results briefings, while publishing announcements disclosed on the Shenzhen Stock Exchange and the Hong Kong Stock Exchange in the investor relations section of its official website. During the reporting period, the Company responded to over 200 investor inquiries on the Interactive Easy platform of the Shenzhen Stock Exchange, hosted the 2025 Online Results Briefing, actively participated in the “2026 Online Collective Reception Day for Investors of Listed Companies in Shandong”, conducted on-site and telephone surveys with institutional investors, and maintained a dedicated investor hotline to address market concerns in a timely manner. Furthermore, the Company convened general meetings through both on-site and online voting, fully ensuring the exercise of voting rights by all shareholders, particularly minority shareholders, and proactively disclosed the voting results of minority investors under each resolution considered at the meetings, thereby protecting the rights and interests of minority shareholders.

Regarding the protection of creditor rights and interests, the Company actively engaged in negotiations and communications with its creditors in light of its actual operations. In response to certain overdue debts, the Company engaged in amicable negotiations with creditors on debt repayment solutions, such as loan extensions, interest rate reductions, and optimised instalment repayment plans. At the same time, the Company spared no effort to advance the full resumption of production across various production bases, accelerated the disposal of non-core assets, and continued to strengthen operating cash flows, so as to ensure timely fulfilment of debt obligations and effectively protect the legitimate rights and interests of creditors.

IV Corporate Governance, Environment and Society

V. Social responsibility (Cont'd)

2. Protecting the rights and interests of employees

During the reporting period, The Company consistently upheld a people-oriented core development philosophy, continuously deepening its efforts in talent development, humanistic care, and occupational safety to effectively safeguard the legitimate rights and interests of employees. Guided by the core mission of “empowering the organisation and activating individuals”, the Company adhered to a strategy of “promoting the capable, reassigning the average, and stepping down the underperforming”, and implemented a flexible talent mechanism governing promotions, demotions, and lateral transfers. It advanced flat organisational structure reforms to comprehensively improve human capital efficiency and reduce labour costs. Concurrently, the Company incorporated the advancement of organisational change, the resolution of frontline issues, and the cultivation of successors into its core performance appraisal for cadres, striving to build a high-calibre executive team and a robust talent pipeline aligned in vision, resilient under pressure, and adept at delivering results. Meanwhile, the Company continuously optimised its compensation and incentive mechanisms. Leveraging internal learning and knowledge-sharing platforms, it conducted regular on-the-job training, labour competitions, and skills contests, comprehensively enhancing employees’ professional skills and overall competencies, and providing a high-quality platform for employee growth and career development. In addition, the Company organised diverse employee activities on a regular basis, such as basketball tournaments, calligraphy and painting exhibitions, and themed Party-building events, to enrich employees’ leisure lives. It also conducted visits and delivered targeted assistance to employees in difficulty, effectively enhancing all employees’ sense of gain, happiness, and belonging. Regarding occupational safety, the Company strictly enforced the safety and environmental responsibility system along with the “three musts and three responsibilities” operational requirements. It performed regular hazard inspections and special supervisions, and reinforced all employees’ safety awareness and practical skills through safety knowledge competitions and hands-on operational training, thereby fortifying the safety defence line to ensure the physical safety and overall well-being of its employees.

3. Protecting the rights and interests of suppliers and customers

During the reporting period, the Company focused on dual protection of the rights and interests of both suppliers and customers, continuously optimising the industrial and supply chain ecosystem to build a stable and mutually beneficial industrial cooperation structure.

Regarding supplier cooperation and supply chain management, the Company adhered to the principles of fairness, justice, openness, and transparency. It established an online bidding procurement platform and applied a dynamic bidding extension mechanism to over 95% of procurement lots, effectively preventing human intervention to ensure a transparent, open, fair and impartial procurement process. At the same time, the Company continuously refined its supply chain management policy framework, revising policies including the Standards for Woodchip Acceptance (《木片收購驗收標準》) and End-to-end Management Measures for the Procurement of Materials for Processing (《來料加工料件採購全流程管理辦法》). It also advanced systemised management for the entire raw material sampling and testing process, enhancing supply chain stability. Furthermore, the Company dynamically optimised its supplier resource pool and convened a large-scale supplier symposium in Beijing to deepen communication, as well as improve supply quality and cost control levels.

In terms of the protection of customer rights and interests, the Company adhered to a market – and performance-oriented approach. It continuously optimised its domestic and international market presence, actively expanded into emerging and overseas markets, increased the proportion of direct sales to reduce reliance on intermediary channels, and improved payment settlement models to further enhance sales management standards and collection quality. In addition, guided by customer demand, the Company actively developed new products tailored to market needs, continuously refined product quality, and enhanced its customer complaint handling mechanisms to continuously enhance service quality, improve customer satisfaction, and continuously strengthen the market influence of its brand.

IV Corporate Governance, Environment and Society

V. Social responsibility (Cont'd)

4. Protecting the environment and sustainable development

During the reporting period, The Company actively responded to the national “Dual Carbon” strategy, strictly complied with ecological and environmental protection laws, regulations, and local policy requirements, fully integrated safety, environmental protection, and green development concepts across its operational value chain, and effectively fulfilled its social responsibility for environmental protection. Continuously improving its environmental governance system, the Company was equipped with advanced pollution control facilities, including alkali recovery, intermediate wastewater treatment, reclaimed water reuse, and comprehensive black liquor utilisation. It deepened its efforts in cleaner production, energy conservation, emission reduction, and comprehensive treatment of “three waste”, optimised production processes, implemented cost reduction and efficiency enhancement initiatives for wastewater treatment across subsidiaries, performed regular environmental inspections, and standardised the operation and maintenance of pollution control and online monitoring equipment, to ensure compliant discharge of all pollutants and steadily advance low-carbon green development. Meanwhile, the Company continued to improve its safety and environmental protection responsibility framework to ensure the fulfilment of safety and environmental protection responsibilities at all levels. It held a signing ceremony for the 2026 safety and environmental protection responsibility statements, establishing a comprehensive, top-to-bottom safety and environmental protection responsibility system through cascading agreements. The Company refined its environmental protection management rules, optimised its monthly performance evaluation mechanisms, incorporated safety and environmental protection into annual debriefings of subsidiaries, and reinforced closed-loop rectification and accountability supervision. These measures demonstrated its commitment to environmental protection and achieved a win-win synergy between corporate growth and ecological preservation.

VI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of Hong Kong Limited

(i) Compliance with the Corporate Governance Code

The Company maintained high standards of corporate governance through various internal controls. The Board reviewed the corporate governance practices of the Company from time to time to enhance the corporate governance standards of the Company. The Company complied with all the principles and code provisions of the Corporate Governance Code as set out in Appendix C1 to the Hong Kong Listing Rules during the reporting period.

(ii) Securities transactions by Directors

The Directors of the Company confirmed that the Company had adopted the Model Code for Securities Transactions by Directors of Listed Companies as set out in Appendix C3 to the Hong Kong Listing Rules. Having made adequate enquiries with all Directors of the Company, the Company was not aware of any information that reasonably suggested that the Directors had not complied with the requirements as stipulated in this code during the reporting period.

V Material Matters

I. Undertakings made by parties involved in undertakings including the Company's beneficial controllers, shareholders, related parties, bidders and the Company fulfilled during the reporting period and not yet fulfilled within the prescribed time period as at the end of the reporting period

□ Applicable ☑ Not applicable

During the reporting period, there were no such undertakings in respect of the Company as those made by parties involved in undertakings including the Company's beneficial controllers, shareholders, related parties, bidders and the Company fulfilled during the reporting period and not yet fulfilled within the prescribed time period as at the end of the reporting period.

II. Appropriation of funds of the Company by the controlling shareholder and other related parties for non-operating purposes

□ Applicable ☑ Not applicable

There was no appropriation of funds of the Company by the controlling shareholder and other related parties for non-operating purposes during the reporting period.

III. External guarantees against the rules and regulations

□ Applicable ☑ Not applicable

There was no external guarantee provided by the Company which was against the rules and regulations during the reporting period.

IV. Engagement or dismissal of accounting firms

Has the interim financial report been audited?

□ Yes ☑ No

The interim report of the Company is unaudited.

V. Opinions of the Board regarding the “modified auditor’s report” for the reporting period issued by the accountants

□ Applicable ☑ Not applicable

VI. Opinions of the Board regarding the “modified auditor’s report” for the prior year

☑ Applicable ☐ Not applicable

Grant Thornton (Special General Partnership) issued an unqualified audit report with an emphasis of matter paragraph on the 2025 financial report of the Company. The Board of the Company had provided a special statement on the relevant matters. For details, please refer to the Special Statement of the Board of Directors on Matters Related to the 2025 Annual Audit Report disclosed on CNINFO on 31 March 2026 and the overseas regulatory announcement disclosed on the website of Hong Kong Stock Exchange on 30 March 2026 by the Company.

The Board of the Company attached great importance to the emphasis of matter in the unqualified audit report, continuously standardised debt performance and management, properly handled litigation cases, mitigated debt risks, and effectively reinforce the baseline of operational risk control. During the reporting period, the Company established a dedicated performance ledger for creditors with loan extensions, interest rate reductions and settlement agreements, specifying repayment arrangements, securing funding sources, and setting up an early-warning mechanism for maturity to strictly fulfil its debt performance obligations. Meanwhile, adhering to the principle of “tailored strategies for individual accounts (一戶一策)”, the Company engaged on a one-on-one basis with non-settled financial institutions and creditors, and formulated differentiated negotiation proposals in light of its actual operations and capital position. Consensus had been reached through negotiation with certain entities, and the resolution of debt matters was progressing in an orderly manner. In terms of operational management, the Company fully implemented its operational plan for refined cost reduction and efficiency enhancement, covering the entire operational chain including production, sales, procurement, raw materials, finance, and logistics, by subdividing management and control indicators, enforcing positional responsibilities, and continuously enhancing the profitability of its principal operations and operating cash flow levels, thereby consolidating its debt performance capabilities. In terms of financing, the Company actively engaged with various financial resources, compliantly advancing the substitution of high-interest debt and the replacement of short-term debt with medium-to-long-term debt, continuously extending debt maturities, reducing overall financing costs, and optimising its asset-liability structure to relieve concentrated debt repayment pressure. In addition, the Company established a dynamic end-to-end ledger management system for litigation cases, enabling closed-loop control through case-by-case tracking, time-limited disposal, and case closure upon settlement, while continuously improving its internal risk control system. For outstanding litigation cases, the Company implemented a classified resolution mechanism by advancing settlements through ongoing cooperation and settlement optimisation for disputes with business partners, while actively negotiating settlement plans with non-business-related creditors, thereby effectively reducing potential litigation losses. During the reporting period, a number of litigation cases were successfully closed. Going forward, the Company will continuously optimise its debt structure, strengthen refined cash flow management and control, normalise the implementation of risk control mechanisms, properly handle litigations, and spare no effort in resolving outstanding risks.

VII. Matters related to bankruptcy and reorganisation

□ Applicable ☑ Not applicable

There was no matter related to bankruptcy and reorganisation during the reporting period.

V Material Matters

VIII. Litigation

Material litigation and arbitration

□ Applicable ☑ Not applicable

Other litigations

☑ Applicable ☐ Not applicable

IX. Punishment and rectification

☑ Applicable ☐ Not applicable

V Material Matters

IX. Punishment and rectification (Cont'd)

Rectification

☑ Applicable ☐ Not applicable

The Company received the Decision on Issuing a Warning Letter against Shandong Chenming Paper Holdings Limited and Relevant Responsible Personnel ([2026] No. 26) issued by the Shandong CSRC on 5 June 2026. Upon receipt of the letter regarding the decision of imposing administrative regulatory measure, the Company and relevant responsible personnel attached great importance thereto, and proactively implemented rectification measure. Written reports on rectification were delivered to Shandong CSRC within the stipulated timeframe, and the rectification was completed. The rectification measures taken are as follows: Firstly, the Company completed specific inspection. Upon completion of financial review, the Company confirmed that the transactions associated with the borrowings from the five related parties in questions were settled in full and the cooperation was terminated in 2024. Subsequently, the Company did not engage in any financial or operational dealings with these entities, and the relevant issues were completely resolved. Secondly, the Company continued to optimise its full-process management system for related parties, and conducted comprehensive adjustment, review and dynamic update on the related party list. Entities including Shanghai Shijie Industrial Co., Ltd. were included in the register of related parties for centralised management. The Company conducted a thorough inspection of various related party relationships of directors and senior management, so as to prevent non-compliance at source. Thirdly, the Company strengthened the foundation of its related party transaction system. The Related Party Transaction Management System stipulates the authorisation for decision-making on related party transactions, requirements on abstaining from voting by related party and matters exempted from consideration at general meetings, which prevents management deficiencies in fund transfers between related parties at the system level, and re-occurrence of similar risk events. Fourthly, the Company optimised the full-process management of information disclosure, narrowed down scope of duties for different positions, implemented strict multi-position cross review and conducted review at different levels, so as to ensure that disclosure procedures in respect of major events and related party transactions were immediately performed in accordance with regulation, and corporate information disclosure quality was continuously enhanced. Fifthly, the Company conducted special training sessions on compliance. The Company arranged special training sessions on compliance for directors, senior management and operational personnel from the financial department and the securities investment department, aiming to familiarise participants with the Securities Law of the People's Republic of China, the Administrative Measures for Information Disclosure by Listed Companies and the relevant stock exchange regulatory rules, continuously enhance all employees' awareness of compliance performance, and cultivate a corporate culture of compliance.

The Company and relevant responsible persons will take this regulatory warning as a valuable lesson, enhance their awareness of compliance, strictly abide by all laws and regulations on securities regulation, and make compliant governance and standardised operations a top priority in its business management. The Company will establish a regular self-inspection mechanism for internal control, periodically identify management loopholes, continuously improve its internal control and information disclosure systems, perform its information disclosure obligations with due diligence, comprehensively enhance corporate compliance and governance standards, resolutely prevent the recurrence of similar non-compliance issues, and effectively safeguard the legitimate rights and interests of the Company and all shareholders.

X. Credibility of the Company, its controlling shareholders and beneficial controllers

☑ Applicable ☐ Not applicable

According to information disclosed on the China Enforcement Information Online, during the reporting period, the Company, Zhanjiang Chenming, Jilin Chenming, Jilin Chenming Pulp & Fiber Trading Co., Ltd., and Shouguang Chenming Import and Export Trade Co., Ltd. were listed as dishonest persons subject to enforcement for failing to fulfil obligations as determined by effective legal documents issued by the court, violations of the asset reporting system or other methods of evading enforcement. Neither the Company's controlling shareholder nor its actual controller is listed as a dishonest person subject to enforcement.

V Material Matters

XI. Significant related party transactions

1. Related party transactions associated with day-to-day operation

☑ Applicable ☐ Not applicable

2. Related party transaction in connection with purchase or sale of assets or equity interest

□ Applicable ☑ Not applicable

There was no related party transaction of the Company in connection with purchase or sale of assets or equity interest during the reporting period.

3. Related party transaction connected to joint external investment

□ Applicable ☑ Not applicable

There was no related party transaction of the Company connected to joint external investment during the reporting period.

XI. Significant related party transactions (Cont'd)

4. Related creditors' rights and debts transactions

☑ Applicable ☐ Not applicable

Was there any non-operating related creditors' rights and debts transaction

☑ Yes □ No

Creditor's rights receivable from any related party

Effect of related creditors' rights on the operating results The above creditors' rights did not affect the ordinary operation of the Company. Moreover, they catered to the needs for development of existing businesses of the above entities, as well as lowered the finance costs.

Debts payable to any related party

V Material Matters

XI. Significant related party transactions (Cont'd)

5. Deals with related financial companies

□ Applicable ☑ Not applicable

There were no deposits, loans, credits, or other financial services between the Company, its related financial companies and the related parties.

6. Deals between financial companies controlled by the company and related parties

□ Applicable ☑ Not applicable

There were no deposits, loans, credits, or other financial services between the financial companies controlled by the Company and the related parties.

7. Other significant related party transactions

□ Applicable ☑ Not applicable

There was no other significant related party transaction of the Company during the reporting period.

XII. Material contracts and implementation

1. Custody, contracting and leasing

(1) Custody

□ Applicable ☑ Not applicable

There was no custody of the Company during the reporting period.

(2) Contracting

☑ Applicable ☐ Not applicable

In April 2023, Jiangxi Chenming, a subsidiary, acquired equity interest in Jiangxi Port, which was included in the scope of consolidation. The principal activities of Jiangxi Port is goods loading and transportation at wharf. In order to revitalise Jiangxi Port and enhance economic benefits to the Company, Jiangxi Chenming has contracted the businesses of Jiangxi Port to Jiangxi Yirong Investment Co., Ltd. for 5 years, and receives fixed contracting fees of RMB4.00 million per year on quarterly basis.

A project which generates profit or loss for the Company representing more than 10% of the Company's total profit during the reporting period

□ Applicable ☑ Not applicable

The Company did not have any contracting project that brought profit or loss to the Company amounting to more than 10% of the total profit of the Company during the reporting period.

XII. Material contracts and implementation (Cont'd)

1. Custody, contracting and leasing (Cont'd)

(3) Leasing

☑ Applicable ☐ Not applicable

Leasing description:

As a lessee

The Company has simplified the treatment of short-term leases and leases of low-value assets by not recognising right-of-use assets and lease liabilities. The charges to expense for short-term leases, low-value assets and variable lease payments not included in the measurement of lease liabilities during the current period are as follows:

As a lessor

Where an operating lease is formed:

According to paragraph 58 of the new lease standard, the lessor shall disclose in the notes the following information related to operating leases:

① Lease income, and make separate disclosure of income related to variable lease payments not included in lease receipts

The amount of undiscounted lease receipts to be received in each of the five consecutive fiscal years after the balance sheet date and the total amount of undiscounted lease receipts to be received in the remaining years

V Material Matters

XII. Material contracts and implementation (Cont'd)

1. Custody, contracting and leasing (Cont'd)

(3) Leasing (Cont'd)

A project which generates profit or loss for the Company representing more than 10% of the Company's total profit during the reporting period

□ Applicable ☑ Not applicable

The Company did not have any leasing project that brought profit or loss to the Company amounting to more than 10% of the total profit of the Company during the reporting period.

2. Significant guarantees

☑ Applicable ☐ Not applicable

(1) Guarantees

During the reporting period, the Company provided guarantee to subsidiaries and the guarantee amount incurred was RMB2,669.6910 million. As at 30 June 2026, the balance of the external guarantee provided by the Company (including the guarantee to its subsidiaries by the Company and the guarantee provided to subsidiaries by subsidiaries) amounted to RMB21,432.9203 million, representing 13,756.19% of the equity attributable to shareholders of the Company as at the end of June 2026, of which overdue guarantees amounted to RMB3,748.9371 million.

Unit: RMB'0,000

External guarantees of the Company and its subsidiaries (excluding guarantees to subsidiaries)

XII. Material contracts and implementation (Cont'd)

2. Significant guarantees (Cont'd)

(1) Guarantees (Cont'd)

Guarantees between the Company and its subsidiaries

XII. Material contracts and implementation (Cont'd)

2. Significant guarantees (Cont'd)

(1) Guarantees (Cont'd)

Guarantees between the Company and its subsidiaries

V Material Matters

XII. Material contracts and implementation (Cont'd)

2. Significant guarantees (Cont'd)

(1) Guarantees (Cont'd)

XII. Material contracts and implementation (Cont'd)

2. Significant guarantees (Cont'd)

(1) Guarantees (Cont'd)

Guarantees between the Company and its subsidiaries

XII. Material contracts and implementation (Cont'd)

2. Significant guarantees (Cont'd)

(1) Guarantees (Cont'd)

Guarantees between the Company and its subsidiaries

XII. Material contracts and implementation (Cont'd)

2. Significant guarantees (Cont'd)

(1) Guarantees (Cont'd)

XII. Material contracts and implementation (Cont'd)

2. Significant guarantees (Cont'd)

(1) Guarantees (Cont'd)

XII. Material contracts and implementation (Cont'd)

2. Significant guarantees (Cont'd)

(1) Guarantees (Cont'd)

XII. Material contracts and implementation (Cont'd)

2. Significant guarantees (Cont'd)

(1) Guarantees (Cont'd)

XII. Material contracts and implementation (Cont'd)

2. Significant guarantees (Cont'd)

(1) Guarantees (Cont'd)

Details of composite guarantees

The Company and its subsidiaries jointly provided composite guarantees of RMB4,815.5711 million for the subsidiaries. To avoid duplicated calculation, such amount was only listed and calculated in the guarantees provided by the Company to its subsidiaries.

3. Entrusted wealth management

□ Applicable ☑ Not applicable

The Company did not have any entrusted wealth management during the reporting period.

4. Other material contracts

□ Applicable ☑ Not applicable

The Company did not have any other material contracts during the reporting period.

V Material Matters

XIII. Registration form for reception of surveys, communications and interviews during the reporting period

☑ Applicable ☐ Not applicable

V Material Matters

XIV. Other matters of significance

☑ Applicable ☐ Not applicable

1. Full resumption of operation and production at production bases

During the reporting period, the Company adhered to the principles of “safety first, efficiency first, and profitability first”, strengthened its corporate management, and coordinated the progress on the resumption of operation and production at production bases. The cadres and employees at Zhanjiang Chenming worked in close collaboration with the Group’s support team to tackle key challenges, efficiently completing key tasks such as fund raising, equipment maintenance, securing raw materials and establishing market connections, thereby successfully fully resuming operation and production at the Zhanjiang production base. As of the date of this report, the five major production bases of the Company in Shouguang, Zhanjiang, Huanggang, Jiangxi and Jilin have fully resumed production. Moving forward, the Company will continue to deepen end-to-end cost reduction and efficiency enhancement, accelerate the all-around new product development, and coordinate the progress on production and operations, reform and innovation, and team development. It will make every effort to improve operational performance, steadily mitigate debt risks, and drive the Company towards sustained, stable and high-quality development.

For details, please refer to the relevant announcement disclosed by the Company on CNINFO on 14 March 2026 (Announcement No.: 2026-004) and the announcement disclosed by the Company on the website of Hong Kong Stock Exchange on 16 March 2026.

2 Information disclosure index for 2026 Interim Report

V Material Matters

XIV. Other matters of significance (Cont'd)

2 Information disclosure index for 2026 Interim Report (Cont'd)

XIV. Matters of significance of subsidiaries of the Company □ Applicable ☑ Not applicable

I. Changes in shares

1. Changes in shares

Unit: share

The reasons for such changes

☑ Applicable ☐ Not applicable

On 28 October 2025, the Company completed the election of a new Board of Directors and the reform of the Supervisory Committee, resulting in the departure of certain Directors, senior management members and supervisors. In accordance with the relevant share management regulations, the 5,194,584 RMB ordinary shares held in aggregate by the aforementioned departing individuals were subject to a six-month lock-up period from the date of their departure. The lock-up period for these shares expired on 27 April 2026 and the restrictions were lifted, resulting in a reduction of 5,194,584 shares in the restricted shares of the Company during the reporting period, while the number of non-restricted shares increased by 5,194,584 shares accordingly.

Approval of changes in shareholding

□ Applicable ☑ Not applicable

Transfer of shares arising from changes in shareholding

□ Applicable ☑ Not applicable

Progress of share repurchase

□ Applicable ☑ Not applicable

Progress of decrease in the holding of repurchased shares by way of bidding

□ Applicable ☑ Not applicable

The effects of changes in shareholding on financial indicators such as basic earnings per share, diluted earnings per share and net assets per share attributable to ordinary shareholders of the Company for the latest year and the latest period

□ Applicable ☑ Not applicable

Other information considered necessary by the Company or required by the securities regulatory authorities to be disclosed

□ Applicable ☑ Not applicable

I. Changes in shares (Cont'd)

2. Changes in restricted shares

☑ Applicable ☐ Not applicable

Unit: share

VI Changes in Share Capital and Shareholders

I. Changes in shares (Cont'd)

2. Changes in restricted shares (Cont'd)

II. Issuance and listing of securities

□ Applicable ☑ Not applicable

VI Changes in Share Capital and Shareholders

III. Total number of shareholders and shareholdings

Total number of ordinary shareholders as at the end of the reporting period

93,718, of which 77,810 were holders of A shares, 15,598 were holders of B shares and 310 were holders of H shares

Unit: share

Total number of holders of preference shares with restored voting right as at the end of the reporting period

Shareholdings of shareholders interested in more than 5% of the shares of the Company or Top 10 shareholders (excluding the shares lent under refinancing business)

Strategic investors or general legal persons who become the top ten shareholders due to the placement of new shares

Related party relationship or acting in concert among the above shareholders

Explanation of the aforementioned shareholders' entrusted/entrusted voting rights and waiver of voting rights

Special explanation for designated repurchase accounts among the top ten shareholders

A shareholder, Chenming Holdings (Hong Kong) Limited, which is an overseas legal person, is a wholly-owned subsidiary of a shareholder, Chenming Holdings Company Limited, which is a state-owned legal person. Save for the above, it is not aware that any other shareholders of tradable shares are persons acting in concert. It is also not aware that any other shareholders of tradable shares are related to each other.

In November 2024, pursuant to the 2020 Restricted A Share Incentive Scheme (Draft), the Company made payments for the repurchase of restricted shares not yet unlocked for the third unlocking period under the 2020 Restricted A Share Incentive Scheme. In the process of completing the procedures for the share transfer and cancellation, the 6,000,000 restricted shares held by Mr. Chen Hongguo were judicially frozen. Hence, the procedures for the transfer and cancellation of such restricted shares were not yet completed with the Shenzhen Branch of China Securities Depository and Clearing Corporation Limited. The 19,080,044 shares held by Mr. Chen Hongguo, being a domestic natural person, excludes the 6,000,000 restricted shares under the share incentive scheme.

III. Total number of shareholders and shareholdings (Cont'd)

Shareholdings of the top ten non-restricted shareholders (excluding the shares lent under refinancing business and the locked-up shares of the Senior Management)

Related party relationship or acting in concert among the top ten shareholders of non-restricted shares, and between the top ten shareholders of non-restricted shares and the top ten shareholders

Securities margin trading of top ten ordinary Shareholders

A shareholder, Chenming Holdings (Hong Kong) Limited, which is an overseas legal person, is a wholly-owned subsidiary of a shareholder, Chenming Holdings Company Limited, which is a state-owned legal person. Save for the above, it is not aware that any other shareholders of tradable shares are persons acting in concert. It is also not aware that any other shareholders of tradable shares are related to each other.

Chenming Holdings Company Limited held 455,781,319 RMB ordinary shares, of which 409,956,441 shares were held through ordinary account and 45,824,878 shares were held through credit guarantee security account.

Note 1: In order to meet its own capital needs, Chenming Holdings (Hong Kong) Limited conducted share financing business with overseas institutions, entrusting 210,717,563 B shares and 153,414,000 H shares of the Company held by it to the custody brokerage designated by overseas institutions. The aforesaid shares were subject to the risk of not to be recovered, which may lead to a reduction in the Company's shareholding, but does not affect Chenming Holdings' position as the largest shareholder, and does not affect the Company's control. For details, please refer to the announcement disclosed by the Company on CNINFO on 18 July 2023 (announcement no.: 2023-058) and the insider information disclosed by the Company on the website of Hong Kong Stock Exchange on 18 July 2023.

Note 2: On 1 November 2024, pursuant to the 2020 Restricted A Share Incentive Scheme (Draft), the Company made payments to the participants for the repurchase of restricted shares not yet unlocked for the third unlocking period under the 2020 Restricted A Share Incentive Scheme. In the process of completing the procedures for the share transfer and cancellation, the 6,000,000 restricted shares held by Mr. Chen Hongguo were judicially frozen. Hence, the procedures for the transfer and cancellation of such restricted shares were not yet completed with the Shenzhen Branch of China Securities Depository and Clearing Corporation Limited. The 19,080,044 shares held by Mr. Chen Hongguo, being a domestic natural person, excludes the 6,000,000 restricted shares to be cancelled under the share incentive scheme.

VI Changes in Share Capital and Shareholders

III. Total number of shareholders and shareholdings (Cont'd)

Share lending by shareholders interested in more than 5%, top 10 shareholders and top 10 shareholders of non-restricted shares under refinancing business

□ Applicable ☑ Not applicable

Changes of top 10 shareholders and top 10 shareholders of non-restricted shares due to lending/returning of shares under refinancing business as compared to prior period

□ Applicable ☑ Not applicable

Whether an agreed repurchase transaction was entered into during the reporting period by the top 10 ordinary shareholders and top 10 non-restricted ordinary shareholders of the Company

□ Yes ☑ No

The top 10 ordinary shareholders and top 10 non-restricted ordinary shareholders of the Company did not enter into any agreed repurchase transaction during the reporting period.

IV. Changes in shareholding of Directors and Senior Management

□ Applicable ☑ Not applicable

There was no change in the shareholding of the Directors and Senior Management of the Company during the reporting period. Please see the 2025 annual report for details.

V. Change of controlling shareholders or beneficial controllers

Where the Company has previously disclosed that its actual controller is planning a change of control but this has not yet been finalised, please provide an update on the progress of the change of control.

□ Applicable ☑ Not applicable

Change of controlling shareholders during the reporting period

□ Applicable ☑ Not applicable

There was no change of controlling shareholders of the Company during the reporting period.

Change of beneficial controllers during the reporting period

□ Applicable ☑ Not applicable

There was no change of beneficial controllers of the Company during the reporting period.

VI. Preference shares

□ Applicable ☑ Not applicable

The Company had no preference shares during the reporting period.

VI Changes in Share Capital and Shareholders

VII. Securities interests held by Directors and chief executives disclosed in accordance with the Listing Rules of Hong Kong Stock Exchange

As at 30 June 2026, the interests and short positions held by each of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (the “SFO”)) as recorded in the register required to be kept under section 352 of the SFO, are set out as follows:

Company

Save as disclosed above, as at 30 June 2026, none of the Directors or chief executives of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations which were required to be filed in the register of the Company required to be maintained pursuant to section 352 of the SFO or which were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as contained in Appendix C3 to the Listing Rules of Hong Kong Stock Exchange.

As at 30 June 2026, none of the Directors or chief executives or their respective spouses or children under the age of 18 held or exercised any rights to subscribe for the share capital or debentures of the Company or its associated corporations.

(L) – Long position (S) – Short position (P) – Lending pool

VI Changes in Share Capital and Shareholders

VIII. Interests and short position of substantial shareholders in shares and underlying shares disclosed in accordance with the Listing Rules of Hong Kong Stock Exchange

As at 30 June 2026, the following shareholders (other than the Directors or chief executives of the Company) had interests or short positions in the Company's shares and underlying shares as shown in the share register maintained by the Company in accordance with Section 336 of the SFO:

Save as disclosed above, as at 30 June 2026, no other person had interests or short positions in the Company's shares and underlying shares as recorded in the register maintained under section 336 of the SFO.

IX. Purchase, sale and redemption of shares

The Company and any of its subsidiaries did not purchase, sell or redeem any listed securities of the Company during the reporting period.

□ Applicable ☑ Not applicable

VIII Financial Report

I. Auditors' Report

Is the interim report audited

□ Yes √ No

The interim financial report is unaudited.

II. Financial Statements

The unit in the notes to the financial statements is: RMB

1. Consolidated balance sheet

Prepared by: Shandong Chenming Paper Holdings Limited

II. Financial Statements (Cont'd)

1. Consolidated balance sheet (Cont'd)

Legal Representative: Jiang Yanshan

Head in charge of accounting: Zhu Yanli

Head of the accounting department: Zhang Bo

II. Financial Statements (Cont'd)

2. Balance sheet of the parent company

II. Financial Statements (Cont'd)

2. Balance sheet of the parent company (Cont'd)

Unit: RMB

II. Financial Statements (Cont'd)

3. Consolidated income statement

II. Financial Statements (Cont'd)

3. Consolidated income statement (Cont'd)

Legal Representative: Jiang Yanshan Head in charge of accounting: Zhu Yanli Head of the accounting department: Zhang Bo

4. Income statement of the parent company

Unit: RMB

II. Financial Statements (Cont'd)

5. Consolidated cash flow statement

II. Financial Statements (Cont'd)

5. Consolidated cash flow statement (Cont'd)

II. Financial Statements (Cont'd)

6. Cash flow statement of the parent company

II. Financial Statements (Cont'd)

6. Cash flow statement of the parent company (Cont'd)

7. Consolidated statement of changes in owners' equity

7. Consolidated statement of changes in owners' equity (Cont'd)

Amount for the period

8. Statement of changes in owners' equity of the parent company

Financial Statements (Cont'd)

8. Statement of changes in owners' equity of the parent company (Cont'd)

III. General Information of the Company

1. Company overview

The predecessor of Shandong Chenming Paper Holdings Limited (hereinafter referred to as the “Company”, a joint-stock company incorporated in Shouguang City, Shandong Province) was Shandong Shouguang Paper Mill Corporation, which was changed as a joint stock company with limited liability through offering to specific investors in May 1993. In December 1996, with approval by Lu Gai Zi [1996] No. 270 issued by the People’s Government of Shandong Province and Zheng Wei [1996] No. 59 of the Securities Committee of the State Council, the Company was changed as a joint stock company with limited liability established by share offer. The Company’s headquarters is located at No. 2199 Nongsheng East Road, Shouguang City, Shandong Province.

In May 1997, with approval by Zheng Wei Fa [1997] No. 26 issued by the Securities Committee of the State Council, the Company issued 115,000,000 domestic listed foreign shares (B shares) under public offering, which were listed and traded on Shenzhen Stock Exchange from 26 May 1997.

In September 2000, with approval by Zheng Jian Gong Si Zi [2000] No. 151 issued by the China Securities Regulatory Commission, the Company issued additional 70,000,000 RMB ordinary shares (A shares), which were listed and traded on Shenzhen Stock Exchange from 20 November 2000.

In June 2008, with approval by the Stock Exchange of Hong Kong Limited, the Company issued 355,700,000 H shares. At the same time, 35,570,000 H shares were allocated to the National Council for Social Security Fund by our relevant state-owned shareholder and converted into overseas listed foreign shares (H shares) for the purpose of reducing the number of state-owned shares. The additionally issued H shares were listed and traded on Hong Kong Stock Exchange on 18 June 2008.

As at 30 June 2026, the total share capital of the Company was 2,934,556,200 shares. For details, please refer to Note VII. 39.

Principal business activities: the Company is principally engaged in, among other things, processing and sale of paper products (including machine-made paper and paper board), papermaking raw materials, machinery and chemicals; generation and sale of electric power and thermal power; forestry, saplings growing and sale, investment properties and property service.

The financial statements and notes thereto were approved at the fifth meeting of the eleventh session of the board of directors of the Company (the “Board”) on 28 August 2026.

2. Scope of consolidation

Subsidiaries of the Company included in the scope of consolidation in 2026 totalled 70. For details, please refer to Note X “Interest in other entities”. The scope of consolidation of the Company during the year had no new companies included and two companies less compared to the prior year. For details, please refer to Note IX “Change in scope of consolidation”.

IV. Basis of Preparation of the Financial Statements

1. Basis of preparation

These financial statements are prepared in accordance with the accounting standards for business enterprises, the application guidelines thereof, interpretations and other related rules (collectively referred to as “ASBEs”) promulgated by the Ministry of Finance. In addition, the Company also discloses relevant financial information in accordance with the “Preparation Rules for Information Disclosure by Companies Offering Securities to the Public No. 15 – General Provisions on Financial Reports” (revised in 2023) of the CSRC.

The financial statements are presented on a going concern.

The Company's financial statements have been prepared on an accrual basis. Except for certain financial instruments, the financial statements are prepared under the historical cost convention. In the event that impairment of assets occurs, a provision for impairment is made accordingly in accordance with the relevant regulations.

2. Going concern

No facts or circumstances comprise a material uncertainty about the Company's going concern basis within 12 months since the end of the reporting period.

V. Significant Accounting Policies and Accounting Estimates

Specific accounting policies and accounting estimates are indicated as follows:

The Company and its subsidiaries are engaged in the business of machine-made paper, electricity and heat, paper chemicals, property services, etc. The Company and its subsidiaries have formulated a number of specific accounting policies and accounting estimates for transactions and matters such as revenue recognition, determination of performance progress, and R&D expenses based on their actual production and operation characteristics in accordance with the requirements of the relevant ASBEs. For details, please refer to the descriptions under Note V. 27 “Revenue”. For an explanation of the critical accounting judgments and estimates made by the management, please refer to Note V. 35 “Critical accounting judgments and estimates”.

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

These financial statements have been prepared in conformity with the ASBEs, which truly and fully reflect the financial position of the consolidated entity and the Company as at 30 June 2026 and relevant information such as the operating results and cash flows of the consolidated entity and the Company for 2026.

2. Accounting period

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

3. Operating cycle

The operating cycle of the Company lasts for 12 months.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

4. Functional currency

The functional currency of the Company and its domestic subsidiaries is Renminbi (“RMB”). Overseas subsidiaries of the Company recognise U.S. dollar (“USD” or “US\$”), Japanese yen (“JPY”), Euro (“EUR”) and South Korean Won (“KRW”) as their respective functional currency according to the general economic environment in which these subsidiaries operate. The Company prepares the financial statements in RMB.

5. Determination method and selection basis of importance standards

√ Applicable □ Not applicable

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

6. Accounting treatment of business combinations under common control and not under common control

(1) Business combination under common control

For the business combination involving entities under common control, the assets and liabilities of the party being merged that are obtained in the business combination by the absorbing party shall be measured at the carrying amounts as recorded by the ultimate controlling party in the consolidated financial statements at the combination date. The difference between the carrying amount of the consideration paid for the combination and the carrying amount of the net assets obtained in the combination is charged to the capital reserve. If the capital reserve is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings.

Business combinations involving entities under common control and achieved in stages

The assets and liabilities of the party being merged that are obtained at the combination by the absorbing party shall be measured at the carrying value as recorded by the ultimate controlling party in the consolidated financial statements at combination date. The difference between the sum of the carrying value from original shareholding portion and the new investment cost incurred at combination date and the carrying value of net assets obtained at combination date shall be adjusted to capital reserve, if the balance of capital reserve is not sufficient to absorb the differences, any excess is adjusted to retained earnings. The long-term investment prior to the absorbing party obtaining the control of the party being merged, the recognised profit or loss, comprehensive income and other change of owners' equity at the closer date of the acquisition date and combination date under common control shall separately offset the opening balance of retained earnings and profit or loss during comparative statements.

(2) Business combination not under common control

For business combinations involving entities not under common control, the cost for each combination is measured at the aggregate fair value at acquisition date, of assets given, liabilities incurred or assumed, and equity securities issued by the acquirer in exchange for control of the acquiree. At acquisition date, the acquired assets, liabilities or contingent liabilities of acquiree are measured at their fair value.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

6. Accounting treatment of business combinations under common control and not under common control (Cont'd)

(2) Business combination not under common control (Cont'd)

Where the cost of combination exceeds the acquirer's interest in the fair value of the acquiree's identifiable net assets, the difference is recognised as goodwill, and subsequently measured on the basis of its cost minus accumulative impairment provision; Where the cost of combination is less than the acquirer's interest in the fair value of the acquiree's identifiable net assets, the difference is recognised in profit or loss for the current period after reassessment.

Business combinations involving entities not under common control and achieved in stages

The combination cost is the sum of consideration paid at acquisition date and fair value of the acquiree's equity investment held prior to acquisition date. The cost of equity of the acquiree held prior to acquisition date shall be remeasured at the fair value at acquisition date, and the difference between the fair value and carrying amount shall be recognised as investment income or loss for the current period. Other comprehensive income and changes of other owners' equity related with acquiree's equity held prior to acquisition date shall be transferred to investment profit or loss for current period at acquisition date, except for the other comprehensive income incurred by the changes of net assets or net liabilities due to the remeasurement of defined benefit plans and the other comprehensive income related to investments in non-trading equity instruments that were previously designated as at fair value through other comprehensive income.

(3) Transaction fees attribution during business combination

The audit, legal, valuation advisory and other intermediary fees and other relevant administrative expenses arising from business combinations are recognised in profit or loss when incurred. Transaction costs of equity or debt securities issued as the considerations of business combination are included in the initial recognition amounts.

7. Judgment criteria for control and preparation of consolidated financial statements

(1) Judgment criteria for control

The scope of consolidation of the consolidated financial statements is determined on the basis of control. The term “control” refers to the fact that the Company has power over the investee and is entitled to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of those returns. The Company will reassess when changes in relevant facts and circumstances result in changes in the relevant elements involved in the definition of control.

When judging whether to include a structured entity into the scope of consolidation, the Company comprehensively considers all facts and circumstances, including assessing the purpose and design of the structured entity, identifying the types of variable returns, and assessing whether to control the structured entity on the basis of whether it bears part or all of the return variability by participating in its related activities.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

7. Judgment criteria for control and preparation of consolidated financial statements (Cont'd)

(2) Basis for preparation of the consolidated financial statements

The consolidated financial statements are prepared by the Company based on the financial statements of the Company and its subsidiaries and other relevant information. In preparing the consolidated financial statements, the accounting policies and accounting periods of the Company and its subsidiaries shall be consistent, and intra-company significant transactions and balances are eliminated.

A subsidiary and its business acquired through a business combination involving entities under common control during the reporting period shall be included in the scope of the consolidation of the Company from the date of being controlled by the ultimate controlling party, and its operating results and cash flows from the date of being controlled by the ultimate controlling party are included in the consolidated income statement and the consolidated cash flow statement, respectively.

For a subsidiary and its business acquired through a business combination involving entities not under common control during the reporting period, its income, expenses and profits are included in the consolidated income statement, and cash flows are included in the consolidated cash flow statement from the acquisition date to the end of the reporting period.

The shareholders' equity of the subsidiaries that is not attributable to the Company is presented under shareholders' equity in the consolidated balance sheet as minority interest. The portion of net profit or loss of subsidiaries for the period attributable to minority interest is presented in the consolidated income statement under the "profit or loss of minority interest". When the amount of loss attributable to the minority shareholders of a subsidiary exceeds the minority shareholders' portion of the opening balance of owners' equity of the subsidiary, the excess amount shall be allocated against minority interest.

(3) Acquisition of non-controlling interests in subsidiaries

The difference between the long-term equity investments costs acquired by the acquisition of non-controlling interests and the share of the net assets from subsidiaries from the date of acquisition or the date of combination based on the new shareholding ratio, as well as the difference between the proceeds from the partial disposal of the equity investment without losing control over its subsidiary and the disposal of the long-term equity investment corresponding to the share of the net assets of the subsidiaries from the date of acquisition or the date of combination, is adjusted to the capital reserve. If the capital reserve is not sufficient, any excess is adjusted to retained earnings.

(4) Accounting treatment for loss of control over subsidiaries

For the loss of control over a subsidiary due to disposal of a portion of the equity investment or other reasons, the remaining equity is remeasured at fair value on the date when the control is lost. The difference arising from the sum of consideration received for disposal of equity interest and the fair value of remaining equity interest over the sum of the share of the carrying amount of net assets of the former subsidiary calculated continuously from the purchase date based on the shareholding percentage before disposal and the goodwill is recognised as investment income in the period when the control is lost.

Other comprehensive income related to equity investment in the former subsidiary shall be accounted for on the same basis as the former subsidiary's direct disposal of relevant assets or liabilities when the control is lost. Other changes in owners' equity related to the former subsidiary that are accounted for using the equity method shall be transferred to current profit or loss at the time when the control is lost.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

8. Classification of joint arrangements and accounting treatment for joint operations

A joint arrangement refers to an arrangement of two or more parties have joint control. The joint arrangements of the Company comprise joint operations and joint ventures.

(1) Joint operations

Joint operations refer to a joint arrangement during which the Company is entitled to relevant assets and obligations of this arrangement.

The Company recognises the following items in relation to its interest in a joint operation and accounts for them in accordance with the relevant ASBEs:

A. the assets held solely by it and assets held jointly according to its share;

B. the liabilities assumed solely by it and liabilities assumed jointly according to its share;

C. the revenue from sale of output from joint operations;

D. the revenue from sale of output from joint operations according to its share;

E. the fees solely incurred by it and fees incurred from joint operations according to its share.

(2) Joint ventures

Joint ventures refer to a joint arrangement during which the Company only is entitled to net assets of this arrangement.

The Company accounts for its investments in joint ventures in accordance with the requirements relating to accounting treatment using equity method for long-term equity investments.

9. Standards for recognising cash and cash equivalents

Cash refers to cash on hand and deposits readily available for payment purpose. Cash equivalents refer to short-term and highly liquid investments held by the Company which are readily convertible into known amount of cash and which are subject to insignificant risk of value change.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

10. Foreign currency operations and translation of statements denominated in foreign currency

(1) Foreign currency operations

The foreign currency operations of the Company are translated into the functional currency at the prevailing spot exchange rate on the date of exchange.

On the balance sheet date, foreign currency monetary items shall be translated at the spot exchange rate on the balance sheet date. The exchange difference arising from the difference between the spot exchange rate on the balance sheet date and the spot exchange rate upon initial recognition or the last balance sheet date will be recognised in profit or loss for the period. The foreign currency non-monetary items measured at historical cost shall still be measured by the functional currency translated at the spot exchange rate on the date of the transaction. Foreign currency non-monetary items measured at fair value are translated at the spot exchange rate on the date of determination of the fair value. The difference between the amounts of the functional currency before and after the translation will be recognised in profit or loss or other comprehensive income for the period based on the nature of the non-monetary items.

(2) Translation of financial statements denominated in foreign currency

When translating the financial statements denominated in foreign currency of overseas subsidiaries, assets and liabilities on the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date; owner's equity items except for “retained profit” are translated at the spot exchange rates at the dates on which such items arose.

Income and expenses items in the income statement are translated at the average exchange rate for the year.

All items in the cash flow statements shall be translated at the average exchange rate for the year. Effects arising from changes of exchange rate on cash shall be presented separately as the “effect of foreign exchange rate changes on cash and cash equivalents” item in the cash flow statements.

The differences arising from translation of financial statements shall be included in the “other comprehensive income” item in owners’ equity in the balance sheet.

On disposal of foreign operations and loss of control, exchange differences arising from the translation of financial statements denominated in foreign currencies related to the disposed foreign operations which has been included in owners' equity in the balance sheet, shall be transferred to profit or loss in whole or in proportionate share in the period in which the disposal took place.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

11. Financial instruments

A financial instrument is a contract that gives rise to a financial asset of one party and a financial liability or equity instrument of another party.

(1) Recognition and derecognition of financial instruments

Financial asset or financial liability will be recognised when the Company became one of the parties under a financial instrument contract.

Financial asset that satisfied any of the following criteria shall be derecognised:

① the contract right to receive the cash flows of the financial asset has terminated;

② the financial asset has been transferred and meets the derecognition criteria for the transfer of financial asset as described below.

A financial liability (or a part thereof) is derecognised only when the present obligation is discharged in full or in part. If an agreement is entered between the Company (debtor) and a creditor to replace the existing financial liabilities with new financial liabilities, and the contractual terms of the new financial liabilities are substantially different from those of the existing financial liabilities, the existing financial liabilities shall be derecognised and the new financial liabilities shall be recognised.

Conventionally traded financial assets shall be recognised and derecognised at the trading date.

(2) Classification and measurement of financial assets

The Company classifies the financial assets according to the business model for managing the financial assets and characteristics of the contractual cash flows as follows: financial assets measured at amortised cost, financial assets measured at fair value through other comprehensive income, and financial assets measured at fair value through profit or loss.

Financial assets are measured at fair value upon initial recognition. For financial assets measured at fair value through profit or loss, relevant transaction costs are directly recognised in profit or loss for the current period. For other categories of financial assets, relevant transaction costs are included in the amount initially recognised. Accounts receivable arising from sales of goods or rendering services, without significant financing component, are initially recognised based on the transaction price expected to be entitled by the Company.

Financial assets measured at amortised cost

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated at fair value through profit or loss:

The Company's business model for managing such financial assets is to collect contractual cash flows;

The contractual terms of the financial asset stipulate that cash flows generated on specific dates are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, such financial assets are measured at amortised cost using the effective interest method. A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship shall be recognised in profit or loss for the current period when the financial asset is derecognised, amortised using the effective interest method or with impairment recognised.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

11. Financial instruments (Cont'd)

(2) Classification and measurement of financial assets (Cont'd)

Financial assets measured at fair value through other comprehensive income

A financial asset is classified as measured at fair value through other comprehensive income if it meets both of the following conditions and is not designated at fair value through profit or loss:

The Company's business model for managing such financial assets is achieved both by collecting collect contractual cash flows and selling such financial assets;

The contractual terms of the financial asset stipulate that cash flows generated on specific dates are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, such financial assets are subsequently measured at fair value. Interest calculated using the effective interest method, impairment losses or gains and foreign exchange gains and losses are recognised in profit or loss for the current period, and other gains or losses are recognised in other comprehensive income. On derecognition, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from other comprehensive income to profit or loss.

Financial assets measured at fair value through profit or loss

The Company classifies the financial assets other than those measured at amortised cost and measured at fair value through other comprehensive income as financial assets measured at fair value through profit or loss. Upon initial recognition, the Company irrevocably designates certain financial assets that are required to be measured at amortised cost or at fair value through other comprehensive income as financial assets measured at fair value through profit or loss in order to eliminate or significantly reduce accounting mismatch.

Upon initial recognition, such financial assets are measured at fair value. Except for those held for hedging purposes, gains or losses (including interests and dividend income) arising from such financial assets are recognised in the profit or loss for the current period.

The business model for managing financial assets refers to how the Company manages its financial assets in order to generate cash flows. That is, the Company's business model determines whether cash flows will result from collecting contractual cash flows, selling financial assets or both. The Company determines the business model for managing financial assets on the basis of objective facts and specific business objectives for managing financial assets determined by key management personnel.

The Company assesses the characteristics of the contractual cash flows of financial assets to determine whether the contractual cash flows generated by the relevant financial assets on a specific date are solely payments of principal and interest on the principal amount outstanding. The principal refers to the fair value of the financial assets at the initial recognition. Interest includes consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks, costs and profits. In addition, the Company evaluates the contractual terms that may result in a change in the time distribution or amount of contractual cash flows from a financial asset to determine whether it meets the requirements of the above contractual cash flow characteristics.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

11. Financial instruments (Cont'd)

(2) Classification and measurement of financial assets (Cont'd)

Financial assets measured at fair value through profit or loss (Cont'd)

All affected financial assets are reclassified on the first day of the first reporting period following the change in the business model where the Company changes its business model for managing financial assets; otherwise, financial assets shall not be reclassified after initial recognition.

(3) Classification and measurement of financial liabilities

At initial recognition, financial liabilities of the Company are classified as financial liabilities measured at fair value through profit or loss and financial liabilities measured at amortised cost. For financial liabilities not classified as measured at fair value through profit or loss, relevant transaction costs are included in the amount initially recognised.

Financial liabilities measured at fair value through profit or loss

Financial liabilities measured at fair value through profit or loss comprise held-for-trading financial liabilities and financial liabilities designated at fair value through profit or loss upon initial recognition. Such financial liabilities are subsequently measured at fair value, and the gains or losses from the change in fair value and the dividend or interest expenses related to the financial liabilities are included in the profit or loss of the current period.

Financial liabilities measured at amortised cost

Other financial liabilities are subsequently measured at amortised cost using the effective interest rate method, and the gains or losses arising from derecognition or amortisation are recognised in profit or loss for the current period.

Financial guarantee contracts

Financial guarantee contracts that are not designated as financial liabilities measured at fair value through profit or loss are initially measured at fair value. Subsequently, they are measured at the higher of the loss allowance determined using the expected credit loss model and the balance of the initial recognition amount less cumulative amortisation.

Classification between financial liabilities and equity instruments

A financial liability is a liability if:

① it has a contractual obligation to pay in cash or other financial assets to other parties.

② it has a contractual obligation to exchange financial assets or financial liabilities under potential adverse condition with other parties.

③ it is a non-derivative instrument contract which will or may be settled with the entity's own equity instruments, and the entity will deliver a variable number of its own equity instruments according to such contract.

④ it is a derivative instrument contract which will or may be settled with the entity’s own equity instruments, except for a derivative instrument contract that exchanges a fixed amount of cash or other financial asset with a fixed number of its own equity instruments.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

11. Financial instruments (Cont'd)

(3) Classification and measurement of financial liabilities (Cont'd)

Classification between financial liabilities and equity instruments (Cont'd)

Equity instruments are any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

If the Company cannot unconditionally avoid the performance of a contractual obligation by paying cash or delivering other financial assets, the contractual obligation meets the definition of financial liabilities.

Where a financial instrument must or may be settled with the Company's own equity instruments, the Company's own equity instruments used to settle such instrument should be considered as to whether it is as a substitute for cash or other financial assets or for the purpose of enabling the holder of the instrument to be entitled to the remaining interest in the assets of the issuer after deducting all of its liabilities. For the former, it is a financial liability of the Company; for the latter, it is the Company's own equity instruments.

(4) Fair value of financial instruments

The methods for determining the fair value of the financial assets or financial liabilities are set out in Note V. 12.

(5) Impairment of financial assets

The Company makes provision for impairment based on expected credit losses (ECLs) on the following items:

Financial assets measured at amortised cost;

Receivables and investment in debt instruments measured at fair value through other comprehensive income;

Contract assets as defined in the Accounting Standards for Business Enterprises No. 14 – Revenue;

Lease receivables;

Financial guarantee contracts (except those measured at fair value through profit or loss or formed by continuing involvement of transferred financial assets or the transfer does not qualify for derecognition).

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

11. Financial instruments (Cont'd)

(5) Impairment of financial assets (Cont'd)

Measurement of ECLs

ECLs are the weighted average of credit losses of financial instruments weighted by the risk of default. Credit losses refer to the difference between all contractual cash flows receivable according to the contract and discounted according to the original effective interest rate and all cash flows expected to be received, i.e. the present value of all cash shortages.

The Company takes into account reasonable and well-founded information such as past events, current conditions and forecasts of future economic conditions, and calculates the probability-weighted amount of the present value of the difference between the cash flows receivable from the contract and the cash flows expected to be received weighted by the risk of default.

The Company measures ECLs of financial instruments at different stages. If the credit risk of the financial instrument did not increase significantly upon initial recognition, it is at the first stage, and the Company makes provision for impairment based on the ECLs within the next 12 months; if the credit risk of a financial instrument increased significantly upon initial recognition but has not yet incurred credit impairment, it is at the second stage, and the Company makes provision for impairment based on the lifetime ECLs of the instrument; if the financial instrument incurred credit impairment upon initial recognition, it is at the third stage, and the Company makes provision for impairment based on the lifetime ECLs of the instrument.

For financial instruments with low credit risk on the balance sheet date, the Company assumes that the credit risk did not increase significantly upon initial recognition, and makes provision for impairment based on the ECLs within the next 12 months.

Lifetime ECLs represent the ECLs resulting from all possible default events over the expected life of a financial instrument. The 12-month ECLs are the ECLs resulting from possible default events on a financial instrument within 12 months (or a shorter period if the expected life of the financial instrument is less than 12 months) after the balance sheet date, and is a portion of lifetime ECLs.

The maximum period to be considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk, including renewal options.

For the financial instruments at the first and second stages and with low credit risks, the Company calculates the interest income based on the book balance and the effective interest rate before deducting the impairment provisions. For financial instruments at the third stage, interest income is calculated based on the amortised cost after deducting impairment provisions made from the book balance and the effective interest rate.

For receivables such as bills receivable, accounts receivable, accounts receivable financing, other receivables and contract assets, if the credit risk characteristics of a customer are significantly different from other customers in the portfolio, or the credit risk characteristics of such customer change significantly, the Company will make a separate provision for bad debts for such receivables. In addition to the receivables for which bad debt provisions are made individually, the Company divides the receivables into portfolios based on credit risk characteristics and calculates bad debt provisions on a combined basis.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

11. Financial instruments (Cont'd)

(5) Impairment of financial assets (Cont'd)

Bills receivable and accounts receivable

For bills receivable and accounts receivable, regardless of whether there is a significant financing component, the Company always makes provision for impairment at an amount equal to lifetime ECLs.

When the Company is unable to assess the information of ECLs for an individual financial asset or contract assets at a reasonable cost, it classifies bills receivable, accounts receivable and contract assets into portfolios based on the credit risk characteristics, and calculates the ECLs on a portfolio basis. The basis for determining the portfolios is as follows:

A. Bills receivable

Bills receivable portfolio 1: Bank acceptance bills

Bills receivable portfolio 2: Commercial acceptance bills

B. Accounts receivable

Accounts receivable portfolio 1: Due from related party customers

Accounts receivable portfolio 2: Due from non-related party customers

Accounts receivable portfolio 3: Factoring receivables

For bills receivable classified as a portfolio, the Company refers to the historical credit loss experience, combined with the current situation and the forecast of future economic conditions, to calculate the ECLs based on default risk exposure and lifetime ECL rate.

For accounts receivable classified as a portfolio, the Company refers to the historical credit loss experience, combined with the current situation and the forecast of future economic conditions, to prepare a comparison table of the ageing of accounts receivable and the lifetime ECL rate to calculate the ECLs. The aging of accounts receivable is calculated from the date of recognition.

Other receivables

The Company classifies other receivables into portfolios based on credit risk characteristics, and calculates the ECLs on a portfolio basis. The basis for determining the portfolios is as follows:

Other receivables portfolio 1: Amount due from government authorities

Other receivables portfolio 2: Amount due from related parties

Other receivables portfolio 3: Other receivables

For other receivables classified as a portfolio, the Company calculates the ECLs based on default risk exposure and the ECL rate over the next 12 months or the entire lifetime. For other receivables grouped by aging, the aging is calculated from the date of recognition.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

11. Financial instruments (Cont'd)

(5) Impairment of financial assets (Cont'd)

Long-term receivables

The Company's long-term receivables include finance lease receivables, warranty deposits receivable and instalment receivable for asset transfers.

The Company classifies the finance lease receivables, warranty deposits receivable and instalment receivable for asset transfers into portfolios based on the credit risk characteristics, and calculates the ECLs on a portfolio basis. The basis for determining the portfolios is as follows:

A. Finance lease receivables

Finance lease receivables portfolio 1: Receivables not past due

Finance lease receivables portfolio 2: Overdue receivables

B. Other long-term receivables

Other long-term receivables portfolio 1: Warranty deposits receivable

Other long-term receivables portfolio 2: Sublease receivable for woodland

Other long-term receivables portfolio 3: Equity transfer receivables

Other long-term receivables portfolio 4: Debt transfer receivables

For finance lease receivables, warranty deposits receivable and instalment receivable for asset transfers, the Company refers to the historical credit loss experience, combined with the current situation and the forecast of future economic conditions, and calculates the ECLs based on default risk exposure and lifetime ECL rate.

Except for those of finance lease receivables, warranty deposits receivable and instalment receivable for asset transfers, the ECLs of other receivables and long-term receivables classified as a portfolio are measured based on default risk exposure and ECL rate over the next 12 months or the entire lifetime.

Debt investments and other debt investments

For debt investments and other debt investments, the Company measures the ECLs based on the nature of the investment, the types of counterparty and risk exposure, and default risk exposure and ECL rate within the next 12 months or the entire lifetime.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

11. Financial instruments (Cont'd)

(5) Impairment of financial assets (Cont'd)

Assessment of significant increase in credit risk

In assessing whether the credit risk of a financial instrument has increased significantly upon initial recognition, the Company compares the risk of default of the financial instrument at the balance sheet date with that at the date of initial recognition to determine the relative change in risk of default within the expected lifetime of the financial instrument.

In determining whether the credit risk has increased significantly upon initial recognition, the Company considers reasonable and well-founded information, including forward-looking information, which can be obtained without unnecessary extra costs or efforts. Information considered by the Company includes:

The debtor's failure to make payments of principal and interest on their contractually due dates;

An actual or expected significant deterioration in a financial instrument's external or internal credit rating (if any);

An actual or expected significant deterioration in the operating results of the debtor;

Existing or expected changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor's ability to meet its obligation to the Company.

Depending on the nature of the financial instruments, the Company assesses whether there has been a significant increase in credit risk on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on their common credit risk characteristics, such as past due information and credit risk ratings.

The Company determines that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

Credit-impaired financial assets

At balance sheet date, the Company assesses whether financial assets measured at amortised cost and debt investments measured at fair value through other comprehensive income are credit-impaired. A financial asset is credit-impaired when one or more events that have an adverse effect on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable events:

Significant financial difficulty of the issuer or debtor;

A breach of contract by the debtor, such as a default or delinquency in interest or principal payments;

For economic or contractual reasons relating to the debtor's financial difficulty, the Company having granted to the debtor a concession that would not otherwise consider;

It becoming probable that the debtor will enter bankruptcy or other financial reorganisation;

The disappearance of an active market for that financial asset because of financial difficulties of the issuer or debtor.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

11. Financial instruments (Cont'd)

(5) Impairment of financial assets (Cont'd)

Presentation of provisions for ECLs

ECLs are remeasured at each balance sheet date to reflect changes in the financial instrument's credit risk upon initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss for the current period. For financial assets measured at amortised cost, the provisions of impairment are deducted from the carrying amount of the financial assets presented in the balance sheet; for debt investments at fair value through other comprehensive income, the Company makes provisions of impairment in other comprehensive income without reducing the carrying amount of the financial asset.

Write-offs

The book balance of a financial asset is directly written off to the extent that there is no realistic prospect of recovery of the contractual cash flows of the financial asset (either partially or in full). Such write-off constitutes derecognition of such financial asset. This is generally the case when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company's procedures for recovery of amounts due.

If a write-off of financial assets is subsequently recovered, the recovery is credited to profit or loss in the period in which the recovery occurs.

(6) Transfer of financial assets

Transfer of financial assets refers to the transfer or delivery of financial assets to another party other than the issuer of such financial assets (the transferee).

If the Company transfers substantially all the risks and rewards of ownership of the financial asset to the transferee, the financial asset shall be derecognised. If the Company retains substantially all the risks and rewards of ownership of a financial asset, the financial asset shall not be derecognised.

If the Company neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, it accounts for the transaction as follows: if the Company does not retain control, it derecognises the financial asset and recognises any resulting assets or liabilities; if the control over the financial asset is not waived, the relevant financial asset is recognised according to the extent of its continuing involvement in the transferred financial asset and the relevant liability is recognised accordingly.

(7) Offset of financial assets and financial liabilities

If the Company owns the legitimate rights of offsetting the recognised financial assets and financial liabilities, which are enforceable currently, and the Company plans to realise the financial assets or to clear off the financial liabilities on a net amount basis or simultaneously, the net amount of financial assets and financial liabilities shall be presented in the balance sheet upon offsetting. Otherwise, financial assets and financial liabilities are presented separately in the balance sheet without offsetting.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

12. Fair value measurement

Fair value is 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 measures the relevant asset and liability at fair value, based on the presumption that the orderly transaction to sell the asset or transfer the liability takes place either in the principal market for the relevant asset or liability, or in the absence of a principal market, in the most advantageous market for relevant the asset or liability. The principal or the most advantageous market must be a trading market accessible by the Company at the measurement date. The Company adopts the presumption that market participants would use when pricing the asset or liability in their best economic interest.

If there exists an active market for a financial asset or financial liability, the Company uses the quotation on the active market as its fair value. If the market for a financial instrument is inactive, the Company uses valuation technique to recognise its fair value.

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 best use or by selling it to another market participant that would use the asset in its best use.

The Company adopts valuation techniques that are appropriate in the current circumstance and for which sufficient data and other information are available, prioritises the use of relevant observable inputs and uses unobservable inputs only under the circumstances where such relevant observable inputs cannot be obtained or practicably obtained.

Assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole. Level 1: based on quoted prices (unadjusted) in active markets for identical assets or liabilities obtainable at the measurement date. Level 2: observable inputs for the relevant asset or liability, either directly or indirectly, except for Level 1 input. Level 3: unobservable inputs for the relevant assets or liability.

At each balance sheet date, the Company reassesses assets and liabilities measured at fair value that are recognised in the financial statements on a recurring basis to determine whether transfers have occurred between fair value measurement hierarchy levels.

13. Inventories

(1) Classification of inventories

Inventories of the Company mainly include raw materials, work in progress, goods in stock, development products and consumable biological assets, etc.

(2) Pricing of inventories dispatched

Inventories of the Company are measured at their actual cost when obtained. Cost of raw materials, goods in stock and others will be calculated with weighted average method when being dispatched.

Consumable biological assets refer to biological assets held-for-sale which include growing timber. Consumable biological assets without a stock are stated at historical cost at initial recognition, and subsequently measured at fair value when there is a stock. Changes in fair values shall be recognised as profit or loss in the current period. The cost of self-planting, self-cultivating consumable biological assets is the necessary expenses directly attributable to such assets prior to canopy closure, including borrowing costs eligible for capitalisation. Subsequent expenses such as maintenance cost incurred after canopy closure shall be included in profit or loss for the current period.

The cost of consumable biological assets shall, at the time of harvest or disposal, be carried forward at carrying amount using the stock volume proportion method.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

13. Inventories (Cont'd)

(3) Recognition of and provision for inventory impairment

At the balance sheet date, inventories are measured at the lower of cost and net realisable value. If the net realisable value is below the cost of inventories, a provision for inventory impairment is made.

Net realisable value refers to the amount of the estimated price of inventories less the estimated cost incurred upon completion, estimated sales expenses and taxes and levies. The realisable value of inventories shall be determined on the basis of definite evidence, purpose of holding the inventories and effect of after-balance-sheet date events.

The Company usually makes provisions for inventory impairment on the basis of individual inventory items; however, for inventories with large quantities and lower unit prices, these inventories are accrued impairment according to inventory categories.

(4) Inventory stock taking system

The Company implements permanent inventory system as its inventory stock taking system.

(5) Amortisation of low-value consumables and packaging materials

The low-value consumables of the Company are amortised when issued for use.

Packaging materials for turnover are amortised when issued for use.

14. Long-term equity investments

Long-term equity investments include the equity investments in subsidiaries, joint ventures and associates. Associates of the Company are those investees that the Company imposes significant influence over.

(1) Determination of initial investment cost

Long-term equity investments acquired through business combinations: for a long-term equity investment acquired through a business combination involving enterprises under common control, the investment cost shall be the absorbing party's share of the carrying amount of the owners' equity under the consolidated financial statements of the ultimate controlling party on the date of combination. For a long-term equity investment acquired through a business combination involving enterprises not under common control, the investment cost of the long-term equity investment shall be the cost of combination.

Long-term equity investments acquired through other means: for a long-term equity investment acquired by cash payment, the initial investment cost shall be the purchase cost actually paid; for a long-term equity investment acquired by issuing equity securities, the initial investment cost shall be the fair value of equity securities issued.

(2) Subsequent measurement and method for profit or loss recognition

Investments in subsidiaries shall be accounted for using the cost method. Except for the investments which meet the conditions of holding for sale, investments in associates and joint ventures shall be accounted for using the equity method.

For a long-term equity investment accounted for using the cost method, the cash dividends or profits declared by the investees for distribution shall be recognised as investment gains and included in profit or loss for the current period, except the case of receiving the actual consideration paid for the investment or the declared but not yet distributed cash dividends or profits which is included in the consideration.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

14. Long-term equity investments (Cont'd)

(2) Subsequent measurement and method for profit or loss recognition (Cont'd)

For a long-term equity investment accounted for using the equity method, where the initial investment cost exceeds the investor's interest in the fair value of the investee's identifiable net assets at the acquisition date, no adjustment shall be made to the investment cost of the long-term equity investment. Where the initial investment cost is less than the investor's interest in the fair value of the investee's identifiable net assets at the acquisition date, adjustment shall be made to the carrying amount of the long-term equity investment, and the difference shall be charged to profit or loss for the current period.

Under the equity method, investment gain and other comprehensive income shall be recognised based on the Company's share of the net profits or losses and other comprehensive income made by the investee, respectively. Meanwhile, the carrying amount of long-term equity investment shall be adjusted. The carrying amount of long-term equity investment shall be reduced based on the Group's share of profit or cash dividend distributed by the investee. In respect of the other movement of net profit or loss, other comprehensive income and profit distribution of investee, the carrying amount of long-term equity investment shall be adjusted and included in the capital reserves (other capital reserves). The Group shall recognise its share of the investee's net profits or losses based on the fair values of the investee's individual separately identifiable assets at the time of acquisition, after making appropriate adjustments thereto according to the accounting policies and accounting periods of the Company.

For additional equity investment made in order to obtain significant influence or common control over investee without resulted in control, the initial investment cost under the equity method shall be the aggregate of fair value of previously held equity investment and additional investment cost on the date of transfer. For investments in non-trading equity instruments that were previously classified as at fair value through other comprehensive income, the cumulative fair value changes associated with them that were previously included in other comprehensive income are transferred to retained earnings upon the change to the equity method of accounting.

In the event of loss of common control or significant influence over investee due to partial disposal of equity investment, the remaining equity interest after disposal shall be accounted for according to the Accounting Standard for Business Enterprises No. 22 – Recognition and measurement of Financial Instruments. The difference between its fair value and carrying amount shall be included in profit or loss for the current period. In respect of other comprehensive income recognised under previous equity investment using equity method, it shall be accounted for in accordance with the same accounting treatment for direct disposal of relevant asset or liability by investee at the time when equity method was ceased to be used. Movement of other owners' equity related to the previous equity investment shall be transferred to profit or loss for the current period.

In the event of loss of control over investee due to partial disposal of equity investment, the remaining equity interest which can apply common control or impose significant influence over the investee after disposal shall be accounted for using equity method. Such remaining equity interest shall be treated as accounting for using equity method since it is obtained and adjustment was made accordingly. For the remaining equity interest which cannot apply common control or impose significant influence over the investee after disposal, it shall be accounted for using the Accounting Standard for Business Enterprises No. 22 – Recognition and measurement of Financial Instruments. The difference between its fair value and carrying amount as at the date of losing control shall be included in profit or loss for the current period.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

14. Long-term equity investments (Cont'd)

(2) Subsequent measurement and method for profit or loss recognition (Cont'd)

If the shareholding ratio of the Company is reduced due to the capital increase of other investors, and as a result, the Company loses the control of but still can apply common control or impose significant influence over the investee, the net asset increase due to the capital increase of the investee attributable to the Company shall be recognised according to the new shareholding ratio, and the difference with the original carrying amount of the long-term equity investment corresponding to the shareholding ratio reduction part that should be carried forward shall be recorded in the profit or loss for the current period; and then it shall be adjusted according to the new shareholding ratio as if equity method is used for accounting when acquiring the investment.

In respect of the transactions between the Company and its associates and joint ventures, the share of unrealised gain or loss arising from internal transactions shall be eliminated by the portion attributable to the Company. Investment gain or loss shall be recognised accordingly. However, any unrealised loss arising from internal transactions between the Company and an investee is not eliminated to the extent that the loss is impairment loss of the transferred assets.

(3) Basis for determining the common control and significant influence on the investee

Common control is the contractually agreed sharing of control over an arrangement, which relevant activities of such arrangement must be decided by unanimously agreement from parties who share control. When determining if there is any common control, it should first be identified if the arrangement is controlled by all the participants or the group consisting of the participants, and then determined if the decision on the arranged activity can be made only with the unanimous consent of the participants sharing the control. If all the participants or a group of participants can only decide the relevant activities of certain arrangement through concerted action, it can be considered that all the participants or a group of participants share common control on the arrangement. If there are two or more participant groups that can collectively control certain arrangement, it does not constitute common control. When determining if there is any common control, the relevant protection rights will not be taken into account.

Significant influence is the power of the investor to participate in the financial and operating policy decisions of an investee, but to fail to control or joint control the formulation of such policies together with other parties. When determining if there is any significant influence on the investee, the influence of the voting shares of the investee held by the investor directly and indirectly and the potential voting rights held by the investor and other parties which are exercisable in the current period and converted to the equity of the investee, including the warrants, stock options and convertible bonds that are issued by the investee and can be converted in the current period, shall be taken into account.

When the Company holds directly or indirectly through the subsidiary 20% (inclusive) to 50% of the voting shares of the investee, it is generally considered to have significant influence on the investee, unless there is concrete evidence to prove that it cannot participate in the production and operation decision-making of the investee and cannot pose significant influence in this situation. When the Company owns less than 20% (exclusive) of the voting shares of the investee, it is generally considered that it has not significantly influenced on the investee, unless there is concrete evidence to prove that it can participate in the production and operation decision-making of the investee and can impose significant influence in this situation.

(4) Impairment test method and impairment provision

For the method for making impairment provision for the investment in subsidiaries, associates and joint ventures, please refer to Note V. 23.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

15. Investment property

Investment property refers to real estate held to earn rentals or for capital appreciation, or both. The investment property of the Company includes leased land use rights, land use rights held for sale after appreciation, and leased buildings.

The investment property of the Company is measured initially at cost upon acquisition, and subject to depreciation or amortisation in the relevant periods according to the relevant provisions on fixed assets or intangible assets.

For the method for making impairment provision for the investment property adopted cost method for subsequent measurement, please refer to Note V. 23.

When an investment property is sold, transferred, retired or damaged, the amount of proceeds on disposal of the property net of the carrying amount and related tax and surcharges is recognised in profit or loss for the current period.

16. Fixed assets

(1) Conditions for recognition of fixed assets

Fixed assets represent the tangible assets held by the Company using in the production of goods, rendering of services and for operation and administrative purposes with useful life over one year.

Fixed assets are recognised when it is probable that the related economic benefits will flow to the Company and the costs can be reliably measured.

The Company's fixed assets are initially measured at the actual cost at the time of acquisition.

Subsequent expenditures incurred for a fixed asset are included in the cost of the fixed asset when it is probable that the associated economic benefits will flow to the Company and the related cost can be reliably measured. The cost of routine repairs of fixed assets that do not qualify as capitalised subsequent expenditure is charged to current profit or loss or included in the cost of the related assets in accordance with the beneficiary object when incurred. The carrying amount of the replaced part is derecognised.

(2) Depreciation method of fixed assets

The Company adopts the straight-line method for depreciation. Provision for depreciation will be started when the fixed asset reaches its expected usable state, and stopped when the fixed asset is derecognised or classified as a non-current asset held for sale. Without regard to the depreciation provision, the Company determines the annual depreciation rate by category, estimated useful lives and estimated residual value of the fixed assets as below:

Where, for the fixed assets for which impairment provision is made, to determine the depreciation rate, the accumulated amount of the fixed asset impairment provision that has been made shall be deducted.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

16. Fixed assets (Cont'd)

(3) The impairment test method and impairment provision method of the fixed assets are set out in Note V. 23.

(4) The Company will review the useful lives, estimated net residual value and depreciation method of the fixed assets at the end of each year.

When there is any difference between the useful lives estimate and the originally estimated value, the useful lives of the fixed asset shall be adjusted. When there is any difference between the estimated net residual value estimate and the originally estimated value, the estimated net residual value shall be adjusted.

(5) Disposal of fixed assets

A fixed asset is derecognised on disposal or when it is expected that there shall be no economic benefit arising from using or after disposal. Where the fixed assets are sold, transferred, retired or damaged, the income received after disposal after deducting the carrying amount and related taxes are recognised in profit or loss for the current period.

17. Construction in progress

Construction in progress of the Company is recognised based on the actual construction cost, including all necessary expenditures incurred for construction projects, capitalised borrowing costs for the construction in progress before it has reached the working condition for its intended use, and other related expenses during the construction period.

A construction in progress is reclassified to fixed assets when it has reached the working condition for its intended use. For technological transformation or new machine-made paper projects, the projects will be put into trial operation for a period of time (usually three months) upon completion of construction. After the internal acceptance is completed during the trial operation period, the construction in progress will be transferred to fixed assets.

The method for impairment provision of construction in progress is set out in Note V. 23.

18. Materials for project

The materials for project of the Group refer to various materials prepared for construction in progress, including construction materials, equipment not yet installed and tools for production.

The purchased materials for project are measured at cost, and the planning materials for project are transferred to construction in progress. After the completion of the project, the remaining materials for project are transferred to inventory.

The method for impairment provision of materials for project is set out in Note V. 23.

The closing balance of materials for project is presented as “construction in progress” item in the balance sheet.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

19. Borrowing costs

(1) Recognition principle for the capitalisation of the borrowing costs

The borrowing costs incurred by the Company directly attributable to the acquisition, construction or production of a qualifying asset will be capitalised and included in the cost of relevant asset. Other borrowing costs will be recognised as expenses when incurred according to the incurred amount, and included in the profit or loss for the current period. When the borrowing costs meet all the following conditions, capitalisation shall be started:

① the capital expenditure has been incurred, which includes the expenditure incurred by paying cash, transferring non-cash assets or undertaking interest-bearing liabilities for acquiring, constructing or producing the qualifying assets;

② the borrowing costs have been incurred; and

③ the acquisition, construction or production activity necessary for the asset to be ready for its intended use or sale has been started.

(2) Capitalisation period of borrowing costs

When a qualifying asset acquired, constructed or produced by the Company is ready for its intended use or sale, the capitalisation of the borrowing costs shall discontinue. The borrowing costs incurred after a qualifying asset is ready for its intended use or sale shall be recognised as expenses when incurred according to the incurred amount, and included in the profit or loss for the current period.

Capitalisation of borrowing costs shall be suspended during periods in which the acquisition, construction or production of a qualifying asset is interrupted abnormally, when the interruption is for a continuous period of more than 3 months. The capitalisation of the borrowing costs shall be continued in the normal interruption period.

(3) Calculation methods for capitalisation rate and capitalised amount of the borrowing costs

Where funds are borrowed for a specific purpose, the amount of interest to be capitalised shall be the actual interest expense incurred on that borrowing for the period less any bank interest earned from depositing the borrowed funds before being used into banks or any investment income on the temporary investment of those funds. Where funds are borrowed for general purpose, the Company shall determine the amount of interest to be capitalised on such borrowings by applying a capitalisation rate to the weighted average of the excess amounts of cumulative expenditures on the asset over and above the amounts of specific-purpose borrowings. The capitalisation rate shall be the weighted average of the interest rates applicable to the general-purpose borrowings.

During the capitalisation period, exchange differences on a specific purpose borrowing denominated in foreign currency shall be capitalised. Exchange differences related to general-purpose borrowings denominated in foreign currency shall be included in profit or loss for the current period.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

20. Bearer biological assets

(1) Standards for recognising bearer biological assets

Bearer biological assets refer to biological assets held for the purpose of producing agricultural products, providing labour services or renting. The Company’s bearer biological assets are mainly tea trees. Bearer biological assets are initially measured at cost. The cost of a planted or propagated bearer biological asset includes the expenses directly attributable to the asset and necessarily incurred before the asset is ready for its intended production and operation, including the borrowing costs that are eligible for capitalisation.

The management, protection and feeding costs of a biological asset subsequent to crown closure or after the asset is ready for its intended production and operation are expensed and recognised in profit or loss as incurred. According to experience, the tea trees grown by the Company generally take 7 years to reach the crown closure stage.

Depreciation of bearer biological assets is calculated using the straight-line method over the estimated useful life of each biological asset less its residual value as follows:

The Company reviews the useful life and estimated net residual value of a bearer biological asset and the depreciation method applied at least at each financial year-end. A change in the useful life or estimated net residual value of a fixed asset or the depreciation method used shall be accounted for as a change in accounting estimate.

The difference between the disposal income of the sale, loss, death or damage of a bearer biological asset, net of its carrying amount and related taxes, is recognised in profit or loss for the current period.

(2) Treatment of impairment of bearer biological assets

The method for impairment provision of bearer biological assets is set out in Note V. 23.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

21. Intangible assets

The intangible assets of the Company include land use rights, software, patents and certificates of third party right.

The intangible asset is initially measured at cost, and its useful life is determined upon acquisition. If the useful life is finite, the intangible asset will be amortised over the estimated useful life using the amortisation method that can reflect the estimated realisation of the economic benefits related to the asset, starting from the time when it is available for use. If it is unable to reliably determine the estimated realisation, straight-line method shall be adopted for amortisation.

The intangible assets with uncertain useful life will not be amortised. The amortisation methods for the intangible assets with finite useful life are as follows:

The Company reviews the useful life and amortisation method of the intangible assets with finite useful life at the end of each year. If it is different from the previous estimates, the original estimates will be adjusted, and will be treated as a change in accounting estimate.

If it is estimated on the balance sheet date that certain intangible asset can no longer bring future economic benefit to the company, the carrying amount of the intangible asset will be entirely transferred into the profit or loss for the current period.

The impairment method for the intangible assets is set out in Note V. 23.

22. R&D expenses

The R&D expenses of the Company are expenses directly related to the R&D activities of the Company, including the wages R&D staff, direct investment costs, depreciation expenses and long-term prepaid expenses, design expenses, equipment testing expenses, amortisation expenses of intangible assets, and outsourced R&D expenses, and other expenses. Among them, the wages of R&D staff are included in R&D expenses based on working hours of related projects. Equipment, production lines, and sites shared between R&D activities and other production and operation activities are included in R&D expenses according to the proportion of working hours and the proportion of area.

The Company divides the expenses on internal R&D projects into expenses in the research phase and expenses in the development phase.

Expenses in the research phase are recognised in profit or loss when incurred.

Expenses in the development phase will only be capitalised if they meet all of the following conditions: it is technically feasible to complete the intangible asset for use or sale; there is an intention to complete and use or sell the intangible asset; the intangible asset will generate economic benefits, including demonstrating that there is a market for the products produced using the intangible asset or for the intangible asset itself, and if the intangible asset is to be used internally, its usefulness can be demonstrated; there are sufficient technical, financial and other resources to support the completion of the development of the intangible asset and the ability to use or sell the intangible asset; the expenses attributable to the development phase of the intangible asset can be reliably measured. Development expenses that do not meet the above conditions are included in profit or loss for the period.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

22. R&D expenses (Cont'd)

After meeting the above conditions and passing the technical feasibility and economic feasibility studies to become a formal project, the Company's research and development project will enter the development phase.

Capitalised expenses in the development phase are presented as development expenses on the balance sheet and are transferred to intangible assets from the date the project is put to its intended use.

All R&D expenses of the Company are included in the current profits and losses when incurred.

23. Asset impairment

Impairment of long-term equity investments in subsidiaries, associates and joint ventures, asset impairment on investment property, fixed assets, construction in progress, bearer biological assets measured at cost, right-of-use assets, intangible assets, goodwill and others (excluding inventories, deferred tax assets and financial assets) subsequently measured at cost is determined as follows:

The Company determines if there is any indication of asset impairment as at the balance sheet date. If there is any evidence indicating that an asset may be impaired, recoverable amount shall be estimated for impairment test. Goodwill arising from business combinations, intangible assets with an indefinite useful life and intangible assets not ready for intended use will be tested for impairment annually, regardless of whether there is any indication of impairment.

The recoverable amount of an asset is the higher of its fair value less costs of disposal and the present value of the future cash flows expected to be derived from the asset. The Company estimates the recoverable amount of an individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Company shall determine the recoverable amount of the asset group to which the asset belongs. The determination of an asset group is based on whether major cash inflows generated by the asset group are independent of the cash inflows from other assets or asset groups.

When the recoverable amount of an asset or an asset group is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction amount is charged to profit or loss and an impairment provision is made accordingly.

For the purpose of impairment test of goodwill, the carrying amount of goodwill acquired in a business combination is allocated to the relevant asset groups on a reasonable basis from the acquisition date; where it is difficult to allocate to the related asset groups, it is allocated to the combination of related asset groups. The related asset groups or combination of asset groups are those which can benefit from the synergies of the business combination and are not larger than the reportable segments identified by the Company.

In the impairment test, if there is any indication that an asset group or a combination of asset groups related to goodwill may be impaired, the Company first tests the asset group or set of asset groups excluding goodwill for impairment, calculates the recoverable amount and recognises the corresponding impairment loss. An impairment test is then carried out on the asset group or combination of asset groups containing goodwill by comparing its carrying amount with its recoverable amount. If the recoverable amount is lower than the carrying amount, an impairment loss is recognised for goodwill.

An impairment loss recognised shall not be reversed in a subsequent period.

24. Long-term prepaid expenses

The long-term prepaid expenses incurred by the Company shall be recognised based on the actual cost, and evenly amortised over the estimated benefit period. For the long-term prepaid expense that cannot benefit the subsequent accounting periods, its value after amortisation shall be entirely included in the profit or loss for the current period.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

25. Employee benefits

(1) Scope of employee benefits

Employee benefits are all forms of considerations or compensation given by an enterprise in exchange for services rendered by employees or for the termination of employment. Employee benefits include short-term staff remuneration, post-employment benefits, termination benefits and other long-term employee benefits. Employee benefits include benefits provided to employees' spouses, children, other dependants, survivors of the deceased employees or other beneficiaries.

Employee benefits are presented as “employee benefits payable” and “long-term employee benefits payable” in the balance sheet, respectively, according to liquidity.

(2) Short-term staff remuneration

Employee wages actually incurred, bonuses, and social insurance contributions such as medical insurance, work injury insurance, maternity insurance, and housing fund, contributed at the applicable benchmarks and rates, are recognised as a liability as the employees provide services, with a corresponding charge to profit or loss or included in the cost of assets.

(3) Post-employment benefits

Post-employment benefit plans include defined contribution plans and defined benefit plans. A defined contribution plan is a post-employment benefit plan under which the Company pays fixed contributions into a separate fund and the Company has no further obligations for payment. A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.

Defined contribution plans

Defined contribution plans include basic pension insurance and unemployment insurance.

During the accounting period in which an employee provides service, the amount payable calculated according to the defined contribution plan is recognised as a liability and included in the profit or loss for the current period or the cost of relevant assets.

(4) Termination benefits

When the Company provides termination benefits to employees, employee benefits liabilities arising from termination benefits are recognised in profit or loss for the current period at the earlier of the following dates: when the Company cannot revoke unilaterally compensation for dismissal due to the cancellation of labour relationship plans and employee redundant proposals; the Company recognises cost and expenses related to payment of compensation for dismissal and restructuring.

For the early retirement plans, economic compensations before the actual retirement date were classified as termination benefits. During the period from the date of cease of render of services to the actual retirement date, relevant wages and contribution to social insurance for the employees proposed to be paid are recognised in profit or loss on a one-off basis. Economic compensation after the official retirement date, such as normal pension, is accounted for as post-employment benefits.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

25. Employee benefits (Cont'd)

(5) Other long-term benefits

Other long-term employee benefits provided by the Group to employees that meet the conditions for defined contribution plans are accounted for in accordance with the relevant provisions relating to defined contribution plans as stated above. If the conditions for defined benefit plans are met, the benefits shall be accounted for in accordance with the relevant provisions relating to defined benefit plans, but the “changes arising from the remeasurement of net liabilities or net assets of defined benefit plans” in the relevant employee benefits shall be included in the current profit and loss or the relevant costs of assets.

26. Provisions

Obligations pertinent to the contingencies which satisfy the following conditions are recognised by the Company as provisions:

(1) the obligation is a current obligation borne by the Company;

(2) it is likely that an outflow of economic benefits from the Company will be resulted from the performance of the obligation;

(3) the amount of the obligation can be reliably measured.

The provisions shall be initially measured based on the best estimate for the expenditure required for the performance of the current obligation, after taking into account relevant risks, uncertainties, time value of money and other factors pertinent to the contingencies. If the time value of money has significant influence, the best estimates shall be determined after discounting the relevant future cash outflow. The Company reviews the carrying amount of the provisions on the balance sheet date and adjust the carrying amount to reflect the current best estimates.

If all or some expenses incurred for settlement of recognised provisions are expected to be borne by the third party, the compensation amount shall, on a recoverable basis, be recognised as asset separately, and compensation amount recognised shall not be more than the carrying amount of provisions.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

27. Revenue

(1) General principles

The Company recognises revenue when it satisfies a performance obligation in the contract, i.e. when the customer obtains control of the relevant goods or services.

Where a contract has two or more performance obligations, the Company, on the commencement date of the contract, allocates the transaction price to each performance obligation based on the percentage of respective unit price of goods or services guaranteed by each performance obligation, and recognises as revenue based on the transaction price that is allocated to each performance obligation.

If one of the following conditions is fulfilled, the Company performs its performance obligation within a certain period; otherwise, it performs its performance obligation at a point of time:

① when the customer simultaneously receives and consumes the economic benefits provided by the Company when the Company performs its obligations under the contract.

② when the customer is able to control the goods in progress in the course of performance by the Company under the contract.

③ when the goods produced by the Company under the contract are irreplaceable and the Company has the right to payment for performance completed to date during the whole contract term.

For performance obligations performed within a certain period, the Company recognises revenue by measuring the progress towards completion of that performance obligation within that certain period. When the progress of performance cannot be reasonably determined, if the costs incurred by the Company are expected to be compensated, the revenue shall be recognised at the amount of costs incurred until the progress of performance can be reasonably determined.

For performance obligation performed at a point of time, the Company recognises revenue at the point of time at which the customer obtains control of relevant goods or services. To determine whether a customer has obtained control of goods or services, the Company considers the following indications:

① The Company has the current right to receive payment for the goods or services, which is when the customer has the current payment obligations for the goods.

② The Company has transferred the legal title of the goods to the customer, which is when the client possesses the legal title of the goods.

③ The Company has transferred the physical possession of goods to the customer, which is when the customer obtains physical possession of the goods.

④ The Company has transferred all of the substantial risks and rewards of ownership of the goods to the customer, which is when the customer obtains all of the substantial risks and rewards of ownership of the goods.

⑤ The customer has accepted the goods or services.

⑥ Other information indicates that the customer has obtained control of the goods.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

27. Revenue (Cont'd)

(2) Specific methods

The Company's revenue mainly comes from the following types of business: sales of goods, and provision of property services.

Sales of goods

The Company produces and sells machine-made paper and raw materials, electricity and steam, papermaking chemicals and other products.

In terms of domestic sales, revenue is recognised at a point in time when the control over the goods is transferred after the Company has delivered the goods (other than electricity and steam) sold to the location as specified in the contract and the customer has accepted the goods.

In terms of overseas sales, revenue is recognised on the day when the goods (other than electricity and steam) sold are loaded on board and declared.

The sales of electricity and steam by the Company are performance obligations performed within a certain period. For sales of electricity, the Company recognises revenue from sales of electricity based on the quantity of electricity delivered to customers every month at a price agreed in the contract. For sales of steam, the Company recognises revenue from sales of steam based on the amount of steam delivered to customers every month at a price agreed in the contract.

The credit periods granted by the Company to customers in various industries are consistent with the practices of various industries, therefore, there is no significant financing component.

The Company provides product quality assurance for the sales of products and recognises corresponding provisions. The Company does not provide any additional services or additional quality assurance, so the product quality assurance does not constitute a separate fulfilment obligation.

The Company's cooperation model with distributors is outright sales, and the recognition of sales revenue under the distribution model is consistent with the direct sales model.

Certain contracts between the Company and its customers contain arrangements on sales rebates which will give rise to variable consideration. The Company determines the best estimates on the variable consideration based on expected values or the most probable amount, provided that transaction prices including variable consideration shall not exceed the cumulative amount of recognised revenue upon the removal of relevant uncertainties in connection with which a significant reversal is highly unlikely.

For sales of machine-made paper with sales return clauses, the revenue recognised is subject to the cumulative amount of recognised revenue in connection with which a significant reversal is highly unlikely. The Company recognises the liabilities according to the expected amount of refund, and recognises the carrying amount of the goods returned at the time of transfer deducting the estimated cost of recovering the goods as an asset (including the loss of the value of the returned goods).

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

27. Revenue (Cont'd)

(2) Specific methods (Cont'd)

Provision of property services

The Company provides property services to external parties. Since the customers obtain and consume the economic benefits brought by the Company's performance of the contract while the Company performs the contract, the Company recognises revenue according to the progress of the contract performance. Since the performance progress occurs evenly, the Company recognises revenue by amortising on a straight-line basis over the service period.

For assets that have not experienced credit impairment, the Company determines its interest income based on the amount of the book balance of the financial asset (i.e. without considering the impact of impairment) multiplied by the effective interest rate.

There are two cases for financial assets with credit impairment:

For financial assets that are not credit-impaired when purchased or originated, but are credit-impaired in subsequent periods, the Company shall, in the subsequent periods when impairment occurs, determine its income based on the amount of the amortised cost of the financial asset (i.e. the book balance minus the accrued impairment) multiplied by the effective interest rate (the effective interest rate determined at the time of initial recognition, which does not change due to the occurrence of impairment).

For financial assets that are credit-impaired when purchased or originated, the Company shall, upon initial recognition, determines its income based on the amount of the amortised cost of the financial asset multiplied by the credit-adjusted effective interest rate (i.e. the interest rate at which the projected future cash flows after impairment are discounted to the amortised cost at the time of purchase or origination).

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

28. Contract costs

Contract costs are either the incremental costs of obtaining a contract or the costs to fulfil a contract.

Incremental costs of obtaining a contract are those costs that the Company incurs to obtain a contract that it would not have incurred if the contract had not been obtained e.g. sales commission. The Company recognises the incremental costs of obtaining a contract as an asset if it expects to recover those costs. Other costs of obtaining a contract, other than incremental costs that are expected to be recovered, are recognised in profit or loss in the period in which they are incurred.

If the costs to fulfil a contract are not within the scope of inventories or other ASBEs, the Company recognises an asset from the costs incurred to fulfil a contract only if those costs meet all of the following criteria:

① the costs relate directly to an existing contract or to a specifically identifiable anticipated contract, including direct labour, direct materials, allocations of overheads (or similar costs), costs that are explicitly chargeable to the customer and other costs that are incurred only because the Company entered into the contract;

② the costs enhance resources of the Company that will be used in satisfying performance obligations in the future;

③ the costs are expected to be recovered.

Assets recognised for the costs of obtaining a contract and assets recognised for the costs to fulfil a contract (the “assets related to contract costs”) are amortised on the same basis as the related goods or services revenue and recognised in profit or loss for the current period. If the amortisation period does not exceed one year, it shall be recognised in profit or loss for the current period.

The Company recognises an impairment loss by providing for the excess amount to the extent that the carrying amount of an asset related to contract costs exceeds the difference between:

① remaining amount of consideration that the Company expects to receive in exchange for the goods or services to which the asset relates;

② the cost estimated to be happened for the transfer of related goods or services.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

29. Government grants

A government grant is recognised when the grant will be received and that the Company will comply with the conditions attaching to the grant.

If a government grant is in the form of a monetary asset, it is measured at the amount received or receivable. If a government grant is in the form of non-monetary asset, it is measured at fair value; if the fair value cannot be obtained in a reliable way, it is measured at the nominal amount of RMB1.

Government grants obtained for acquisition or construction of long-term assets or other forms of long-term asset formation are classified as government grants related to assets, while the remaining government grants are classified as government grants related to revenue.

Regarding the government grant not clearly defined in the official documents and can form long-term assets, the part of government grant which can be referred to the value of the assets is classified as government grant related to assets and the remaining part is government grant related to revenue. For the government grant that is difficult to distinguish, the entire government grant is classified as government grant related to revenue.

A government grant related to an asset shall be recognised as deferred income, and evenly amortised to profit or loss over the useful life of the asset in a reasonable and systematic manner. For a government grant related to revenue, if the grant is a compensation for related costs, expenses or losses incurred, the grant shall be recognised in profit or loss for the current period or used to offset related costs; if the grant is a compensation for related costs, expenses or losses to be incurred in subsequent periods, the grant shall be recognised as deferred income, and recognised in profit or loss over the periods in which the related costs, expenses or losses are recognised, or used to offset related costs. A government grant measured at nominal amount is directly included in profit or loss for the current period. The Company adopts a consistent approach to the same or similar government grants.

A government grant related to daily activities is recognised in other gains or used to offset related costs relying on the essence of economic business; otherwise, recognised in non-operating income or used to offset non-operating expenses.

For the repayment of a government grant already recognised, if the carrying amount of relevant assets was written off at initial recognition, the carrying amount of the assets shall be adjusted; if there is any related deferred income, the repayment shall be offset against the carrying amount of the deferred income, and any excess shall be recognised in profit or loss for the current period; otherwise, the repayment shall be recognised directly in profit or loss for the current period.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

30. Deferred income tax assets and deferred income tax liabilities

Income tax comprises current income tax expense and deferred income tax expense, which are included in profit or loss for the current period as income tax expenses, except for deferred tax arising from a business combination, which is adjusted against the carrying amount of goodwill, and deferred tax related to transactions or events that are directly recognised in owners' equity which are recognised in owners' equity.

Temporary differences arising from the difference between the carrying amount of an asset or liability and its tax base at the balance sheet date of the Company shall be recognised as deferred income tax using the balance sheet liability method.

All the taxable temporary differences are recognised as deferred income tax liabilities except for those incurred in the following transactions:

(1) The initial recognition of goodwill, and the initial recognition of an asset or liability in a transaction which is neither a business combination nor affects accounting profit or taxable profit when the transaction occurs (other than a single transaction that the initially recognised assets and liabilities result in an equal amount of taxable temporary differences and deductible temporary differences);

(2) The taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, and the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The Company recognises a deferred income tax asset for the carry forward of deductible temporary differences, deductible losses and tax credits to subsequent periods, to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, deductible losses and tax credits can be utilised, except for those incurred in the following transactions:

(1) The transaction is neither a business combination nor affects accounting profit or taxable profit when the transaction occurs (other than a single transaction that the initially recognised assets and liabilities result in an equal amount of taxable temporary differences and deductible temporary differences);

(2) The deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, the corresponding deferred income tax asset is recognised when both of the following conditions are satisfied: it is probable that the temporary difference will reverse in the foreseeable future, and it is probable that taxable profits will be available in the future, against which the temporary difference can be utilised.

At the balance sheet date, deferred income tax assets and deferred income tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, and their tax effect is reflected accordingly.

At the balance sheet date, the Company reviews the carrying amount of a deferred income tax asset. If it is probable that sufficient taxable profits will not be available in future periods to allow the benefit of the deferred tax asset to be utilised, the carrying amount of the deferred tax asset is reduced. Any such reduction in amount is reversed when it becomes probable that sufficient taxable profits will be available.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

30. Deferred income tax assets and deferred income tax liabilities (Cont'd)

At the balance sheet date, deferred income tax assets and deferred income tax liabilities are presented as the net amount after offsetting when the following conditions are met at the same time:

(1) The tax payer within the Company has the legal right to settle current income tax assets and current income tax liabilities on a net basis;

(2) Deferred income tax assets and deferred income tax liabilities are related to income taxes levied by the same tax collection and administration authority on the same taxpayer within the Company.

31. Leases

(1) Identification of leases

On the beginning date of the contract, the Company (as a lessee or lessor) assesses whether the customer in the contract has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use and has the right to direct the use of the identified asset throughout the period of use. If a contract conveys the right to control the use of an identified asset and multiple identified assets for a period of time in exchange for consideration, the Company identifies such contract is, or contains, a lease.

(2) The Company as lessee

On the beginning date of the lease, the Company recognises right-of-use assets and lease liabilities for all leases, except for short-term lease and low-value asset lease with simplified approach.

The accounting policy for right-of-use assets is set out in Note V. 32.

The lease liability is initially measured at the present value of the lease payments that are not paid at the beginning date of the lease using the interest rate implicit in the lease. Where the interest rate implicit in the lease cannot be determined, the incremental borrowing rate is used as the discount rate. Lease payments include fixed payments and in-substance fixed payments, less any lease incentives receivable; variable lease payments that are based on an index or a rate; the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; payments for terminating the lease, if the lease term reflects the lessee exercising that option of terminating; and amounts expected to be payable by the lessee under residual value guarantees. Subsequently, the interest expense on the lease liability for each period during the lease term is calculated using a constant periodic rate of interest and is recognised in profit or loss for the current period. Variable lease payments not included in the measurement of lease liabilities are recognised in profit or loss for the period in which they actually arise.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

31. Leases (Cont'd)

(2) The Company as lessee (Cont'd)

Short-term lease

Short-term leases refer to leases with a lease term of less than 12 months from the commencement date, except for those with a purchase option.

Lease payments on short-term leases are recognised in the cost of related assets or current profit or loss on a straight-line basis over the lease term.

For short-term leases, the Company chooses to adopt the above simplified approach for the following types of assets that meet the conditions of short-term lease according to the classification of leased assets.

Low-value equipment

Transportation vehicles

Low-value asset lease

A low-value asset lease is a lease that the value of a single leased asset is below RMB40,000 when it is a new asset.

Lease payments on low-value asset leases are recognised on a straight-line basis over the lease term, and either included in the cost of the related asset or charged to profit or loss for the current period.

For a low-value asset lease, the Company chooses the above simplified approach based on the specific circumstances of each lease.

Lease modification

The Company accounts for a lease modification as a separate lease when the modification occurs and the following conditions are met: ① the lease modification expands the scope of lease by adding the right to use one or more of the leased assets; and ② the increase in consideration is equivalent to the separate price for the expanded scope of lease adjusted for that contractual situation.

Where a lease modification is not accounted for as a separate lease, at the effective date of the lease modification, the Company reallocates the consideration of the modified contract, redetermines the lease term and remeasures the lease liability based on the present value of the lease payments after the modification and the revised discount rate.

If a lease modification results in a reduction in the scope of the lease or a shortening of the lease term, the Company reduces the carrying amount of the right-of-use asset accordingly and includes in the profit or loss for the period the gain or loss associated with the partial or complete termination of the lease.

Where other lease modifications result in a remeasurement of the lease liability, the Company adjusts the carrying amount of the right-of-use asset accordingly.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

31. Leases (Cont'd)

(3) The Company as lessor

When the Company is a lessor, a lease is recognised as a finance lease whenever the terms of the lease transfer substantially all the risks and rewards of asset ownership to the lessee. All leases other than financial leases are recognised as operating leases.

Finance leases

Under finance leases, the Company accounts for finance lease receivables at the beginning of the lease term at the net lease investment, which is the sum of the unsecured residual value and the present value of the lease receipts outstanding at the commencement date of the lease, discounted at the interest rate implicit in the lease. The Company as lessor calculates and recognises interest income for each period of the lease term based on a fixed periodic interest rate. Variable lease payments acquired by the Company as lessor that are not included in the net measurement of lease investments are included in profit or loss for the period when they are actually incurred.

Derecognition and impairment of finance lease receivables are accounted for in accordance with the requirements under the Accounting Standard for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments and the Accounting Standards for Business Enterprises No. 23 – Transfer of Financial Assets.

Operating lease

Lease payments under operating leases are recognised in profit or loss for the current period on a straight-line basis over the lease term. Initial direct costs incurred in relation to operating leases are capitalised and amortised over the lease term on the same basis as rental income and recognised in profit or loss for the current period. The variable lease payments obtained in relation to operating leases that are not included in the lease payments are recognised in profit or loss in the period in which they actually incurred.

Lease modification

The Company accounts for a modification in an operating lease as a new lease from the effective date of the modification and the amount of lease receipts received in advance or receivable in respect of the lease prior to the modification is treated as a receipt under the new lease.

The Company accounts for a modification in a finance lease as a separate lease when the change occurs and the following conditions are met: ① the modification expands the scope of lease by adding the right to use one or more of the leased assets; and ② the increase in consideration is equivalent to the separate price for the expanded scope of lease adjusted for that contractual situation.

Where a finance lease is modified and not accounted for as a separate lease, the Company accounts for the modified lease in the following circumstances: ① If the modification takes effect on the lease commencement date, the lease will be classified as an operating lease, the Company will account for it as a new lease from the effective date of the lease modification, and use the net lease investment before the effective date of the lease modification as the book value of the lease asset; ② If the modification takes effect on the lease commencement date, the lease will be classified as a finance lease, and the Company will conduct accounting treatment in accordance with the Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments on modifying or renegotiating contracts.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

31. Leases (Cont'd)

(4) Sublease

When the Company is an intermediate lessor, the sublease is classified with reference to the right-of-use assets arising from the head lease. If the head lease is a short-term lease for which the Company adopts a simplified approach, then the Company classifies the sublease as an operating lease.

(5) Sale and leaseback

The lessee and the lessor shall assess and determine whether the transfer of assets in a sale and leaseback transaction is a sale in accordance with the requirements of the Accounting Standard for Business Enterprises No. 14 – Revenue.

Where asset transfer under the sale and leaseback transactions is a sale, the lessee shall measure the right – of-use assets created by the sale and leaseback based on the portion of carrying amount of the original assets related to right of use obtained upon leaseback, and only recognise relevant profit or loss for the right transferred to the lessor. The lessor shall account for the purchase of assets in accordance with other applicable ASBEs and account for the lease of assets in accordance with the Accounting Standard for Business Enterprises No. 21 – Lease.

Where asset transfer under the sale and leaseback transactions is not a sale, the lessee shall continue to recognise the transferred assets while recognising a financial liability equal to the transfer income and account for such liability according to the Accounting Standard for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments; the lessor shall not recognise the transferred assets but recognise a financial asset equal to the transfer income and account for such asset according to the Accounting Standard for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments.

32. Right-of-use assets

(1) Conditions for recognition of right-of-use assets

Right-of-use assets are defined as the right of underlying assets in the lease term for the Company as a lessee.

Right-of-use assets are initially measured at cost at the commencement date of the lease. The cost includes the amount of the initial measurement of lease liability; lease payments made at or before the inception of the lease less any lease incentives enjoyed; initial direct costs incurred by the Company as lessee; costs to be incurred in dismantling and removing the underlying assets, 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 incurred by the Company as lessee. As a lessee, the Company recognises and measures the costs of dismantling and restoration in accordance with the Accounting Standard for Business Enterprises No. 13 – Contingencies. Subsequently, the lease liability is adjusted for any remeasurement of the lease liability.

(2) Depreciation method of right-of-use assets

The Company uses the straight-line method for depreciation. Where the Company, as a lessee, is reasonably certain to obtain ownership of the leased asset at the end of the lease term, such asset is depreciated over the remaining useful life of the leased asset. Where ownership of the lease assets during the lease term cannot be reasonably determined, right-of-use assets are depreciated over the lease term or the remainder of useful lives of the lease assets, whichever is shorter.

(3) For the methods of impairment test and impairment provision of right-of-use assets, please refer to Note V. 23.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

33. Production safety expenses and maintenance costs

According to relevant provisions, the Company makes provisions for production safety expenses based on the revenue of the power plant in the previous year and the prescribed percentages. The specific provisions are as follows: ① if the revenue of the previous year did not exceed RMB10 million, provisions would be made at 3%; ② if the revenue of the previous year exceeded RMB10 million but did not exceed RMB100 million, provisions would be made at 1.5%; ③ if the revenue of the previous year exceeded RMB100 million but did not exceed RMB1,000 million, provisions would be made at 1%; ④ if the revenue of the previous year exceeded RMB1,000 million but did not exceed RMB5,000 million, provisions would be made at 0.8%; ⑤ if the revenue of the previous year exceeded RMB5,000 million but did not exceed RMB10,000 million, provisions would be made at 0.6%; ⑥ if the revenue of the previous year exceeded RMB10,000 million, provisions would be made at 0.2%.

Provisions for production safety expenses and maintenance costs are included in the cost of related products or profit or loss of the current period, and are included in “special reserves” correspondingly.

When the provisions for production safety expenses and maintenance costs are utilised within the prescribed scope, if such production safety expenses are applied and related to revenue expenditures, specific reserve is directly offset. When fixed assets are incurred, they are included in the “construction in progress” item and transferred to fixed assets when the status of the assets is ready for intended use. They are then offset against specific reserve based on the amount included in fixed assets while corresponding amount is recognised in accumulated depreciation. Such fixed assets are no longer depreciated in subsequent periods.

34. Debt restructuring

(1) The Company as the debtor

The debt is derecognised when the current obligation of the debt is discharged. Specifically, when the uncertainty about the execution process and results of the debt restructuring agreement is eliminated, the gains and losses related to the debt restructuring are recognised.

If debt restructuring is carried out by repaying debts with assets, the Company shall derecognise the relevant assets and the debts paid off when they meet the conditions for derecognition, and the difference between the book value of the debts paid off and the book value of the transferred assets shall be included in the current profit and loss.

If the debt is converted into equity instruments for debt restructuring, the Company shall derecognise the debts paid off when they meet the conditions for derecognition. When the Company initially recognises an equity instrument, it is measured based on the fair value of the equity instrument. If the fair value of the equity instrument cannot be measured reliably, it is measured based on the fair value of the debt paid off. The difference between the book value of the debts paid off and the recognised amount of the equity instrument shall be included in the current profit and loss.

When a debt restructuring involves the modification of other terms of a debt, the Company shall recognise and measure the restructured debts in accordance with the Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments and the Accounting Standards for Business Enterprises No. 37 – Presentation of Financial Instruments.

When a debt is settled by multiple assets or combination of various methods in a debt restructuring, the Company shall recognise and measure the equity instruments and restructured debts in accordance with the aforementioned methods, and the difference between the book value of the debts paid off and the sum of the book value of the transferred assets and the recognised amount of the equity instruments and restructured debts shall be included in the current profit and loss.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

34. Debt restructuring (Cont'd)

(2) The Company as the creditor

The debt receivable are derecognised when the contractual rights to receive the cash flows under the debt receivable expire. Specifically, when the uncertainty about the execution process and results of the debt restructuring agreement is eliminated, the gains and losses related to the debt restructuring are recognised.

If debt restructuring is carried out by repaying debts with assets, the Company shall initially recognise assets other than the transferred financial assets at cost. In particular, the cost of inventories includes the fair value of the debt receivable and any directly attributable expenditure, including taxes, transportation costs, handling costs, insurance and other costs, for bringing the assets to the current position and condition; the cost of investment in associates or joint ventures includes the fair value of the debt receivable and any directly attributable expenditure, including taxes; the cost of investment property includes the fair value of the debt receivable and any directly attributable expenditure, including taxes; the cost of fixed assets includes the fair value of the debt receivable and any directly attributable expenditure, including taxes, transportation costs, handling costs, installation costs, professional service fees and other costs, for bringing the assets to the status for intended use; the cost of intangible assets includes the fair value of the debt receivable and any directly attributable expenditure, including taxes, for bringing the assets to the status for intended use. The difference between the fair value and the book value of the debt receivable is included in the current profit and loss.

When the debt restructuring causes the Company to convert the debt receivable to an equity investment of joint ventures or associates, the Company shall measure the initial investment cost based on the sum of the fair value of debt receivable, and any directly attributable taxes and other costs of the investment. The difference between the fair value and the book value of the debt receivable is included in the current profit and loss.

When a debt restructuring involves the modification of other terms of a debt, the Company recognises and measures the restructured debt receivable in accordance with the Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments.

When a debt is settled by multiple assets or combination of various methods in a debt restructuring, the Company first recognises and measures the financial assets received and restructured debt receivable in accordance with the Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments, and then allocates the net value, which is the fair value of the debt receivable deducted by the recognised amount of financial assets received and restructured debt receivable, to the costs of non-financial assets received based on their relative fair value. The difference between the fair value and the book value of the debt receivable is included in the current profit and loss.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

35. Critical accounting judgments and estimates

The Company gives continuous assessment on, among other things, the reasonable expectations of future events and the critical accounting estimates and key assumptions adopted according to its historical experience and other factors. The critical accounting estimates and key assumptions that are likely to lead to significant adjustment risks of the carrying amount of assets and liabilities for the next financial year are listed as follows:

Deferred income tax assets

Deferred income tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred income tax assets that can be recognised, based upon the likely timing and amount of future taxable profits together with future tax planning strategies.

Classification of financial assets

Significant judgements involved in determining the classification of financial assets include the analysis of business models and contractual cash flow characteristics.

Factors considered by the Company in determining the business model for a group of financial assets include how the asset's performance is evaluated and reported to key management personnel, how risks are assessed and managed and how the relevant management personnel are compensated.

When the Company assesses whether the contractual cash flows of the financial assets are consistent with basic lending arrangements, the main judgements are described as below: whether the principal amount may change over the life of the financial asset (for example, if there are repayments of principal); whether the interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin and cost. For example, whether the amount repaid in advance reflects only the outstanding principal and interest thereon, as well as reasonable compensation paid for early termination of the contract.

Measurement of the ECLs of accounts receivable

The Company calculates the ECLs of accounts receivable using the exposure to default risk and ECL rate of accounts receivable, and determines the ECL rate based on default probability and default loss rate. When determining the ECL rate, the Company adjusts its historical data by referring to information such as historical credit loss experience as well as current situation and forward-looking information. When considering the forward-looking information, indicators used by the Company include the risk of economic downturn, external market environment, technology environment and changes in customers. The assumptions relating to the ECL calculation are monitored and reviewed by the Company on a regular basis.

Measurement of past due credit losses on finance lease receivables

The Company calculates the ECLs of financial lease receivables using the exposure to default risk and ECL rate of financial lease receivables, and determines the ECL rate based on default probability and default loss rate. When determining the ECL rate, the Company takes into account the current status and repayment ability of the counterparty while considering the value of collateral, guarantees and other credit enhancement measures related to the lease receivables.

V. Significant Accounting Policies and Accounting Estimates (Cont'd)

35. Critical accounting judgments and estimates (Cont'd)

Impairment of goodwill

The Company assesses the impairment of goodwill at least annually, which requires estimates of the use value of asset groups allocated with goodwill. When estimating the use value, the Company is required to estimate the future cash flows from such asset groups while selecting the appropriate discount rate to calculate the present value of future cash flows.

Impairment of inventories

On the balance sheet date, the Company determines the net realisable value of its inventories based on the estimated selling prices of the inventories, less costs estimated to be incurred upon completion, estimated selling expenses and related taxes. The realisable value of inventories shall be determined on the basis of definite evidence, purpose of holding the inventories and effect of after-balance-sheet-date events. If the net realisable value is below the cost of inventories, a provision for inventory impairment is made.

Impairment of fixed assets and long-term equity investments

The Company assesses the impairment of fixed assets and long-term equity investments at least annually. When any event or change in circumstances indicates that the carrying amount may not be recoverable, the carrying amount of such project is reviewed for impairment. If the carrying amount of an asset exceeds its recoverable amount, impairment loss is recognised for the difference. The recoverable amount is determined as the higher of the asset's fair value less costs of disposal and the present value of the asset's estimated future cash flows. A number of assumptions are made in estimating the recoverable amount of assets, including future cash flows and discount rates relating to non-current assets. If future events differ from these assumptions, the recoverable amount shall be revised, which may have an impact on the operations or financial position of the Company.

36. Changes in significant accounting policies and accounting estimates

(1) Changes in significant accounting policies

The Company did not have any change in significant accounting policies during the year.

(2) Changes in significant accounting estimates

The Company did not have any change in significant accounting estimates during the year.

(3) First-time implementation of new accounting standards from 2026 onwards involving adjustments to the financial statements at the beginning of the year of initial application

□ Applicable √ Not applicable

VI. Taxation

1. Main tax types and tax rates

Disclosure of taxable entities subject to different EIT tax rates

2. Tax incentives

(1) Enterprise income tax

On 7 December 2024, the Company obtained the High and New Technology Enterprise Certificate (Certificate No.: GR202437001530). Pursuant to the requirements under the Law of the People's Republic of China on Enterprise Income Tax and the relevant policies, the Company is subject to a corporate income tax rate of 15% of taxable income, and is entitled to the preferential treatment for three years.

Shouguang Meilun Paper Co., Ltd., a subsidiary of the Company, obtained the High and New Technology Enterprise Certificate (Certificate No.: GR202437000114) on 7 December 2024. Pursuant to the requirements under the Law of the People's Republic of China on Enterprise Income Tax and the relevant policies, Shouguang Meilun is subject to an enterprise income tax rate of 15% of taxable income, and is entitled to the preferential treatment for three years.

VI. Taxation (Cont'd)

2. Tax incentives (Cont'd)

(1) Enterprise income tax (Cont'd)

Jilin Chenming Paper Co., Ltd., a subsidiary of the Company, obtained the High and New Technology Enterprise Certificate (Certificate No.: GR202522000396) on 28 October 2025. Pursuant to the requirements under the Law of the People's Republic of China on Enterprise Income Tax and the relevant policies, Jilin Chenming is subject to an enterprise income tax rate of 15% of taxable income, and is entitled to the preferential treatment for three years.

Zhanjiang Chenming Pulp & Paper Co., Ltd., a subsidiary of the Company, obtained the High and New Technology Enterprise Certificate (Certificate No.: GR202444002840) on 19 November 2024. Pursuant to the requirements under the Law of the People's Republic of China on Enterprise Income Tax and the relevant policies, Zhanjiang Chenming is subject to an enterprise income tax rate of 15% of taxable income, and is entitled to the preferential treatment for three years.

Huanggang Chenming Pulp & Paper Co., Ltd., a subsidiary of the Company, obtained the High and New Technology Enterprise Certificate (Certificate No.: GR202342003128) on 5 December 2023. Pursuant to the requirements under the Law of the People's Republic of China on Enterprise Income Tax and the relevant policies, Huanggang Chenming is subject to an enterprise income tax rate of 15% of taxable income, and is entitled to the preferential treatment for three years.

Pursuant to the requirements of Rule 27(1) of Law of the People's Republic of China on Enterprise Income Tax and Rule 86(1) of Regulations for the Implementation of Law of the People's Republic of China on Enterprise Income Tax, Zhanjiang Chenming Arboriculture Development Co., Ltd., Yangjiang Chenming Arboriculture Development Co., Ltd., Nanchang Chenming Arboriculture Development Co., Ltd. and Chenming Arboriculture Co., Ltd., all of which are the subsidiaries of the Company, are entitled to preferential tax treatment, and have completed the filings for EIT reduction for exemption from EIT.

Shouguang Xinyuan Coal Co., Ltd., Shouguang Chenming Papermaking Machine Co., Ltd., and Jiangxi Chenming Logistics Co., Ltd. are all subsidiaries of the Company and qualify as small low-profit enterprises. Pursuant to the Announcement on Tax and Fee Policies for Further Supporting the Development of Small and Micro Enterprises and Individual Businesses issued by Ministry of Finance and the State Taxation Administration (Announcement No. 12 2023 of the Ministry of Finance and the State Taxation Administration), small low-profit enterprises calculate their taxable income at a reduced rate of 25% and pay enterprise income tax at a rate of 20%.

(2) VAT

Pursuant to Article 24(1) of the Value-Added Tax Law of the People's Republic of China and Article 26 of the Implementing Regulations of the Value Added Tax Law of the People's Republic of China, Zhanjiang Chenming Arboriculture Development Co., Ltd., Yangjiang Chenming Arboriculture Development Co., Ltd., Nanchang Chenming Arboriculture Development Co., Ltd. and Chenming Arboriculture Co., Ltd., all of which are subsidiaries of the Company, are exempt from VAT, and have completed the filings for VAT reduction for exemption from VAT.

VII. Notes to items of the consolidated financial statements

1. Monetary funds

Unit: RMB

Other explanations:

① Other monetary funds of RMB684,007.03 were the guarantee deposit for the application for acceptance bills by the Company, of which RMB684,007.03 was locked up.

② Other monetary funds of RMB29,238,981.19 were the guarantee deposit for the application for letter of credit with the banks by the Company, of which RMB18,271,510.64 was locked up.

③ Other monetary funds of RMB5,740,595.00 were the guarantee deposit for the application for loans with the banks by the Company.

④ Other monetary funds of RMB39,014,597.81 were locked up due to reasons such as litigations or being unused for a long time, resulting in restriction on the use of that account's balance.

2. Financial assets held for trading

Unit: RMB

Other explanation: Financial assets held for trading were shares of China Bohai Bank subscribed by the Company.

VII. Notes to items of the consolidated financial statements (Cont'd)

3. Bills receivable

(1) Bills receivable by category

Unit: RMB

(2) Disclosure by bad debt provision method

Unit: RMB

Number of category being assessed collectively for bad debt provision: 2

Name of category being assessed collectively for bad debt provision: Bank acceptance bills

VII. Notes to items of the consolidated financial statements (Cont'd)

3. Bills receivable (Cont'd)

(2) Disclosure by bad debt provision method (Cont'd)

Name of category being assessed collectively for bad debt provision: Commercial acceptance bills

Unit: RMB

(3) Bills receivable endorsed or discounted by the Company but not yet due as at the balance sheet date

Unit: RMB

4. Accounts receivable

(1) Disclosure by ageing

Unit: RMB

The basis used by the ageing analysis of the accounts receivable of the Company: the ageing of accounts receivable is the length of time of the Company's outstanding accounts receivable based on invoice date. The closing balance is recognised one by one from the end of the period onwards until the amounts add up to the balance. It is also broken up by intervals of within 1 year, 1-2 years, 2-3 years and over 3 years.

VII. Notes to items of the consolidated financial statements (Cont'd)

4. Accounts receivable (Cont'd)

(2) Disclosure by bad debt provision method

Unit: RMB

Items assessed individually for bad debt provision:

Unit: RMB

VII. Notes to items of the consolidated financial statements (Cont'd)

4. Accounts receivable (Cont'd)

(2) Disclosure by bad debt provision method (Cont'd)

Number of category being assessed collectively for bad debt provision: 2

Name of category being assessed collectively for bad debt provision: Due from related parties

Unit: RMB

Name of category being assessed collectively for bad debt provision: Due from non-related parties

VII. Notes to items of the consolidated financial statements (Cont'd)

4. Accounts receivable (Cont'd)

(3) Provision, recovery or reversal of bad debt provision for the period

Bad debt provision for the period:

Unit: RMB

Explanation: “Others” included a decrease in bad debts of RMB8,510,796.29 from disposal of subsidiaries, and a decrease in bad debts of RMB22,401.14 due to changes in exchange rates.

(4) Top five accounts receivable based on closing balance of debtors

The total amount of top five accounts receivable and contract assets based on closing balance of debtors for the period amounted to RMB259,601,693.63 in total, accounting for 20.21% of the total closing balance of accounts receivable and contract assets. The closing balance of the corresponding bad debt provision amounted to RMB49,225,151.26 in total.