On 18 August 2021, China Huarong issued Inside Information Potential Strategic Investment and Profit Warning which caused media attention. China Huarong spokesperson replies to the relevant issues as follows:

　　Q1: China Huarong issued a profit warning and expected to incur loss in the 2020 operating results, and the net loss attributable to the shareholders of the Company is expected to be RMB102.903 billion. What are the main reasons for the loss in the results?

　　A: In 2020, as the trial against former Chairman Lai Xiaomin for bribery, embezzlement and bigamy commenced and the sentence was pronounced, the Company constantly cleared and disposed the operational risks caused by his aggressive operation and disorderly expansion during his tenure. Meanwhile, the pandemic of Corona Virus Disease 2019 (the “COVID-19 pandemic”) caused impacts on the market, which resulted in the decline of contract performance ability of certain customers, and the quality of some current assets deteriorated in a quicker speed. In response, the Company conducted the comprehensive review, assessment and impairment test to risk assets, recognized credit impairment loss and loss from fair value changes in the current period, which has significant impacts on the operating results.

　　First, the impairment test was conducted on the centralized disposal of the existing risk assets. Based on the integration of overseas business in 2019, Huarong Overseas Chinese Asset Management Co., Ltd. (“Huarong Overseas Chinese”) integrated part of the existing assets of branches and subsidiaries within the Company, and conducted centralized management. The Company completed the project registration and approval of the equity transfer of Huarong Overseas Chinese, and made an announcement on the potential disposal on 8 April 2020. However, by the end of 2020, the transfer had not been implemented according to the plan. Huarong Overseas Chinese had conducted the comprehensive review and assessment of the centralized management of assets, made provisions for credit impairment loss and loss from fair value changes.

　　Second, a prudent assessment was conducted on the credit impairment loss of current asset risks. The fast-growing acquisition-and-restructuring projects and fixed income projects from 2015 to 2017 matured centrally in 2020. Due to the historical reasons for the formation of risk assets and the effect of the current market environment, as well as the severe impact of COVID-19 pandemic and the “mine explosion” incidents in the market, the contract performance ability of customers was greatly affected and the relevant assets’ quality was also exposed to greater pressure than that in the previous period. After the comprehensive review and assessment of risks, the Company had made provision for credit impairment loss.

　　Third, the risks of some subsidiaries offset the Company’s operating results. The underlying assets in asset management plans of relevant financial service subsidiaries accelerated to expose to risks. Deterioration incurred on risk assets of some subsidiaries in asset management and investment segments. After the comprehensive review and assessment of risks, these subsidiaries had made provision for credit impairment loss and loss from fair value changes.

　　It needs to be noted that the provision made are for credit impairment loss and loss from fair value changes. This enhances the financial basis for the disposal of risk assets and does not represent the ultimate loss that will incur.

　　Q2: How is the Company’s state of operation? Does the Company have sustainable operation capacity?

　　A: Currently the Company’s operations are stable and all lines of business are carried out as usual. Meanwhile, the Company is implementing capital replenishment plan and has issued announcement for potential strategic investment, which intends to proactively introduce strategic investors to effectively replenish capital, improve risk compensation capabilities, and ensure the foundation for sustainable operations.

　　Under the firm support of all relevant parties, the Company has the capabilities, conditions and confidence to fully implement the work plans of the Party Central Committee, the State Council and the CBIRC. The Company closely focuses on the state’s functional positioning of asset management companies, and continues to advance risk reduction and downsizing in accordance with the established development strategy. The Company accelerates transformation of core business and resolution of existing risks, improves corporate governance, and strengthens risk internal control mechanisms to enhance the endogenous development momentum and constantly deepen the high-quality development of New Huarong.

　　Q3: How does the loss incurred affect the Company’s liquidity condition? Will the Company repay its maturing bond in full? Does the Company have debt restructuring plan?

　　A: The Company graspes the monetary policy and regulatory policy guidance, closely monitors market liquidity conditions, strictly carries out risk monitoring and control, and maintains normal and stable capital relationship with financial institutions. The liquidity was sufficient, domestic and overseas bonds were timely redeemed, and liquidity risks were controllable.

　　China Huarong has always met its debt obligations with a responsible attitude. From 1 April to 18 August, the Company and its subsidiaries have made full repayment of 94 domestic and overseas bonds with a total value of RMB63.344 billion. Meanwhile, the Company is in good capital position and has made adequate and proper arrangements for future bond repayments.

　　The Company is actively advancing the introduction of strategic investors, intending to raise capital by issuing new shares to bring in multiple investors. This recapitalization only involves restructuring of capital. There is no plan for debt restructuring.

　　Q4: How is the quality of assets after making substantial provisions?

　　A: The Company strictly implements requirements of IFRS 9 and has conducted comprehensive review and assessment of operating asset risks, constantly optimized impairment measurement model and made reasonable impairment provisions. The Company’s provisions meet the requirements of accounting standards and properly reflects the asset quality and risk profile at the current stage.

　　In the year of 2020, the Company confirmed credit impairment loss and loss from fair value changes, which consolidated the value of assets and strengthened the financial basis for the disposal of risk assets. On this basis, the Company will stay committed to defusing risk and recovering assets, explore the value of existing assets, grasp market opportunities to accelerate disposal and make full effort to reduce ultimate loss amount.

　　Q5: The Company has made announcement on bringing in strategic investment. How is the process going and can you confirm the strategic investors and the capital raised?

　　A: On 18 August 2021, the Company signed investment framework agreements with CITIC Group Corporation, China Insurance Investment Co., Ltd., China Life Asset Management Company Limited and China Cinda Asset Management Co., Ltd. and Sino-Ocean Capital Holding Limited respectively. The aforementioned companies intend to make strategic investments in the Company by subscribing the newly issued shares of the Company. If the Potential Strategic Investment is implemented, it will effectively replenish the Company’s capital, further consolidate the Company’s foundation for sustainable operations, and ensure that the Company meets regulatory requirements.

　　The framework agreements are not binding formal share subscription documents. The relevant work is being implemented. When relevant transactions are confirmed, the Company will issue announcements at appropriate time complying with the information disclosure procedures.

　　Q6：China Huarong has previously made announcements about equity transfer of Huarong Exchange Center and Huarong Consumer Finance, as well as equity restructuring of Huarong Trust. What are the Company’s considerations of the equity transfer of subsidiaries? Will the transfer inflict significant impact on the operation of the Company? Are there potential equity transferees at the moment? Does the Company have more plans for transferring other subsidiaries for the future?

　　A: Since the past few years, under the regulatory guidance for AMCs to focus on core business and return to original functions, AMCs have actively sought to return to core business and advanced institutional downsizing in an orderly way. The equity transfer projects of Huarong Exchange Center and Huarong Consumer Finance, as well as equity restructuring project of Huarong Trust are all measures to implement regulatory requirements and focus on core business, and part of institutional downsizing process that are being carried out as planned. The equity transfer of the subsidiaries mentioned above will have positive impacts on the Company’s operation. Currently, the transfer and restructuring projects are being carried out. Please refer to the Company’s announcements for follow-up progress.

　　Responding to the regulatory requirement to return to core business, the Company is also carrying out comprehensive assessment and evaluation on the optimization and integration of non-core subsidiaries lacking competitive advantages and business synergies. The Company will make announcements on the progress when appropriate, pursuant to the information disclosure procedures.

　　Q7: After the introduction of strategic investors, what is the Company’s future business development strategy?

　　A: Looking forward to the future development, the Company will, under the guidance of Party Central Committee, the State Council, controlling shareholders and regulatory authorities, resolutely implement the Party Central Committee’s arrangement on financial work, closely focus on the state’s functional positioning of asset management companies, adhere to returning to its core business, accelerate business transformation, and better serve the national development strategy. Through the approaches of “investment plus investment bank”, the Company will vigorously explore restructuring of troubled enterprises, actively develop business such as bailout of large enterprises, relieving SOEs of their non-core business, acquiring defaulted bonds, bankruptcy and restructuring, urban renewal, risk dissolution of small and medium-sized financial institutions. It will constantly improve the development quality of the core business and internal management, strengthen countercyclical adjustment tools and financial rescue functions, and continually enhance the quality and efficiency of serving the real economy.