Chapter 10 List of Documents Available for Inspection 168 Important The Board of Directors (the “Board”), Supervisory Board, Directors, Supervisors and Senior Executives of the Company guarantee that no false records, misleading statements or material omissions are contained in this Report, and shall assume joint and several liability for the authenticity, accuracy and completeness of the contents hereof. The Directors of the Company have all presented in person at the Board meeting for the consideration and approval on this Report. None of the Directors, Supervisors and Senior Executives has made claims that there is no guarantee for or disagreement on the truth, accuracy and integrity of the contents of this Report. Ascenda Certified Public Accountants, Ltd. has audited, and issued an unmodified and unqualified audit report for the Company’s 2012 Financial Statements. Mr. Fang Hongbo, chairman of the Board and president of the Company; and Mr. Chen Jianwu, responsible person for finance of the Company represent and warrant that financial statements in this Report are true and complete. The Board has considered and passed the profit distribution proposal for the year 2012: based on the share capital of the Company at the end of 2012, it is proposed that the Company will distribute cash dividend of RMB6 per 10 shares (tax inclusive) to all shareholders and there will be no bonus issue and no conversion of capital reserve into share capital.

Definition Terms Definition Company or Midea GD Midea Holding Co., Ltd. Midea Group Midea Group Co., Ltd. Little Swan Wuxi Little Swan Holding Co., Ltd. Reporting Period 1 January 2012 to 31 December 2012 Chapter 1 General Information of the Company I.Company Information

Stock name Midea Electric Appliance Stock code 000527 Stock exchange for listing of the shares Shenzhen Stock Exchange Name of the Company in Chinese 广东美的电器股份有限公司 Abbreviation in Chinese 美的电器 Name of the Company in English GD MIDEA HOLDING CO.,LTD. Authorized Representative of the Company Fang Hongbo Midea Headquxarters Building, No.6 Midea Road, Beijiao Town, Registered Address Shunde District, Foshan City, Guangdong Province Postal Code of Registered Address 528311 Midea Headquarters Building, No.6 Midea Road, Beijiao Town, Office Address Shunde District, Foshan City, Guangdong Province Postal Code of Office Address 528311 Website http://www.midea.com E-mail address [email protected]

II. Contact

Secretary to the Board Representative for Security Affairs Name Jiang Peng Yan Li Directors Office, Midea Headquarters Building, No.6 Directors Office, Midea Headquarters Building, No.6 Address Midea Road, Beijiao Town, Shunde District, Foshan Midea Road, Beijiao Town, Shunde District, Foshan City, Guangdong Province City, Guangdong Province Telephone number 0757-26334559 0757-26338779 Fax number 0757-26651991 0757-26651991 E-mail address [email protected] [email protected]

5 General Information of the Company

6 General Information of the Company

III. Information Disclosure and Place of Inspection

China Securities Journal, Securities Times and Newspapers Specified by the Company for Information Disclosure Shanghai Securities News Website for Publication of Annual Report Specified by CSRC http://www.cninfo.com.cn Place of Inspecting Annual Report of the Comnpany Directors Office of the Company

IV. Change in Registration

Registration No. of Business License Taxation registra- Organization Place of Registration Date of Corporate Body tion number code Guangdong Province Administration Initial Registration 1992.08.10 19033709-2 440681520200003 19033709-2 for Industry and Commerce Bureau Registration as at the end Shunde City Market Safety 2011.05.23 440000000020099 440681190337092 19033709-2 of the Reporting Period Monitoring Bureau Change in material business since the listing of the Company Nil Change in controlling shareholder in the past Nil

V. Other Related Information Accounting Firm Engaged by the Company

Name of the accounting firm Pan-China Certified Public Accountants (Special General Partnership) Address of the accounting firm Floors 4 -10, Xin Hu Commercial Building , 128 Xixi Road, Hangzhou City Names of signing accountants Zhou Rongming, Huang Zhiheng

Sponsors engaged by the Company to continuously perform its supervisory function during the Reporting Period √ Applicable □ Not Applicable

Name of the sponsor Office address of the sponsor Representative of the sponsor Supervisory period North Tower, Excellence Times Square II, CITIC Securities No. 8 Zhongxin San Road, Futian District, Song Yongxin, Lu Ming 2011.3.10-2012.12.31 Company Limited Shenzhen, Guangdong Province

Financial Advisors engaged by the Company to continuously perform its supervisory function during the Reporting Period □ Applicable √ Not applicable

7 Chapter 2 Summary of Accounting Data and Financial Indicators

8 I. Major Accounting Data and Financial Indicators Retrospective adjustment to or restatement of the accounting data for prior years by the Company due to change of accounting policies and correction of accounting errors √ Yes □ No

2011 Increase/decrease 2012 2010 Before adjustment After adjustment After adjustment Revenue (RMB '000) 68,071,200.64 93,108,058.26 93,108,058.26 -26.89% 74,558,886.12 Net profit attributable to shareholders of 3,477,331.87 3,698,797.33 3,709,296.25 -6.25% 3,127,097.38 the Company (RMB '000) Net profit after extraordinary gains or losses attributable to 3,415,203.35 3,130,239.05 3,130,239.05 9.10% 2,956,398.46 shareholders of the Company (RMB '000) Net cash flows from operating activities (RMB '000) 4,306,545.28 2,958,916.38 2,958,916.38 45.54% 5,445,721.00 Basic earnings per share (RMB per share) 1.03 1.11 1.11 -7.21% 1.00 Diluted earnings per share (RMB per share) 1.03 1.11 1.11 -7.21% 1.00 Rate of return on net assets on weighted average basis 16.73% 21.08% 21.13% -4.40% 29.54%

At the end of At the end of 2011 Increase/ decrease At the end of 2012 Before adjustment After adjustment After adjustment 2010 Total assets (RMB '000) 60,899,598.83 59,550,158.97 61,510,365.78 -0.99% 43,370,945.90

Net assets attributable to shareholders 22,065,397.69 19,998,129.73 20,014,355.48 10.25% 12,336,337.43 of the Company (RMB '000)

Note: Pursuant to rule 16 of Corporate Accounting Standard 20, Business Combination: “Where business combination occurred at the end of current period and where the fair value of identifiable assets, liabilities or contingent liabilities or the cost of business combination can only be provisionally determined, the acquirer shall make reorganization and measurement for such business combination based on the provisionally determined value. Adjustment to the provisionally recognized value within 12 months after the date of acquisition is deemed to be reorganization and measurement made on the acquisition date.”

Pursuant to the agreement, the Company finished the adjustment to the compensation for combination of air-conditionor business of Carrier in July and August 2012. In accordance with the requirements under the above accounting standard, such adjustment is deemed to be finished at the time of acquisition in 2011. Therefore, the ending balance of the year 2011 was revised. Please refer to “Other Material Matters” set out in the notes to the financial statements for specified details of adjustments to related items.

9 Summary of Accounting Data and Financial Indicators

II. 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

2. Differences between the net profit and net assets disclosed in accordance with foreign accounting standards and China accounting standards in the financial report □ Applicable √ Not Applicable

3. Reasons for the difference between the accounting data under domestic and foreign accounting standards □ Applicable √ Not Applicable

III. Items and amounts of extraordinary gains or losses Unit: RMB '000

Item Amounts for 2012 Amounts for 2011 Amounts for 2010 Profit or loss from disposal of non-current assets 341.33 295,681.97 -14,474.99 Government grants (except for the government grants closely related to the normal operation of the company and granted constantly at a fixed amount or 136,220.46 130,584.84 148,487.63 quantity in accordance with a certain standard based on state policies) accounted for in profit or loss for the current period Except for effective hedging business conducted over the course of ordinary operation of the Company, profit or loss arising from fair value change in financial assets held for trading and financial 199,674.53 372,802.38 208,285.57 liabilities held for trading, as well as investment gains from disposal of financial assets held for trading and financial liabilities held for trading and available-for- sale financial assets Profit or loss from debt restructuring 9,544.77

10 Summary of Accounting Data and Financial Indicators

con't

Item Amounts for 2012 Amounts for 2011 Amounts for 2010 Gains or losses arising from entrusted investments or 71,891.66 9,130.00 entrusted asset management Corporate restructuring costs (e.g. staff replacement -4,085.03 -11,077.42 costs and costs during the course of consolidation) Other operating income and expenditure except 18,787.39 41,621.47 -71,845.75 above-mentioned items Other profit and loss items complying with -287,000.00 -33,523.44 -9,886.15 extraordinary profit or loss Effect of corporate income tax -69,440.67 -128,461.66 -19,943.53 Effect of minority interests (after tax) -13,805.92 -97,700.94 -69,923.86 Total 62,128.52 579,057.20 170,698.92

11 Chapter 3 Directors’ Report

12 I. Summary

— The rapid development of the e-commerce channel The rapid growth of the home appliances industry which had widened sales channel of the home appliance industry with sustained for many years was interrupted in 2012 under the internet retail transactions exceeded RMB100 million in 2012. influence of a general slowdown in the domestic economy, According to AVC, internet purchase of home appliances will withdrawal of stimulating policies for home appliances, maintain a high growth rate and expected to breakthrough continuing macro-control on the property market of China RMB100 billion by 2015 accounting for 14% of the total and slow recovery of the global economy. According to appliance market and becoming the third largest channel industry statistics available on the internet: the sales quantities of the market. In the future, as the e-commerce business of appliances in 2012 were around 104.88 million air- model becoming more mature, e-commerce will gradually conditioners, representing a decrease of 3.89% year-on-year; become a new mode of sales channel and its rapid growth will around 76.02 million refrigerators, representing a decrease complement the traditional channel which will be positive to of 2.8% year-on-year; and around 55.67 million washing both. machines, representing a decrease of 0.13% year-on-year. Overall, the export of products performed better than domestic — With advantages in scale and complementary advantages sales. Nevertheless, in the mid- and long-term, the industry arising from industrial clusters and industrialization, the will maintain a stable growth in the future mainly due to the home appliances industry of China will maintain its global following factors: competitiveness. As demand steadily recovers in the North America, while home appliances are becoming more popular — With the help of economic recovery in China and the drive in emerging markets such as South America, India, Africa and for “Urbanisation with Chinese characteristics” and “Income- the Middle East, market demand is increasing rapidly and there doubling plan” by the State, the speeding up of urbanization is a huge potential for export of home appliances produced in and the rise in consumption level of urban and rural residents China. will provide impetus for a sustaining growth in the quantity of home appliances owned by consumers. The sustaining release II. Analysis of principal business of rigid demand in the property market and the progress of affordable housing construction as planned will also create 1. Summary demand for home appliances. In 2012, facing the declining growth rate of the industry — Home appliances have increasingly become daily and deep changes in internal and external environment, consumer products. The change in consumers’ perception, Midea returned to the basics of operation around three main together with breakthroughs in functionality and quality of strategies - “Pioneered Products, Efficiency Driven and white appliances in energy-saving, environmental protection, Global Operation” so as to enhance development quality, intelligence, networking and industrial design, will bring clarify business structure, focus on product types, optimize about demand for renewal. The implementation of new policy operation mechanism, improve business management and on energy-saving subsidies will also promote the upgrade of assets efficiency. It also increased investment in technological product structure. According to CMM, the market share of innovation, enhanced product capability and quality inverter air-conditioner increased to 52.93% in 2012 from management, steadily pushed ahead globalization, secured the 17.37% in 2009, and is expected to exceed 60% in 2013. Company’s steady development and increase in profitability

13 Directors’ Report

in the face of a changing environment, which has laid a solid of two State standards of “Household Appliances Consumer foundation for sustaining development of the Company in the Groups Testing Guidelines” and “Household and Similar future. In 2012, the Company recorded operating revenue of Electrical Appliances - Particular Requirements for Safe Heat RMB 68.071 billion, of which, revenue from air-conditioners Pumps, Air-conditioners and Dehumidifiers” and one industry and components, washing machines and components and standard of “Speed-Controlled Room Air-conditioner Energy refrigerators and components were RMB 51.464 billion, Efficiency Labeling Measuring and Testing Specification”. RMB 6.214 billion and RMB 5.951 billion. The net profit Midea’s project “Key technology research on parallel flow heat attributable to shareholders of the parent company was RMB exchanger and its application in air-conditioners” was awarded 3.477 billion, representing a decrease of 6.25 % year-on-year. China Home Appliance Science and Technology Progress Mainly due to the upgrading of the product mix, tightening Award, first prize. Midea KF Double Cross-flow Floor Air- cost control and stabilisation in the cost of raw materials, the conditioner won “Best Innovative Design Award” in the 7th Company's gross profit margin was 22.81%, increasing by 4.03 China Design Patent Contest of the State Intellectual Property percentage points year-on-year. In 2012, Midea was ranked Office of the PRC. Midea had the largest number of models in No. 79 in the “Top 500 Enterprises in China”, and No. 6 in the categories of “room air-conditioners” and “speed-controlled “Top 500 Non-state owned Enterprises in China” with “Midea” room air-conditioners” listed in the List of China Enterprise brand valued at over RMB 61.1 billion, ranking the 5th in “2012 Leaders of Energy-saving Products 2012 released by the The Most Valuable Brands in China”. The Company was also Energy Efficiency Labeling Management Center of the China awarded the “Most Influential Brand of 2011-2012” at the National Institute of Standardization. 2012 China’s Household Electrical Appliance Industry Summit As a leader in the inverter air-conditioner industry and cum Guangdong Household Electrical Appliances Chamber of leveraging on its core technology in inverter and unique Commerce. industrial chain advantage, Midea is the first enterprise to initiate a strategy for full DC upgrade and has been leading In 2012, the main operations of the Company are as follows: the wide spreading and in-depth penetration of inverters. In 2012, Midea’s full DC inverter air-conditioner was the first to (1) Increased investment in technology, improved R&D system obtain “Air-conditioning long-term energy-saving assessment” and enhanced product capability of China Quality Certification Center and included in the — Household Air-conditioner major task of the State General Administration of Quality Supervision, Inspection and Quarantine. According to statistics The Company has established a three-tier R&D system for of the State Information Center, Midea is the “Sales champion fundamental technology, application technology and product of full DC inverter air-conditioners of 2012”. For overseas development, and strengthened research and reserve of in market, over 2 million sets of Midea full DC inverter air- fundamental technology, core technology and forward-looking conditioners were exported to Japan, where Premie, Midea’s technology in areas such as energy-saving, intelligence, overseas high-end split model won the international renowned environmental protection and surface materials. The Company 2012 Good Design Award (“G-Mark”) of Japan, and included established an academician work station, increased effort in the 2012 Good Design Award Yearbook. At the 2012 (5th) in commercialization of R&D results and development of Annual Conference of China Air-conditioning Industry, market-orientated products, and propelled technological Midea was awarded “2012 Pioneer and Innovative Brand progress and result application in the air-conditioner industry. of Inverters”, “2012 Product Innovation Leading Brand”, In 2012, the Company participated in the drafting or revision

14 Directors’ Report

“2012 Most Contribution Award for Inverter Breakthrough” Capital International Airport, Jakarta International Airport and “Contribution Award for Popularisation of Inverter”. In of Indonesia (overseas bid won) and the industrial park of 2013, Midea’s full DC inverter air-conditioners achieved KPIT (an Indian IT enterprise), and are well received by the comprehensive breakthrough and innovation, which include community. In 2012, Midea Carrier ABC JV won bids to act the achievement of super energy efficiency of “1 kWh per as the air-conditioning service provider for the Maracana Night” by its “New Energy-saving” air-conditioner series. The Stadium, which will be the main stadium of 2014 World Cup series take pride in their three key technological achievements and 2016 Olympic Games in Brazil, evidencing the strength of 0.1 W super low power consumption in standby mode, of Midea in the global market of central air-conditioning. In 0.1 HZ super low operation frequency and ±0.1 degree fine the area of rail transport, Midea’s central air-conditioning has thermostatic control, which have become technological served major lines such as Wuhan-Guangzhou high-speed rail, innovation benchmarks for air-conditioning industry of China. Xi’an Metro, Beijing-Shanghai high-speed rail, Shanghai- The research and application project of its key eco energy- Nanjing high-speed railway, Shanghai-Hangzhou intercity saving technologies has been assessed by experts led by passenger rail and Guangzhou-Zhuhai intercity rail. Over the academicians of the China National Light Industry Council as years, Midea provided various solutions for many rail transport of “international leading” standard. In addition, the Himalaya lines and satisfactorily solved environmental issues of their series which has the highest energy efficiency in China and the station and operation buildings, and earned the “Rail Transit ultra-slim series with a thickness of only 15 cm (window type), Entrepreneurial Innovation Special Honor Award”. both being the star products of Midea’s full DC inverter air- All new generation full DC variable VRF of Midea are conditioners, won “Energy-saving Star” and “Star of Inverter” equipped with large displacement high efficiency DC inverter respectively. compressors, which combined with the latest inverter — Central Air-Conditioner technologies such as 180° sine DC variable speed technology, leading poleless vector variable speed drive technology, Midea is one of the largest central air-conditioner producers R410A environment friendly refrigerant technology and in China with the most extensive product lines and the most fully satisfy RoHS directives, boasts a comprehensive complete product series, offering thousands of products, energy efficiency coefficient of 5.8, which is 63.4% higher including VRF, chiller machines, unit machine, air energy than the first grade of national energy efficiency standard. water heater, light commercial air conditioner, constant- Midea central air-conditioner was the only enterprise in temperature and constant-humidity precise air conditioner and the HVAC industry granted“2012 China Top Ten Entities air conditioner for base station. It also has the most advanced for Distinguished Contribution to Energy Saving”, and has laboratories in China with CNAS certification. Midea’s major become a model enterprise for green and energy-saving products have passed various certifications such as CCC, development of the industry. Currently, the Company has CRAA, Independent Innovation Products, UL, ETL, CE, CB, established strategic partnership with over 30 leading property AHRI and EUROVENT, obtained over 300 authorised patents giants such as Hutchison Whampoa, Vanke, Evergrande, Agile, and enjoyed leading position in the industry for their advanced Country Garden, China Merchants Property and Oriental technology. The central air-conditioners of Midea are widely Ginza. It was granted the “2012 China Real Estate Best used in major projects and events such as Shanghai Expo, Procurement Partner Award” and “2012 China Real Estate 26 pavilions of the Guangzhou Asian Games, the athletes' Most Trustworthy Supplier of Central Air-conditioner Award” village of Shenzhen University Games, Xi'an International at the Boao Forum; granted the “2012 China Real Estate Most Horticultural Exposition Complex, new terminal of Beijing

15 Directors’ Report

Trustworthy Supplier of Central Air-conditioner Award” again chilling, variable temperature and freezer compartments. All at the 21st Century Real Estate Forum and was honored as of which have perfected the functions of chilling, preservation, “Best Real Estate Supplier of the Year” for three consecutive ice-temperature and soft freezing. years; and was granted the “2012 HVAC Brand with Best User With industrial leading energy-saving technology and Satisfaction Award” at the 3rd HVAC Brand Festival. products, Midea refrigerator keeps leading the green and low — Refrigerator carbon consumption trend of the refrigerator industry and was granted the “Energy-saving Benchmark Award” at the 2012 Midea has a complete refrigerator industrial chain and Refrigerator Conference, and has become an energy-saving introduced technological experts from Korea. Its products and emission reduction model for the refrigerator industry have passed several international authoritative certifications, in China. Midea’s environment friendly energy-saving air- including the U.S. UL safety certification, the EU Energy cooled frostless side-by-side combination refrigerator was Star certification and TUV quality certification. Media listed in the 2012 Annual National Torch Plan industrialization established in-depth strategic cooperation with internationally demonstration project. The high-end side-by-side combination famous enterprises, and exported its products to more than refrigerator designed by the refrigerator industrial design 100 countries and regions, such as the U.S., U.K., Germany, center of Midea was granted the German “iF Product Design France, and etc. Midea refrigerators’ core technologies of “large Award 2012” and included in the 2012 design yearbook. At the capacity, dual-cooling and high moisture” have been driving Fifth Annual Conference of the China Refrigerator Industry, an upgrading trend towards high-end products in the domestic Midea refrigerators won the “2012 Leading Brand for Energy- refrigerator market, realizing a consumer demand upgrade saving Technology”, “2012 Leading Brand for Preservation from “cooling and freezing” to “preservation of moisture and Technology” and “Most Competitive Brand” awards. Midea’s freshness”. In 2012, Midea launched the Vandelo series 3-door Vandelo 3-door Italian style refrigerator BCD-320WGPM, Italian style refrigerator as a representative product of multi- with its leading designs such as pioneer sealed variable doors refrigerators. Its three major advantages of convenience, compartment, unique LED photosynthetic preservation lamp ultra-large capacity, energy-saving and cool-keeping have and multi-dimension precise temperature control, won the become benchmark for new products. The proprietary patent Appliance Product Award ( 艾普兰产品奖). At the 2011- of “multiple air-returning system” is used in the product to 2012 China Refrigerator Market Summit, Midea refrigerators solve the general industrial problem of using single-cycle and Little Swan refrigerators were awarded the Energy-saving (with one evaporator) wind chilling refrigerators in a humid Benchmark Award and Quality Benchmark Award of the environment, i.e. the return air causes frost in the evaporator Refrigerator Industry 2011-2012. which would block the air vent and hamper normal circulation of cool air. Such system greatly improves the structure for — Washing machine returning air and shortens defrosting time and saves energy. Little Swan, subsidiary of the Company, which has its own Furthermore, in addition to the application of frequency control national level enterprise technology center and State’s for inverter refrigerators, Midea achieved precision monitoring recognized laboratory, was the first washing machine company of the set temperature, case temperature and environment in Asia passing the German VDE laboratory certification temperature and put in place independent control systems in one go in 2010, and the first in China passing the UL for air supply and return air in each temperature divisions North American safety certification in 2011. In 2012, Little to enable independent control of temperature in each of the Swan enhanced its product capability and completed the

16 Directors’ Report

development of over 300 new products including front (2) Strengthened quality control and constantly improved loading, fully automatic, double drum and dryer products, quality offering products that cover all segments from low to high The Company established a quality management department end products. Meanwhile, it also improved the structure of its to implement unified operation of quality management system patent system and made application for over 200 patents in and regularly carry out diagnosis and assessment of the quality 2012, of which 2 are for international invention patent, which control system. Quality information platform is established are its first ever for such patents. to regulate and improve quality risk control in respect of Based on technological innovation, Little Swan launched manufacturing, market and crisis, and track the accountability the first internet-of-things capable washing machine in the of every material quality issue. The Company also completed world, automatic detergent dispensing washing machine and the establishment of an IT control system for key quality the first tumble dryer with heat pump in the world. Of which characteristics of products and put IT management into trial. the automatic dispensing technology was granted the 2012 It also strengthened the fundamental quality and reinforced Best Independent Innovation Award by State Intellectual quality supervision and control. Quality red lines were set to Property Office and Technology Innovation Award by China strengthen quality control through specific technical indicators Household Electric Appliance Research Institute, while the and to ensure the quality of manufactured products and heat pump dryers passed the verification organized by China realise transparency and standardisation of quality control in National Light Industry Council for new product technology. manufacturing. The Company improved the complete process Little Swan combined intelligent dispensing technology with management for new products which implements quality automatic load, clothes materials and temperature conditions control starting from planning, and includes systematic control sensing technology to develop the automatic detergent for system processes and procedures, supplier management dispensing washing machine which is completely new in China strengthening, supplier approval program with mechanism of and leading in the world. The technology solves the problem admission and elimination, stricter selection and insisting on of clothes damage caused by over dosage of detergent, reduces quality control of materials with comprehensive control and sewage and raised the level of washing machine intelligence. inspection of key materials, and regular random inspection of At the 2012 China Consumer Electronics and Appliances manufactured products and inspection of inventory. As a result, Market Interim Inventory Conference, Little Swan washing the ratio of after sale repair has improved significantly. The machines was granted “Excellent Performance Brand in Company sought more joint venture and cooperation in core China Washing Machine Market for First Half of 2012”, and technologies, and drew on outstanding quality management Little Swan’s new generation “Cube” washing machine was systems and introduced more experts. It also implemented granted “Excellent Performance Product in China Washing refined management of products, assessing product in respect Machine Market for First Half of 2012”. Furthermore, 8 of areas such as its appearance, reliability and customer series of Midea brand fully automatic washing machines experience, to improve and increase customer satisfaction. manufactured by Little Swan and Vandelo-series front-loading washing machines were granted “2012 China Design Red Star (3) Optimising operation mechanism and enhancing operation Award”, and Little Swan Beverly-series front-loading washing efficiency machines were granted“2012 China Design Red Star Award The Company separated refrigerator and washing machine Gold Prize”. operations from regional sales companies and returned them

17 Directors’ Report

to the product business divisions so as to centralize the alarm, established regular operational alarm system, and fully management of production, R&D and sales and to facilitate and dynamically monitored and controlled risks relating to dedicated operation and flatten organisation structure. Channel inventory, receivables and funds. It promoted the flexible structure was optimized and large-scale agent system adopted use of assets and allocation of resources, and cleared, boldly to enhance operation efficiency. Product cycle management disposed of and liquidated some idle assets and properties. was fully introduced, and focus was put on key products to At the same time, the Company made use of policies such as reduce the number of development projects and increase “Retreat from urban area and shift to industrial zones” and the success rate of product development, and the number “Three old” transformation available at the place where the of models was markedly reduced. Market demand forecast production base of the Company is located and cooperate was strengthened in the marketing divisions to increase the with local government to utilise the Company’s assets flexibly accuracy of sales planning and improve the alignment between under the mode of “public transfer and income support”. It is production and sales. A balanced mode of production planning expected that corresponding compensation can be obtained based on sales has been gradually implemented. The rate of for the land of the old plant of China Refrigeration Industry inventory utilization was increased with the overall inventory Co., Ltd., a subsidiary of the Company, in accordance with size and mix improved, while the control of inventory and relevant policies. In addition, in view of industrial conditions order processing system were further implemented. Lean and market changes, Little Swan, another subsidiary of management was applied, increasing automation and reducing the Company, timely adjusted its investment strategy and manual operation through efficiency improving measures such stopped the capacity expansion project of the Tianjin base, as upgrade of techniques and skills, improvement in logistics and obtained refund from the Land Administration Bureau of and establishing platform to coordinate various bases. The Tianjin Airport Economic Zone for land premium paid. Company also optimized resource structure, strengthened

synergy and risk management of resources, advanced the (5) Optimised overseas management and control platform and establishment of operation control and analysis system for steadily implemented globalization refined management to increase the operation efficiency of The Company perfected overseas management and control assets. system and compliance management with the international division acting as the management platform for overseas (4) Strengthened risk management and flexible use of assets expansion and joint ventures and self-owned brands. OEM On the basis of implementing internal control in pilot points operation was shifted to the product division to enable last year, the Company deepened the regulation of internal integrated management. Experience exchanges and learning control and conducted rectification and reform in respect of and training were conducted with renowned multi-national process optimization, system perfection, staff adjustment and companies. The Company standardised the operation method improvement. Management requirements for important mechanism of its overseas companies, constantly improved business matters and areas with higher risks are tightened to monitoring and controlling system for overseas joint ventures, provide support for the Company’s healthy and sustainable rationalized critical business processes, standardized systems, development through more effective internal control. The promoted two-way flow of information and consolidated Company strengthened the operation and coordinated management process through the use of IT. The Company management of funds, strengthened the management of made solid progress in globalization and orderly established funds in transit, reinforced financial analysis, forecast and a rational global and regional coverage, where an Indian joint

18 Directors’ Report

venture was established, the acquisition of further interest and logistics industries so as to excel and strengthen its in an Egyptian company was initiated, and fully completed principal business and reinforce its position in the industry and the acquisition and merger of a joint venture in Brazil. The comprehensive competitiveness. After listing as a whole, it is Company reinforced coordinated operation with overseas expected that the Company will become the largest listed home major clients and gained extensive experience in overseas appliances company in terms of manufacturing and sales and operation. It has steadily worked towards increasing the will offer the most extensive choice of appliances in China, proportion of self-controlled brands and direct channels in the and that the coordinating and resources sharing capability of overseas business to enhance the value and competitiveness of Midea’s integrated industrial chain will be greatly enhanced. its products in the global market. At the same time, the listing as a whole will effectively reduce connected transactions of the listed entity, avoid potential competition between affiliates and further improve governance (6) Commenced preparation for overall listing, standardised structure. The further strengthening of the listed company’s governance structure, expanded total scale and increased independence will lay a solid foundation for the long-term competitiveness steady development of the Company. To ensure the Company’s long-term steady development, Reasons on the difference of less than or over 20% between standardise governance structure and enhance synergy, the the actual operating results and the earning forecast publicly Company timely initiated the listing project of the Midea disclosed by the Company Group as a whole. With such listing, it is intended to integrate its resources in large appliances, small appliances, E&M □ Applicable √ Not applicable

2. Revenue Whether revenue from sales in kind is higher than revenue from services √ Yes □ No

Breakdown by industry Item 2012 2011 Increase/ decrease(%) Sales volume(RMB ’0,000) 2,381 3,248 -26.69 Air-conditioners Production volume(RMB ’0,000) 2,369 3,373 -29.77 Market share(%) 19.7 22.7 -3.0 Sales volume 560 1,108 -49.46 Refrigerators Production volume 580 1,087 -46.64 Market share(%) 6.5 9.3 -2.8 Sales volume 766 1,241 -38.28 Washing machines Production volume 780 1,254 -37.80 Market share(%) 16.5 17.5 -1.0

Note: Market share data is sourced from China Market Montior.

19 Directors’ Report

Explanation on why the related data was varied by more than structure and terminating the sales of low profit margin 30% products. As a result, the product sales volume dropped. In 2012, the overall revenue of the Company decreased by Material orders in hand of the Company 26.89%, which was mainly due to that under the backdrop □ Applicable √ Not Applicable of slowing down industrial growth rate, the Company was Significant change in or adjustment of the products or services intended to strategically transform into a corporation with of the Company during the Reporting Period substantial growth by significantly reducing product species, □ Applicable √ Not Applicable focusing on the improvement and optimization on product

Sales to major customers of the Company

Total sales to top 5 customers (RMB ’0,000) 768,079.99 Total sales to top 5 customers as a percentage of the total sales for the year(%) 12.07

Information on top 5 customers

No. Sales amount (RMB ’0,000) As a percentage of the total salesfor the year(%) 1 319,767.46 5.03 2 180,956.24 2.84 3 91,777.09 1.44 4 90,865.13 1.43 5 84,714.06 1.33 — 768,079.99 12.07

3. Cost Unit: RMB ’0,000 2012 2011 Increase/ By Product Item As a percentage of As a percentage of Amount Amount decrease (%) operating costs(%) operating costs(%) Raw materials 4,280,164.10 87.96 6,147,590.89 90.47 -2.51 Household Labour costs 251,191.99 5.16 285,972.26 4.21 0.95 electronic Depreciation 102,278.25 2.10 86,358.28 1.27 0.83 application Energy and power 41,184.19 0.85 43,813.52 0.64 0.21

Note: Household electronic applications include air-conditioners, refrigerators and washing machines.

20 Directors’ Report

Major suppliers of the Company

Total purchases from top 5 suppliers (RMB ’0,000) 724,921.12 Total purchases from top 5 suppliers as a percentage of the total purchases for the year (%) 13.46

Note: Suppliers under the control of a same beneficial controller shall be presented in a consolidated form, except for those under the control of a same state-owned asset management organization.

Information on top 5 suppliers of the Company √ Applicable □ Not Applicable

No. Purchases (RMB ’0,000) As a percentage of the total purchases for the year(%) 1 300,865.86 5.58 2 126,476.79 2.35 3 112,627.55 2.09 4 101,718.51 1.89 5 83,232.42 1.55 — 724,921.12 13.46

4. Expenses Unit: RMB’000 Accrued during Accrued during Increase/ Increase/ Item the year the prior year decrease (RMB) decrease (%) Selling and distribution expenses 6,736,386.53 8,590,884.80 -1,854,498.27 -21.59 Administrative expenses 3,619,391.52 3,191,097.79 428,293.73 13.42 Finance expenses 322,740.49 1,051,478.28 -728,737.79 -69.31 Income tax expenses 947,501.22 1,019,558.89 -72,057.67 -7.07

Due to the strategic adjustment resulting in a drop in sales volume, selling and distribution expenses decreased by 21.59%; Due to improved fund management and decreased note discount, finance expenses decreased by 69.31%.

5. Research and development expenditure During the year, guided by the customers and based on the long-term and ongoing competitive advantage, the Company increased investment in research and development expenditure to improve production capacity and product quality, streamline manufacturing process and optimize technical procedure, which in turn recruited more talents in high-end technology and provided much support. In 2012, research and development expenditure amounted to approximately RMB 1.7 billion, representing 7.70% and 2.50% of the audited net asset and operatinf income of the Company for the year of 2012 respectively.

21 Directors’ Report

6. Cash flow Unit: RMB’000 Item 2012 2011 Increase/decrease(%) Subtotal of cash inflows from operating activities 58,222,944.94 51,171,142.46 13.78 Subtotal of cash outflows from operating activities 53,916,399.66 48,212,226.08 11.83 Net cash flows from operating activities 4,306,545.28 2,958,916.38 45.54 Subtotal of cash inflows from investing activities 360,422.26 611,429.48 -41.05 Subtotal of cash outflows from investing activities 1,695,398.80 5,326,383.88 -68.17 Net cash flows from investing activities -1,334,976.54 -4,714,954.40 -71.69 Subtotal of cash inflows from financing activities 11,516,043.23 16,424,216.85 -29.88 Subtotal of cash outflows from financing activities 13,118,284.61 9,903,874.12 32.46 Net cash flows from financing activities -1,602,241.39 6,520,342.73 -124.57 Net increase in cash and cash equivalents 1,369,327.36 4,764,304.71 -71.26

Explanation on why the related data was varied by more than 30% √ Applicable □ Not Applicable Net cash flows from operating activities increased by 45.54%, which was mainly due to the improvement in inventory disposal and recovery of receivables; Net cash flows from investing activities decreased by 71.69%, which was mainly due to a drop in expenditure on project investment; Net cash flows from financing activities decreased by 124.57%, which was mainly due to the presence of non-public share offer during last year.

Explanation on main reasons leading to the the material difference between cash flows from operating activities during the Reporting Period and net profit for the year □ Applicable √ Not Applicable

22 Directors’ Report

III. Components of principal operations Unit: RMB’000 Increase/decrease of Increase/decrease of Increase/decrease of gross Operating Gross profit Revenue revenue as compared operating costs as com- profit margin as compared costs margin (%) to prior year (%) pared to prior year (%) to prior year (%) By industry Air conditioner and components 51,464,085.60 39,002,559.00 24.21 -19.32 -23.06 3.68 Refrigerator and components 5,950,630.13 4,925,833.19 17.22 -47.83 -46.40 -2.20 Washing machine and components 6,214,268.07 4,730,805.74 23.87 -36.33 -41.37 6.55 By product Air conditioner and components 51,464,085.60 39,002,559.00 24.21 -19.32 -23.06 3.68 Refrigerator and components 5,950,630.13 4,925,833.19 17.22 -47.83 -46.40 -2.20 Washing machine and components 6,214,268.07 4,730,805.74 23.87 -36.33 -41.37 6.55 By geographical segment PRC 36,130,234.75 26,592,355.10 26.40 -38.79 -41.06 2.83 Other countries and regions 27,498,749.05 22,066,842.83 19.75 6.04 -3.35 7.80

Under the circumstances that the statistics specification for the Company‘s principal operations data experienced adjustment in the Reporting Period, the principal operations data upon adjustment of the statistics specification at the end of the Reporting Period in the latest year □ Applicable √ Not Applicable

IV. Analysis of assets and liabilities

1. Material changes of asset items Unit: RMB’000 As at the end of 2012 As at the end of 2011 Change in As a percentage of As a percentage Amounts Amounts percentage(%) total assetss (%) of total assets (%) Monetary funds 11,770,987.87 19.33 11,078,305.36 18.01 1.32 Accounts receivable 6,071,276.01 9.97 5,707,738.49 9.28 0.69 Inventories 9,916,653.21 16.28 12,363,439.23 20.10 -3.82 Investment properties 362,669.46 0.60 474,713.94 0.77 -0.17 Long-term equity investments 1,084,853.61 1.78 1,048,254.29 1.70 0.08 Fixed assets 12,527,223.99 20.57 10,714,826.46 17.42 3.15 Construction in progress 810,077.55 1.33 2,073,583.06 3.37 -2.04

23 Directors’ Report

2. Material changes of liability items Unit: RMB’000 As at the end of 2012 As at the end of 2011 Change in As a percentage As a percentage of Amounts Amounts percentage(%) of total assets (%) total assets (%) Short-term borrowings 3,225,400.02 5.30 3,213,690.52 5.22 0.08 Long-term borrowings 1,483,609.54 2.44 1,381,362.96 2.25 0.19

3. Assets and liabilities measured at fair value Unit: RMB’000 Profit or loss Cumulative fair Impairment Opening from change in Closing Item value change provided during balance fair value during balance charged to equity the period the period Financial assets 1. Financial assets measured at fair value with fair 185,123.84 -64,481.40 25,660.20 146,852.14 value changes included in profit and loss for the year 2. Derivative financial assets 185,123.84 -64,481.40 25,660.20 146,852.14 3. Financial assets available for sale 284.60 2.34 286.94 Sub-total of financial assets 185,408.44 -64,481.40 25,662.54 147,139.08 Investment real estate Productive living assets Others Sub-total of the above 185,408.44 -64,481.40 25,662.54 147,139.08 Financial liabilities 3,425.96 10,183.00 13,608.96

Whether there were any material changes on the measurement attributes of major assets of the Company during the Reporting Period □ Yes √ No

V. Analysis of Core Competitiveness leading technological advantages in white appliances such as air-conditioner, refrigerator and washing machine, has After years of development, the Company has become one established a sound technological R&D system, and won of the largest integrated white appliance companies with the numerous accolades. In an environment of homogenization highest development potential in China. The main advantages of home appliance products and different market demands and core competitiveness of the Company are as follows: from region to region, the Company continuously increased investment in and support for technological research, 1. Advantages in technology increased technological cooperation with leading domestic With a sound innovation system and continuous substantial and foreign research institutes, introduced top global investment in technological research, the Company possesses

24 Directors’ Report

technological experts, accelerated optimization of product third and fourth-tier markets, the Company uses specialized mix, and increased value-added. For example, the Company shops, traditional channels and new channels as effective was the first to conduct R&D on the key ECO energy-saving supplement. Currently, the channel and network of the technology of full DC inverter air-conditioner, and owned 10 Company have achieved a full coverage of the first- and internationally leading technologies and 16 internationally second-tier markets and over 95% coverage of third and advance technologies; the company is also the first to fourth-tier markets. Furthermore, Midea Group has been launch new innovative products such as full DC inverter air- cooperating with most agents for years and has cultivated good conditioner capable of consuming only “1kWh per night”, brand loyalty. For overseas, the Company has established joint washing machine with “automatic detergent dispensing” venture production bases in Brazil, Argentina, Egypt, India feature and washing and drying machine, which have been and Vietnam which provide good support for us to develop well received by the market. overseas market.

2. Industrial chain advantage 4. System and mechanism advantages In addition to having the world’s largest scale in compressors The Company pays attention to the establishment of for air-conditioner under its control, the Company has the governance structure, corporate management and control, most complete industrial chain for white appliances in separation of three powers and the concentration and separation China, which spans across the whole Midea Group and of power system. The division system of the Company has integrates key components and parts and whole machines been in operation for years, which features full delegation R&D, manufacturing and sales, which is supported by Midea of power and result-oriented assessment and incentive Group’s leading electric motors and electronic control home mechanism, and has become a training and development appliances core components and logistics services. The scale platform for professional managers of the Company. After of Midea Group’s residential air-conditioner motors ranked operation practice over the years, the Company has established first in the world, and that of its motors and series motors a mature management system for professional managers. for washing machine ranked first and its compressors for Members of the senior management of the Company are all refrigerator ranked third in China. At the same time, the professional management personnel trained and developed in strong transportation, storage and distribution capacity of the the operation practice of Midea Group. The modern operation logistics segment of Midea Group provide strong support and management systems of the Company are basically for the Company’s industrial development. The Company is stabilized and complete, with all members of the management currently preparing for listing as a whole, after such listing, the team trained within the Midea Group. Their average age full synergy advantages of the whole industrial chain of Midea is around 40 and substantially all of them have been with Group will be further realised. Midea for over 15 years. They have extensive industry and management experience, deep understanding of the home 3. Channel advantages appliance industry of China and the world, and have accurate After years of developing and building up coverage, the grasp of the industry operating environment and business Company has established a comprehensive and multi- operation management. The Company’s advantages in system dimensional market coverage. In mature and stable first- and mechanism have laid a solid foundation for the promising, and second-tier markets, the Company has maintained good stable and sustaining development of the Company in the cooperation relationship with large home appliance retail future. chains such as Gome and Suning, while in the extensive

25 Directors’ Report

VI. Analysis of investments

1. External equity investments

(1)The Company’s shareholdings in financial corporations

Percentage of Profit and Number of Number of Percentage of Carrying value Type of Initial invest- shareholding at loss for the Accounting shares held at shares held at shareholding as at the end Source of Company name com- ment amount the beginning Reporting calculation the beginning the end of the at the end of of the period shares panies (RMB ’000) of the Period item of the period period the period(%) (RMB ’000) period(%) (RMB ’000) Long- Established Midea Group Other 600,000.00 600,000,000 40 600,000,000 40 667,027.03 50,437.90 term equity by way of Finance Co., Ltd. investment promotion Golden Eagle Long- Established Asset Manag- Other 50,000.00 50,000,000 20 50,000,000 20 36,360.36 -1,112.67 term equity by way of ement Co., Ltd. investment promotion Com- Long- Bank of Jiangsu Non-public mercial 1,100.00 2,202,564 0 2,202,564 20 1,210.00 246.81 term equity Co., Ltd. issue bank investment Total 651,100.00 652,202,564 -- 652,202,564 -- 704,597.39 49,572.04 -- --

(2)Securities investment □ Applicable √ Not Applicable

2. Entrusted asset management, derivatives investments and entrusted loans

(1)Entrusted asset management Unit: RMB ’0,000

Termination date Actual Actual Whether it Whether Value of Commencement Actual Amount Connected Name of of entrusted Method of principal revenue is subject it is a entrusted date of entrusted revenue provided for transaction Trustee asset remuneration amount earned for to legal connected assets asset management earned impairment or not management recovered the period procedures transaction Domestic com- 2,651,892 2012.01.05 2013.01.04 Agreement 2,524,698 7,189 7,189 Yes - No No mercial bank Total 2,651,892 ------2,524,698 7,189 7,189 ------Cumulative amount of principal and revenue overdue No Litigation involved(if applicable) No The Company entrusted financial institutions such as commercial bank to manage short-term and low risk investment and participated in collective investment scheme of such bank, which mainly invested in the Entrusted asset management financial instruments in PRC interbank market with high investment grade and high liquidity and products with anticipated gain. Such kind of investment involves lower risk and fixed income.

26 Directors’ Report

(2)Details of derivatives investment and forex funds business, established a comparatively well-

Risk analysis of positions held in derivatives during the developed monitoring mechanism, and effectively reduced Reporting Period and explanation of control measures operational risk by strengthening risk control over the business (including, inter alia, market risk, liquidity risk, credit risk, process, decision-making process and trading process. operational risk and legal risk) 3.Market risk

For the sake of eliminating the cost risk of the Company's Uncertainties caused by changes in the prices of bulk bulk purchases of raw materials as a result of significant commodity and in exchange rate in foreign exchange market fluctuations in raw material prices, the Company carried out could lead to greater market risk in the futures business and futures business for some of the materials and also made use forex funds business. Meanwhile, inability to raise sufficient of bank financial instruments and carried out forex funds funds to establish and maintain hedging positions during the business to reduce and avoid the risks of exchange and futures operations or the forex funds required for performance interest rate fluctuation. The Company has considered and during the forex funds operations being unable to be credited formulated Administrative Measures for Futures Business and into account could result in loss and default risks. Administrative Measures for Forex Funds Business to perform Control measures: the futures business and forex funds sufficient evaluation and control against derivatives investment business of the Company shall always be conducted by and position risks. Details of which are described as follows: observing prudent operation principles. As to futures business, 1. Legal risks the futures transaction volume shall be determined strictly

The Company's futures business and forex funds businesses according to the requirement of production & operations; stop- shall be conducted in compliance with laws and regulations, loss mechanism shall be implemented; to establish futures with clearly covenanted responsibility and obligation risk measuring system to measure and calculate the margin relationship between the Company and the agencies. amount occupied, floating gains and losses, margin amount available and margin amount required for intended positions to Control measures: the Company designated relevant determine the prepared margin amount which may be required responsible departments to enhance learning of laws and to be supplemented. As to forex funds business, a hierarchical regulations and market rules; stringent examination and management mechanism has been implemented whereby verification of contracts; well-defined responsibility and application for funds business is submitted by the operating obligation; strengthen compliance check; and to ensure that unit, risk analysis must be made on the conditions and the Company's derivatives investment and position operations environment affecting operating profit and loss, to evaluate are in compliance with the requirements of the laws and the possible greatest revenue and loss, and report the greatest regulations and internal management system the Company. acceptable margin ratio or total margin amount. The Company 2. Operational risk will update operating status of the funds business on a timely basis to ensure proper funds arrangement before the expiry Imperfect internal process, staff, systems and external issues dates. may cause the Company to suffer from loss during the course of its futures business and forex funds business. Changes in market price or fair value of derivatives product invested during the Reporting Period: specific methods used Control measures: relevant management system of the and relevant assumption and parameter settings shall be Company has clearly defined the functions and responsibility disclosed for analysis of fair value of derivatives as well as review and approval process for the futures business

27 Directors’ Report

1. Profit/loss from futures hedging contracts incurred during The Company's independent directors are of the view that the Reporting Period was RMB64,186,530; the futures hedging business is an effective instrument for

2. Profit/loss from forward forex contracts incurred during the the Company to eliminate price volatility and implement Reporting Period was RMB199,647,530; risk prevention measures through enhanced internal control, thereby improving the operation and management of the 3. Public quotations in futures market or forward forex quotations announced by Bank of China are used in the Company; the Company further improves its foreign exchange analysis of derivatives fair value. risk management capability and maintains and increases the value of foreign exchange assets through the forex funds Explanation of significant changes in accounting policies business; and the abovementioned investment in derivatives and specific financial accounting principles in respect of the Company's derivatives for the Reporting Period as compared can help the Company to exert in full its competitive to the previous Reporting Period: No change advantages and therefore it is practicable for the Company to carry out derivatives investment business and the risks are Special opinions expressed by independent directors controllable. concerning the Company's derivatives investment and risk control

Positions held in derivatives investment as at the end of the Reporting Period √ Applicable □ Not Applicable Unit: RMB'000 Contract amount Profit and loss Ratio of contract amount at the end Contract amount at Contract type at the beginning for the Reporting of the period to the Company's net the end of the Period of the period Period asset at the end of the period (%) Futures hedging contracts 3,306.55 29,516.25 64,186.53 0.13 Forward forex contracts 178,391.33 103,726.93 199,674.53 0.47 Total 181,697.88 133,243.18 -- 0.60

Note: Funds used in the futures business and forward forex business are all from the Company’s own funds.

(3)Details of entrusted loans □Applicable √Not Applicable

28 Directors’ Report

3. Use of funds raised

(1)Overall use of funds raised Unit: RMB'00 million

Total funds raised 43.00 Total raised funds contributed during the year 0.00 Total accumulated raised funds contributed 41.00 Total raised funds with purpose of use being changed during the Reporting Period 0.00 Total accumulated raised funds with purpose of use being changed 0.00 Percentage of total accumulated raised funds with purpose of use being changed (%) 0.00

Explanation on overall use of funds raised Pursuant to the contribution plan of the funds raised, contribution of funds raised to the projects by way of capital increase accounted for 95.35% of total raised funds

(2)Committed projects of fund raised Unit: RMB'00 million

Amount Progress of The date on Beneficial Whether Any Total investment Adjusted Accumulated Committed investment project Whether contributed investment as which the result expected significant committed to be total contribution as and investment of over-raised a changed during the at the end of project be realised beneficial change contributed from invest- at the end of fund project Reporting the period (%) ready for during the result was in project fund raising ment (1) the period (2) Period (3)=(2)/(1) intended use period achieved feasibility Committed investment project Central air-conditioner (Hefei) Not Not No 13.00 12.40 0.00 10.40 83.87 2013.12 No project Applicable Applicable Compressor (Wuhu) project No 8.00 8.00 0.00 8.00 100.00 2011.12 1.85 No No Refrigerator (Jingzhou) project No 8.00 8.00 0.00 8.00 100.00 2012.04 0.93 No No Refrigerator (Nansha) project No 4.20 4.20 0.00 4.20 100.00 2011.09 -0.25 No No Residential air-conditioner No 3.30 3.30 0.00 3.30 100.00 2012.07 0.96 No No (Nansha) project Residential air-conditioner No 7.10 7.10 0.00 7.10 100.00 2012.06 0.11 No No (Wuhu) project Total of committed investment -- 43.60 43.00 0.00 41.00 ------project

29 Directors’ Report

con't Investment of over-raised fund No Due to changes in the market environment of the industry, contribution to the central air-conditioner (Hefei) project was Conditions and reasons for not delayed and the scheduled completion of the project is extended to the end of December, 2013; due to changes in the achieving planned schedule or environment of the industry, the compressor Wuhu project, refrigerator Jingzhou and Nansha projects, and residential air- expected gains (by particular project) conditioner Nansha and Wuhu projects did not achieve expected gains; Explanation for significant change in □Applicable √Not applicable project feasibility Amount, purpose and progress of use □Applicable √Not applicable of over-raised fund Change of place of implementation □Applicable √Not applicable for project invested by raised funds Adjustment of means of implementation for project invested □Applicable √Not applicable by raised funds Pursuant to the Assurance Report in respect of Financing Projects Contributed in advance by GD Midea Holding Co., Ltd. with Self-Raised Funds issued by Ascenda Certified Public Accountants, Ltd. (Ascenda Shen (2011) Zhuan Zi No.150017), as at February 28th 2011, actual investment contributed in advance in financing projects by the Company with self-raised funds amounted to RMB570 million. Resolution Concerning Replacement of Self-Raised Funds Up-front contribution to and Contributed in advance in Financing Projects with Raised Funds was approved at the 10th meeting of the seventh Board replacement of project invested by of Directors of the Company held on March 10th 2011, whereby it was agreed that self-raised funds contributed in raised funds advance by the Company in financing projects be replaced by the current raised funds of RMB570 million. In particular: (1) replacement by raised funds of RMB285 million for the compressor (Wuhu) project;(2) replacement by raised funds of RMB150 million for the refrigerator (Nansha) project; (3) replacement by raised funds of RMB135 million for the central air-conditioner (Hefei) project. Provisional supplement of liquidity □Applicable √Not applicable using idle raised funds Pursuant to contribution plan of raised funds, funds required by the refrigerator (Jingzhou) project and the residential air- conditioner (Wuhu) project were contributed to the projects from the special account of raised funds by way of capital increase in full amount. Of which, for the refrigerator (Jingzhou) project, the actual amount of raised fund used was Amount of and reasons for raised RMB792 million, representing 98.94% of raised fund intended to be used in the project, with a balance of RMB8 million funds balance occurred unutilized. For the residential air-conditioner (Wuhu) project, the actual amount of raised fund used was RMB625 million, after project implementation representing 88.03% of raised fund intended to be used in the project, with a balance of RMB85 million unutilized. The above projects were completed and the occurrence of unutilized funds was mainly due to a strengthening of cost control in the construction of the projects. For the central air-conditioner (Hefei) project, besides the balance of RMB200 million raised funds in the special account, Use and whereabouts of unutilized RMB1.04 billion was contributed by way of capital increase and replacement, and the actual amount used was RMB819 raised funds million, representing 66.05% of raised fund intended to be used in the project. The unutilized raised funds will be contributed according to subsequent contribution progress and schedule of the project. Issues or other situations in relation to No the use and disclosure of raised funds

(3)Any change of project for the raised funds □Yes √No

30 Directors’ Report

4. Analysis of major subsidiaries and investees

Revenue from Operating Principal Registered Total assets Net assets Net profit Type of operations profit Name of companies Industry products capital (RMB (RMB (RMB (RMB companies (RMB (RMB or services ’0,000) million) million) million) million) million) Guangdong Midea Refrigeration Air Subsidiary Manufacturing RMB 85,400 12,191.65 2,536.92 25,820.95 864.97 726.93 Equipment Co., Ltd. conditioner Guangdong Midea Group Wuhu Air Subsidiary Manufacturing USD 693 3,066.57 1,147.86 10,917.43 484.66 415.91 Refrigeration Equipment Co., Ltd. conditioner Midea Group Wuhan Refrigeration Air Subsidiary Manufacturing USD 800 1,456.44 649.74 5,135.93 299.53 224.30 Equipment Co., Ltd. conditioner Guangdong Midea Heating & Air Subsidiary Manufacturing RMB 10,000 2,407.80 673.47 5,477.67 575.12 481.47 Ventilation Equipment Co., Ltd. conditioner Guangzhou Midea Hualing Air Subsidiary Manufacturing RMB 64,000 1,111.85 733.14 2,886.91 127.54 95.73 Refrigerator Co., Ltd. conditioner Meizhi Refrigeration Equipment Co., Subsidiary Manufacturing Compressor USD 5,527 3,080.69 1,473.15 4,325.22 136.52 79.52 Ltd., Guangdong Province Guangdong Meizhi Precise Subsidiary Manufacturing Compressor USD 774 1,134.41 583.08 3,539.95 108.28 93.25 Manufacture Co., Ltd. Anhui Meizhi Precise Manufacture Subsidiary Manufacturing Compressor RMB 84,211 1,444.97 1,009.21 1,906.14 220.23 184.85 Co., Ltd. Little Swan (Jingzhou) Electric Subsidiary Manufacturing Refrigerator RMB 85,000 1,600.07 995.98 1,614.56 97.62 92.77 Appliance Co., Ltd. Hefei Royalstar Refrigerator Co., Ltd. Subsidiary Manufacturing Refrigerator USD9,211 2,912.19 1,061.02 3,872.50 -9.00 -9.39

Note: Please refer to 2012 Annual Report for Wuxi Little Swan Company Limited, a controlled subsidiary of the Company.

Acquisition and disposal of subsidiaries during the Reporting Period √ Applicable □ Not Applicable

Purpose to acquire and dispose of Methods to acquire and dispose of Name of companies Impact on overall production and results subsidiaries during the Reporting Period subsidiaries during the Reporting Period To improve sales in household electric Net profit decreased by RMB 504,100 for the PT.MIDEA HVAC INDONESIA New establishment appliance Reporting Period To improve Manufacture in household Net profit decreased by RMB 13,622,700 for the Carrier Midea India PVT Ltd. New establishment electric appliance Reporting Period Century Carrier Residential Air- To improve Manufacture in household Net profit increased by RMB 3,163,500 for the New establishment conditioning Equipment Co., Ltd. electric appliance Reporting Period Anhui Meizhi Air-conditioning Net profit increased by RMB 190 from the Disposal of business Cancellation Equipment Sales Co., Ltd. beginning of the period to the disposal date

31 Directors’ Report

5. Highlights of the major investments not From the perspective of competition in the sub-sectors, the financed by the proceeds air-conditioning sector is basically in a state of oligopolistic □ Applicable √ Not Applicable competition, with the top three accounting for nearly 70% market shares and China’s brands being the world leaders VII. Special purpose vehicle controlled by the of the sector. The relative low ownership of air-conditioner Company together with the expected renewal demand will drive a steady growth of the sector. For the refrigerator sector, the □ Applicable √ Not Applicable trend of brand concentration and the main landscape remain unchanged, and foreign brands still have around 20% market VIII. Prospect of the future developments of the shares. Since the popularization of refrigerator in China Company market has basically completed, sales of refrigerators is more or less in a dynamic balance and the major factor supporting (1) Competition landscape and development the sector’s future development is renewal demand. It is trend of the industry expected that consolidation of the industry will accelerate after withdrawal of policies such as those for “home appliances Although there is a downturn in the home appliances industry going to countryside”. The landscape of the washing machine after successive years of high growth, from a mid- to long- sector is basically stable, with domestic leaders having relative term perspective, as factors supporting the industry’s growth strong competitive advantage and foreign brands accounting remain unchanged such factors include increase in the income for around 30% market shares. Urban markets for the sector level of residents, speeding up of urbanization, consumption are nearly saturated and major growth points in the future will upgrade, recovery of export environment, development of be renewal demand and the progress of urbanization. emerging market countries and China’s low home appliances ownership relative to developed countries. Furthermore, as From the perspective of product upgrade, “green” air-conditioners China has a population of 1.4 billion and being a major home with energy-saving, environmental, health and intelligence appliance manufacture and export country with complete features will be new winners in the market. Inverter air- industrial cluster and ancillary products, its appliance industry conditioners may dominate the market while air-conditioner using still has long-term growth potential that cannot be ignored. new energy such as solar energy and new refrigerants like R290 will also have demand in some consumer groups. For the washing Under new conditions and new modes of competition and machine sector, full automation is the mainstream currently, continual increase in the industry’s concentration, the industry while front-loading will be the future development trend and the will progress towards standardised competition and enjoy a market shares of double drums will gradually decrease. At the benign development. Leading enterprises will have stronger same time, large capacity, high-tech, efficient and energy-saving, brand awareness and reputation, and the competition hot spot and differentiated products will be the mainstream products of will no longer be “price” but instead will be a comprehensive the washing machine sector in the future. For the refrigerator competition over technology, industrial chain, services and sector, energy-saving, preservation, anti-bacteria, low noise and sales channels. Meanwhile, the industry’s channel system is new refrigerant technology will be widely used, and high-end facing profound changes, internet sales have been growing fast appliance with large capacity, multi-doors, multi-compartments in the first and second-tier markets. with different temperatures, air-cooled, and inverter refrigerators will be the new generation main products.

32 Directors’ Report

(2) Development strategies of the Company with advantage; protect customer interest, maintain stability in marketing model, sales team and channel structure, strengthen Basing on its three main strategies of “Pioneered Products, terminal build up and promotion effort, pay attention to Efficiency Driven and Global Operation”, the Company will and properly implement e-commerce projects, build and constantly enhance operation quality; perfect its products enhance identity of Midea brand; reinforce global operation, through focusing on core industry and concentrate resources management and control ability, strengthen cooperation with allocation; and realise product leadership by improving key customers, proactively establish overseas coverage and quality, optimizing structure and technological innovation. drive sales of own brand, increase the scale of overseas sales The Company will shift from factor-driven mode to efficiency- and prevent operation risks. driven mode of operation to achieve new cost advantage. It will also stabilize domestic sales market channels, enhance 3. Strengthen operation management and control, reinforce brand and services, and look at e-commerce closely. The fundamental management, coordinate resources and create value Company will mainly insist on OEM in matured overseas markets and try to localize operation in emerging markets, and The Company will strengthen operation management and improve and perfect its management and control systems to control, optimize assets structure, clear up idle assets and establish a solid foundation for global operation. control asset risks; reinforce fundamental management, strengthen cost control, increase operation and management (3)Key operation for 2013 efficiency, and establish new cost advantages; strengthen

1.Simplify operation and focus on enhancing product coordination of resources such as internal industrial chain, capability funds, storage and logistics, promote the use of internal production capacity, and create value through synergy; The Company will focus on key products, ensure quality establish a culture of “One Midea, one system, one standard” enhancement, further reduce the number of models and and maximize the interest of Midea as a whole. standardise product platforms; strengthen consumer research and market insight, increase accuracy of new product planning, (4)Future key capital expenditure plan optimize product mix, and secure selling points of products; Adapting to changes in the industry environment, the increase investment in technology, innovate R&D system, key areas of investment of the Company in 2013 will be push on basic research and gradually establish a platform technology innovation, quality improvement and rationalising for common basic technology research; strengthen quality IT information system, strictly control investments in consistency, improve quality supervision and control system, infrastructure and capacity expansion projects and non- reinforce product random check and consumer satisfaction production operation. Funds for investment will mainly come survey, and establish quality responsibility tracing and from the Company’s own funds. accountability mechanism.

2. Allocate resources and ensure a balanced growth in scale (5) Major risk factors related to future development and profits 1. Risk of fluctuation in macro-economy The Company will fully release the vigor of the divisions, As consumer goods, the market demand of home appliances maintain Midea’s advantages in marketing means and is significantly affected by economic condition and macro- methods, focus on key markets, meticulously rationalise third control policies. Change in policies and fluctuation in macro- and fourth-tier terminals, and increase proportion of products

33 Directors’ Report

economy may affect consumers’ income expectation, purchase Non-tariff barriers and trade frictions caused by antidumping power and willingness to buy. If the growth of macro-economy measures of some countries and regions have increased the or consumers’ demand slowdown, the sales of home appliances cost burden of home appliance enterprises and brought new companies will be negatively affected. challenges to market expansion.

2. Risk of price fluctuation in production costs IX. The Board of Directors’ explanation regarding The main raw materials for appliances production are various the non-standard audit opinion for the Reporting types of copper, steel, aluminum and plastic which account for Period over 50% of the Company’s production cost. Furthermore, as home appliance manufacturing is a labour intensive industry, □ Applicable √ Not Applicable if material prices increase significantly and labour cost rises, the production and gross margin of the Company will be X. Reason for changes in accounting policies, negatively affected. accounting estimates and accounting methods 3. Risk of product export and exchange losses arising from as compared to the financial report for the prior exchange fluctuation year Product export accounts for over 40% of total revenue of the Company. Exchange fluctuation will not only adversely affect □ Applicable √ Not Applicable its export, but will also result in exchange losses and increase finance cost. XI. Reason for retrospective restatement of major accounting errors during the Reporting 4. Risk related to developing overseas market Period Globalisation and world-wide operation are the long-term strategies of the Company, and it has established joint venture □ Applicable √ Not Applicable production bases in a number of countries around the world. However, in developing overseas market, the Company faces XII. Reason for changes in scope of the unpredictable risks such as the stability of local politics and consolidated financial statements as compared economy, change in local law system and regulation system, to the financial report for the prior year significant shrinkage of demand under the influence of global financial crisis, and sharp rise in production cost. √ Applicable □ Not Applicable 5. Market risk arising from trade barriers (1) Newly consolidated companies As tariff barriers are lowered, the impact of non-tariff barriers between countries has become increasingly prominent. They 1. In January 2012, Midea Electric Appliance (Singapore) are mainly reflected as various mandatory safety certification, Trading Co., Ltd., a controlled subsidiary of the Company, and requirements on international standards, certification its partner jointly contributed to establish PT. Midea Heating requirements on product quality and its management system, Ventilating Air Conditioner Indonesia with registered capital energy saving and increasingly stringent environmental of IDR 10,000,000,000, which is owned 51% as to Midea protection and recycling standards for waste home appliances. Electric Appliance (Singapore) Trading Co., Ltd.

34 Directors’ Report

2. In February 2012, Midea Electric Appliance (Holland) Co., expenditure (excluding investment project with raised funds), Ltd. contributed EUR 872 (approximately RMB 7,280) for the the Company shall distribute cash dividend for that year. The transfer of 60% equity in Carrier Midea India PVT Ltd held by Company shall formulate a shareholders’ return plan for three Carrier Co., Ltd. years, and review such plan at least once every three years.

3. In March 2012, Foshan Midea Carrier Refrigeration The Company’s profit distribution policy complies with Equipment Co., Ltd., a controlled subsidiary of the Company requirements of the Articles of Association. The Company made contribution to establish Century Carrier Residential Air- attaches great importance to investors’ return, protects the legal conditioning Equipment Co., Ltd. with registed capital of USD interest of minority shareholders and ensures the continuity 600,000, which is 100% owned as to Foshan Midea Carrier and stability of its profit distribution policy. Independent Refrigeration Equipment Co., Ltd. directors have expressed their opinion on the Company’s profit distribution, which had well defined distribution standard (2)Deconsolidation of companies and proportion. Conditions for the adjustment or change of profit distribution policy have been stipulated in the Articles In May 2012, Anhui Meizhi Air-conditioning Equipment of Association, and the procedures are in compliance and Sales Co., Ltd. was deregistered. Therefore, it has been transparent. deconsolidated from the scope of consolidated financial statements since June 2012. (2)The proposed profit distribution plans or XIII. Distribution of profit and dividend payment profit distribution plans and the proposals on by the Company conversion of capital reserves into share capital over or the conversion plans in the past three (1) Formulation, implementation and adjustment years (the Reporting Period inclusive) of profit distrubition policy, especially cash 1. Profit Distribution Proposal for 2012 dividend policy, during the Reporting Period As audited by Ascenda Certified Public Accountants, Ltd., the th At the 20 meeting of the seventh Board of Directors of parent company of the Company realized a net profit for 2012 th the Company convened on July 16 2012, and the first of RMB 2,319,529,150.00. Pursuant to the relevant provisions rd extraordinary general meeting for 2012 on August 23 under the Articles of Association, RMB231,952,915.00, 2012, the Company considered and approved the “Proposed being 10% of the statutory surplus reserve was provided, Amendment to the Articles of Association” and “Shareholders’ plus undistributed profit at the beginning of the year of Return Plan for the Next Three Years”, which clearly RMB3,200,310,880.00, and deducting the distributed profit defined the dividend policy of the Company as follows: The of RMB1,727,584,347.00, therefore, the actual distributable Company will maintain the continuity and stability of its profit shall be RMB3,560,302,768.00. porfit distribution policy. In any three consecutive years, the The proposed profit distribution plan for 2012 is as follows: cumulative profit distribution in cash by the Company for on the basis of a total equity capital of 3,384,347,650 shares the last three years period shall be not less than 30% of the of the Company as at December 31st 2012, a cash dividend of average of the same three years’ annual distributable profits. RMB6.00 (including tax) will be paid for every 10 shares held, If the Company achieves positive distributable profits for resulting in a total cash payment of RMB2,030,608,590.00, any year and there is no substantial investment plan or cash

35 Directors’ Report

and the remaining balances of RMB1,529,694,178.00 will be a cash dividend of RMB1.00 (including tax) will be paid for kept for distributing in subsequent years. every 10 shares held, the date of register was June 8th 2011, and the ex-right and ex-dividend date was June 9th 2011. The proposal shall be submitted to the Company's annual general meeting for 2012 for consideration. The proposed profit distribution plan for 2011 was as follows: on the basis of a total equity capital of 3,384,347,650 shares,

2. Profit Distribution Proposals for 2010-2011 a cash dividend of RMB4.50 (including tax) will be paid for every 10 shares held, the date of register was June 8th 2012, The proposed profit distribution plan for 2010 was as follows: th and the ex-right and ex-dividend date was June 19 2012. on the basis of a total equity capital of 3,384,347,650 shares,

Cash dividends of the Company over the past three years Unit: RMB Amount of cash Net profit attributable to shareholders of As a percentage of net profit attributable Year of dividends the Company in the consolidated financial to shareholders of the Company in the distribution (tax inclusive) statements during the year of distribution consolidated financial statements (%) 2012 2,030,608,590.00 3,477,331,870.00 58.40 2011 1,522,956,442.50 3,709,296,254.28 41.06 2010 338,434,765.00 3,127,097,380.00 10.82

The Company made a profit and had positive retained profit during the Reporting Period without cash dividend being proposed □ Applicable √ Not Applicable

XIV. Fulfillment of Social Responsibility

The Company has actively boren the social responsibility of an enterprise. It put much emphasis on preserving legal interests of stakeholders, including crediotrs, staff, consumers, suppliers and community. It reinforces the communication and coordination with the interested parties, insists on a harmonious relationship and cohabitation with all parties, adheres to the principles of good faith and commitment, complies with laws and moral standards and strive to achieve the sustainable development of the society and environment (details of which can be found in the separately published 2012 Social Responsibility Report).

36 Directors’ Report

XV. Registration report on reception of research investigations, communications and interviews during the Reporting Period

Class of Date of Manner of Place of reception parties acc- Parties accommodated reception reception ommodated 2012-2-3 Company’s Office On-site survey Institution Manulife Teda Fund 2012-2-9 Company’s Office On-site survey Institution Da Cheng Fund, CICC, Soros Fund, DH&YZ More than 100 institutions, including CITIC Securities, CBIC INSURANCE, Baoying Fund, Bosera Funds, Caitong Securities, Great Wall Fund, Changjiang Securities, Da Cheng Fund, First Capital Securities, Orient Fund, Orient Securities, Donghai Securities, Dongxing Securities, Fidelity Fund, Fullgoal Fund, Goldman Sachs Asset, Everbright Securities, Sinolink Securities, Guotai AMC, Guotai Junan, UBS SDIC, Guosen Securities, HFT Investment, Haitong Securities, Korea Investment, Heqi Investment, Manulife Fund, Hongyuan Securities, HuaAn Funds, Huafor Fund, Huatai Asset, ChinaAMC, HSBC Jintrust Fund, Value Partners, Harvest Fund, Jiangsu Winfast Investment, BOCOM Schroders, Jinbaite fund, Jinshan Capital, Greenwoods Asset Management, Invesco Great Wall Fund , Kunpeng Investment, Longshan Cpaital, Neuberger Berman Fund, Marco Polo Pure Asset Management, Merrill Lynch, Minsheng Telephone 2012-3-12 Company’s Office Institution Royal Fund, Minsheng Insurance, River Fund, Morgan Stanley Investment Funds, China conference Southern Asset, ABC-CA Fund, Penghua Fund, Pingan Asset, AXA SPDA Investment Managers, Qilu Securities, Rongtong Fund, Rongyin Capital, Credit Suisse , Runihui Investment, Shanghai Chongyang Investment, China International Fund Management, Elegant Investment, SWS MU Fund Management, Shenyin Wanguo, China Taiping, The Pacific endowment insurance, CPIC Asset, Taiking AMC, First-trust Fund, Tianyin investment, Tongyong Investment, Wanjia Asset, Minmetals International Trust, Anxi Trust, Xibei Investment, Western Securities, CITIC-Prudential Fund, First State Investments, First State Investments, Industrial Securities, Sunshine Insurance, China Galaxy Securities, Yinhua Fund Management, AIA, China Merchants Securities, CICC, Lombarda China Fund, BOC International Securities, BOC Investment Management, Central China Securities, etc. Penghua Fund, Da Cheng Fund, Bosera Funds, China Southern Asset, Rongtong Fund, 2012-3-13 Shenzhen Road show Institution Guosen Securities, China Galaxy Securities, China Merchants Securities, etc. 2012-3-14 Hefei Road show Institution Guoyuan Securities Pingan Asset Management, Shanghai Chongyang Investment, BOCOM Schroders, China International Fund Management , CITIC Securities, Shenyin Wanguo, Haitong 2012-3-14 Shanghai Road show Institution Securities, Guotai Junan, CICC, Sinolink Securities, China Securities, Essence Securities, Fortune Fund, Soochow Asset Management, SWS MU, ABC-CA Fund, etc. 2012-3-15 Beijing Road show Institution ChinaAMC, Yinhua Fund Management, Harvest Fund, Huashang Fund 2012-3-19 Guangzhou Road show Institution E Fund Management

37 Directors’ Report

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Class of Date of Manner of Place of reception parties acc- Parties accommodated reception reception ommodated China Galaxy Securities, CITIC Securities, Bosera Funds, Caitong Securities, Great Wall Fund, Changjiang Securities, Da Cheng Fund, Fullgoal Fund, Sinolink Securities, Guotai AMC, Guotai Junan, UBS SDIC, Guosen Securities, HFT Investment, Haitong Securities, Korea Investment, Heqi Investment, Manulife Fund, Hongyuan Securities, HuaAn Funds, Huafor Fund, ChinaAMC, Harvest Fund, BOCOM Schroders, Jinbaite fund, Jinshan Capital, Greenwoods Asset Management, Invesco Great Wall Fund , Minsheng Royal Fund, Minsheng Insurance, River Fund, Morgan Stanley Investment Funds, China Telephone 2012-4-24 Company’s Office Institution Southern Asset, ABC-CA Fund, Penghua Fund, Pingan Asset, AXA SPDA Investment conference Managers, Qilu Securities, Rongtong Fund, Rongyin Capital, Credit Suisse , Runihui Investment, Shanghai Chongyang Investment, China International Fund Management, Elegant Investment, SWS MU Fund Management, Shenyin Wanguo, Pingan Asset, Taiking AMC, First-trust Fund, Wanjia Asset, CITIC-PRUDENTIAL FUND, First State Investments, First State Investments, Industrial Securities, Yinhua Fund Management, China Merchants Securities, CICC, Lombarda China Fund, BOC International Securities, BOC Investment Management, Central China Securities, etc. Lloyd George, Keywise, China Life Franklin Asset , Citic Capital , China AMC, Rays 2012-4-24 Company’s Office On-site survey Institution Capital , UBS 2012-5-7 Company’s Office On-site survey Institution Norges Bank, Morgan Stanley Asia Limited Morgan Stanley Asia Limited , Fidelity Fund, Keywise Capital , Azentus Capital, UG Investment , Taiping Shengshi Investment Company, Coatue Management, Mason Capital, 2012-5-9 Company’s Office On-site survey Institution Neuberger Berman, Northcape, Brookside, Discovery Capital, The Boston Company, Jennison Capital, Azentus Capital, Standard Pacific , JP Morgan, Mount Kellet, Lion Global , Highbridge, GIC, Trivest Advisors 2012-5-17 Company’s Office On-site survey Institution China Galaxy Securities, Yinhua Fund Management, Industrial Securities, Anbang Asset 2012-5-21 Company’s Office On-site survey Institution Tebon Securities CICC, Pingan Trust, CPIC Asset, Cathay Life, Standard Pacific Capital, CITIC- 2012-5-23 Company’s Office On-site survey Institution PRUDENTIAL FUND, BOCOM Schroders, Power Corporation of Canada, New Value Haitong Securities, Pfizer, HFT Investment, Fullgoal Fund, Manulife Teda Fund, ABC-CA 2012-5-25 Company’s Office On-site survey Institution Fund 2012-5-30 Company’s Office On-site survey Institution CCB Principal Asset Management 2012-5-31 Company’s Office On-site survey Institution TX Investment Consulting Changjiang Securities, Sun Life Everbright Asset, CICC HK, JF Asset Management, 2012-6-6 Company’s Office On-site survey Institution Singapore Government Asset Management, UBS AG, Life insurance asset management, UBS, Huichen emerging market assets management, Legg Mason, Gao Hua Securities 2012-6-12 Company’s Office On-site survey Institution Keywise Capital Management Company Limited 2012-6-13 Company’s Office Phone suvery Institution DBS Vickers Securities 2012-6-20 Company’s Office On-site survey Institution Pingan Asset Management 2012-6-26 Company’s Office Phone suvery Institution Value Partners 2012-6-27 Company’s Office On-site survey Institution Credit Suisse , Blenheim Capital, Pyramis, T.Rowe Price Associates 2012-7-10 Company’s Office On-site survey Institution Shanghai Securities, Minsheng Securities

38 Directors’ Report

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Class of Date of Manner of Place of reception parties acc- Parties accommodated reception reception ommodated E Fund Management, CCB Principal Asset Management , Credit Suisse Asset Management, Fullgoal Fund, Haitong Securities, China Galaxy Securities, Tybourne 2012-7-11 Company’s Office On-site survey Institution Capital Management, Million of assets, Value Partners, Manulife Asset Management , RCM, Och-Ziff Capital Management Communication 2012-7-13 Company’s Office Institution Lone Pine Capital LLC. via phone 2012-7-18 Company’s Office On-site survey Institution Fortune CLSA Securities 2012-7-21 Company’s Office On-site survey Institution UBS SDIC Fund Management Co., Ltd Minority investors (An activity called “Going into a Listed Company” held by the 2012-9-27 Company’s Office On-site survey Individual Listed Companies Association of Guangdong) Credit Suisse Asset Management, Haitong Securities, Great Wall Fund, CCB Principal 2012-10-31 Company’s Office On-site survey Institution Asset Management 2012-11-2 Company’s Office On-site survey Institution Bosera Funds China Life Asset Management, Orient Securities, PICC Asset Management, South Industry Assets Management , Southwest Securities, Shenyin Wanguo, Shanghai 2012-11-8 Company’s Office On-site survey Institution Zhongzhi asset management, GF Securities, Zheshang Securities, Neuberger Berman, Zheshang Fund, Guangdong New Value Investment Telephone 2012-11-9 Company’s Office Institution Third Point Capital conference 2012-11-9 Company’s Office On-site survey Institution CICC, China International Fund Management 2012-11-16 Company’s Office On-site survey Institution OCH-ZIFF Capital 2012-11-22 Company’s Office On-site survey Institution Changjiang Securities, Orient Fund 2012-12-18 Company’s Office On-site survey Institution Lombarda China Fund, BNY Mellon Western Fund, Minsheng Securities 2012-12-19 Company’s Office On-site survey Institution DBS Vickers Securities The Company mainly briefed the investors about: (1) current status and development of the industry; (2) operation and development strategy of the Company; (3) other regular report disclosed by the Company and topics involved in the announcement. Description of reception Informative report provided by the Company: public information, such as regular report announcement of the Company. In addition to institutional investors, the Company also pays attention to the communication with individual and other minatory investors. Via telephone, mail, and the Q&A platform on the website of stock exchange, the Company actively answers the questions of investors and responds to their advice.

39 Chapter 4 Important Matters

40 I. Material litigation and arbitration Group”. Midea Group was proposed to absorb and merge Midea Electric Appliance via issuing its shares to all other □ Applicable √ Not Applicable shareholders of GD Midea Holding Co., Ltd. participating The Company was not related to any material litigation and in share swap, other than Midea Group, as well as cash arbitration during the year. alternative providers to convert the shares of GD Midea Holding Co., Ltd. held by them, of which Midea Group would Media criticism neither participate in share swap nor exercise cash alternative. □ Applicable √ Not Applicable Such shares will be cancelled upon the completion of this There was no media criticism for the Company during the absorption and merger by share swap. Upon the completion of year. this absorption and merger by share swap, the legal personality of GD Midea Holding Co., Ltd. will be canceled and Midea II. Misappropriation of fund by the controlling Group will act as surviving company to take over all assets, shareholder of the Company or its connected liabilities, business, staff, contracts and other rights and person obligation of GD Midea Holding Co., Ltd.

Upon the completion of this absorption and merger by share □ Applicable √ Not Applicable swap, Midea Group will realize an entire listing of large household electric appliance business, small household electric III. Matter related to bankruptcy and reorgani- appliance, logistics business and electrical and mechanical sation business. Upon the completion of entire listing, there will be a more sizeable listing platform for Midea, which regulates the □ Applicable √ Not Applicable Company’s corporate governance, improve comprehensive competitiveness, enjoy synergy advantage, enhance operation IV. Asset transactions and management efficiency and reinforce independency of the listing companies. As a result, all investors can share the 1. Acquisition of assets operation result of Midea Group. □ Applicable √ Not Applicable The entire listing of Midea is subject to the consideration and 2. Disposal of assets approval of the general meeting of the Company, which has □ Applicable √ Not Applicable been reviewed and approved by CSRC and related government authority.

3. Business combination For the specific information about the entire listing of the

On 28 March 2013, the seventh session of the Board of the Company, please refer to “Report of Absorption and Merger Company passed a series of resolutions at the 25th meeting, of GD Midea Holding Co., Ltd. by Midea Group Co., Ltd. including “The Resolution of the Proposal of Absorption and through Share Swap (Draft)” and the summary of “Draft” Merger of GD Midea Holding Co., Ltd. by Midea Group issued on Cninf and designed media for the purpose of Co., Ltd. through Share Swap” and “The Resolution of information disclosure. Entering into ‘Absorption and Merger Agreement’ with Midea

41 Important Matters

V. Implementation of the equity incentive plan of In accordance with the relevant requirements under the Article the Company and its effect 7 of “No.4 Interpretation of Accounting Standards for Business Enterprises” issued by MOF, as the transfer of asset involved □ Applicable √ Not Applicable share payment, the cost incurred for this incentive plan should Note: To encourage the core management of the Company, be shared by the companies that participants serve. Given Midea Group, the controlling shareholder of the Company, that the core management of the Company has participated in implemented a stock ownership plan for the core management such stock ownership plan, the accrual cost for share payment of Midea Group and its subsidiary, through which Midea included in the 2012 accounts of the Company amounted to Holding CO.,Ltd during the Reporting Period, the controlling RMB 287 million. shareholder of Midea Group, will transfer its entire property In accordance with “Accounting Standards for Business in the 99.9% equity interest in Ningbo Meisheng equity Enterprises” and related requirements, management cost investment partnership enterprise (“Ningbo Meisheng”) to resulting from such share payment is included in extraordinary the management team who participates in the plan. Ningbo profit and loss, which would make no impact to the net profit Meisheng is interested in 3% total share equity (30 million attributable to the shareholder of the parent companies (after shares) in Midea Group. The procedure for change of business extraordinary profit and loss) and would not reduce any cash registration in respect of the aforesaid transfer was completed flow and net assets. All cost has been recognized in 2012 and on 14 December 2012. there is no impact to the overall result in 2013. The shares used for incentive plan are sourced from the shares Through equity incentive, the middle manager and senior of existing controlling shareholders. As the subject company management of the Company share the same interest with the for such incentive plan and the shares used for incentive plan minority shareholders of the company to be listed in the future, are not listed, the incentive plan is not subject to the regulation which can encourage the Company’s management by sharing under the Administrative Measures on Share Incentives of the long-term development of the Company. Listed Companies (Trial) issued by CSRC.

42 Important Matters

VI. Significant related party transactions

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

Pricing Types of the Subject matter of Amount of related Percentage as the Settlement of Related party basis of the Related party related party the related party party transactions amount of similar related party relationship related party transactions transactions (RMB ’0,000) transactions(%) transactions transactions Purchase of electrical Controlling Payment Midea Group Co., Ltd. Purchase machinery and Market price 265,581.61 4.93 shareholder after products component Controlling Payment Midea Group Co., Ltd. Sale Sale of materials Market price 15,099.21 0.22 shareholder after products Receive Controlling Receiving logistics Monthly Midea Group Co., Ltd. labour Market price 49,434.98 24.00 shareholder service settlement service Provide Controlling Provision of Monthly Midea Group Co., Ltd. labour Market price 1,359.40 0.01 shareholder processing services settlement service Foshan Midea Domestic Company controlled Payment Purchase Purchase of materials Market price 50.12 0.001 Electric Co., Ltd. by actual controller after products Guangdong Wellkey Company controlled Purchase of enameled Monthly Electrical Material by family members of Purchase Market price 48,454.05 0.90 Wire settlement Co., Ltd. actual controller Hefei Century Plastic Company controlled Purchase of Payment Mold Science and by family members of Purchase plastic parts of air- Market price 10,154.90 0.19 after products Technology Co., Ltd. actual controller conditioners Hefei Century Plastic Company controlled Sale of plastic parts of Payment Mold Science and by family members of Sale Market price 7,008.27 0.10 air-conditioners after products Technology Co., Ltd. actual controller Company controlled Hefei Orinko Plastics Purchase of raw Payment by family members of Purchase Market price 13,881.38 0.26 Group materials after products actual controller Company controlled Hefei Orinko Plastics Payment by family members of Sale Sale of raw materials Market price 2,312.35 0.03 Group after products actual controller Total -- 413,336.27 3.31

43 Important Matters

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Description of return of bulk sales in details Nil The related party transactions of the Company comply with the principal of fair, equitable and open and would not prejudice the Company’s interests, which are beneficial to fully utilize Necessity and continuity of related party transac- the internal resources advantage of Midea Group and other related party in order to stabilize tions and the reason for trade with related party the product quality, reduce product and logistics cost and effectively allocate resources, instead of other counterparties in the market resulting in positive effect to the current and future financial position as well as operation result of the Company. Effect of related party transactions on the inde- The related party transactions would not affect the independence of the Company. pendence of the Company How far did the Company rely on the related The major business of the Company would not heavily rely on the above related party parties? transactions. What about the related solution In accordance with the announcements about daily related party transactions of the Company, the Company expects that the purchase amount in relation to the related party transactions of the Company was RMB 9,906,000,000; the sale amount in relation to the related party transactions of the Company was RMB 715,000,000; payment for the provision of labour The actual performance of the estimated total service to related parties amounted to RMB 20,000,000; and payment for receiving labour amounts of day-to-day related party transactions to service from related parties amounted to RMB 636,000,000. As of 31 December 2012, the be conducted in the period under review during the actual purchase amount in relation to the related party transactions of the Company was Reporting Period by type RMB 3,381,220,600; the actual sale amount in relation to the related party transactions of the Company was RMB 244,198,300; actual payment for the provision of labour service to related parties amounted to RMB 13,594,000; and actual payment for receiving labour service from related parties amounted to RMB 494,349,800. The reason for the difference between the Nil transaction price and the market reference price

2. Related party transactions arising from acquisition and disposal of assets □ Applicable √ Not Applicable

3. Related party transactions arising from joint foreign investment □ Applicable √ Not Applicable

4. Whether non-operating related creditors’ rights and debts transactions existed? □ Yes √ No

44 Important Matters

5. Other significant related party transactions Relevant information regarding the tentative announcement disclosure website for significant related party transactions

Disclosure date of the tentative Name of the tentative Name of tentative announcement announcement announcement disclosure website (2012-022)Announcement about related party transaction in 2012-07-17 Cinifo relation to the deposit and loan in Shunde Rural Commercial Bank (2012-027)Announcement about related party transaction in 2012-08-25 Cinifo relation to approval of trademark licence (2012-028)Announcement about related party transaction in 2012-08-25 Cinifo relation to property lease

VII. Material contracts and their implementation

1. Custody, contracting and leasing

(1)Custody □ Applicable √ Not Applicable

(2)Contracting □ Applicable √ Not Applicable

(3)Leasing □ Applicable √ Not Applicable

2. Guarantees Unit: RMB ’0,000

The Company’s external guarantees (excluding guarantees provided for its subsidiaries) Guaranteed amount Date of occurrence Actual Whether per- Guarantee provided Name of Guaranteed Guarantee Guarantee limit announcement (agreement guaranteed formance was for related party guaranteed party amount limit type period issuing date signing date) amount completed (yes or no) None ------Total line of external guarantees approved during Actual amount of external guarantees provided 0.00 0.00 the Reporting Period (A1) during the Reporting Period (A2) Total line of external guarantees approved Actual amount of external guarantees provided 0.00 0.00 at the end of Reporting Period (A3) at the end of Reporting Period (A4)

45 Important Matters

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Guarantee provided by the Company for its subsidiaries Guarant- Date of Whether Guarantee Guaranteed amount Actual eed occurrence Guarantee Guarantee performance provided for Name of guaranteed party limit announcement guaranteed amount (agreement type period was related party issuing date amount limit signing date) completed (yes or no) Guangdong Midea Refrigeration 2012-03-10 275,000 2011-11-30 39,438 Warranty 2014-12-31 No No Equipment Co., Ltd. GD Midea Group Wuhu Refrigerating 2012-03-10 120,000 2011-08-03 0.00 Warranty 2013-12-30 No No Equipment Co., Ltd. Wuhu Meizhi Air-conditioning 2012-03-10 60,000 2011-06-01 3,571 Warranty 2013-12-30 No No Equipment Co., Ltd. Midea Group Wuhu Refrigeration 2012-03-10 50,000 2012-02-28 0.00 Warranty 2014-02-28 No No Equipment Co., Ltd. Midea Commercial Air Conditioning Equipment Co., Ltd., Guangdong 2012-03-10 10,000 2008-01-01 1,846 Warranty 2013-12-31 No No Province Guangdong Midea Heating & 2012-03-10 65,000 2012-01-20 1,172 Warranty 2014-02-12 No No Ventilation Equipment Co., Ltd. Guangdong Meizhi Refrigeration 2012-03-10 25,000 2008-01-01 498 Warranty 2013-12-31 No No Equipment Co., Ltd. Guangdong Meizhi Precise 2012-03-10 15,000 2008-01-01 113 Warranty 2013-12-31 No No Manufacture Co., Ltd. Foshan Midea Carrier Refrigeration 2012-03-10 20,000 2011-07-15 0.00 Warranty 2014-02-12 No No Equipment Co., Ltd. Anhui Meizhi Refrigeration 2012-03-10 35,000 2011-04-01 3,879 Warranty 2014-02-08 No No Equipment Co., Ltd. Anhui Meizhi Precise Manufacture 2012-03-10 15,000 2011-06-01 7,684 Warranty 2013-12-30 No No Co., Ltd. Hefei Hualing Co., Ltd. 2012-03-10 150,600 2011-07-01 27,830 Warranty 2014-02-28 No No Hefei Royalstar Refrigerator Co., Ltd. 2012-03-10 235,000 2011-07-01 65,934 Warranty 2014-02-28 No No Hefei Midea Material Supply Co., Ltd. 2012-03-10 128,600 2011-07-01 0.00 Warranty 2014-02-28 No No Hefei Midea Heating & Ventilation 2012-03-10 50,000 2011-07-01 11,273 Warranty 2014-02-28 No No Equipment Co., Ltd. Little Swan (Jingzhou) Electric 2012-03-10 50,700 2011-07-01 17,026 Warranty 2014-02-28 No No Appliance Co., Ltd. China Refrigeration Industry Co., Ltd. 2012-03-10 6,700 2012-02-28 0.00 Warranty 2013-03-27 No No Chongqing Midea General 2012-03-10 26,000 2011-09-30 11,203 Warranty 2013-12-10 No No Refrigeration Equipment Co., Ltd. Midea Appliance (BVI) Co., Ltd. 2012-03-10 316,500 2011-08-31 172,003 Warranty 2014-08-31 No No Midea Electrical Appliance 2012-03-10 345,000 2012-06-29 303,773 Warranty 2015-06-29 No No (Singapore) Trading Co., Ltd. 2012-08-25

46 Important Matters

Guarantee provided by the Company for its subsidiaries Guarant- Date of Whether Guarantee Guaranteed amount Actual eed occurrence Guarantee Guarantee performance provided for Name of guaranteed party limit announcement guaranteed amount (agreement type period was related party issuing date amount limit signing date) completed (yes or no) Midea Refrigeration (Hong Kong) 2012-03-10 35,000 2012-05-28 31,500 Warranty 2013-05-23 No No Co., Ltd. 2012-08-25 Midea Refrigerating Equipment 2012-03-10 13,200 2012-04-29 1,890 Warranty 2013-03-30 No No (Vietnam) Co., Ltd. 2012-08-25 PT. Midea Heating Ventilating Air Conditioner Indonesia (an Indonesian 2012-08-25 6,000 2012-06-29 4,316 Warranty 2013-10-31 No No company) Carrier Midea India PVT Ltd(an 2012-08-25 10,000 2012-11-01 0.00 Warranty 2013-10-31 No No Indian company) Carrier S.A.and Carrier Fueguina 2012-08-25 8,000 2012-06-29 0.00 Warranty 2013-10-31 No No S.A.(an Argentine company) Total of guaranteed amount limit approved and provided Actual amount of guarantees provided for 1,707,896 1,707,896 for subsidiaries during the Reporting Period (B1) subsidiaries during the Reporting Period (B2) Total of guaranteed amount limit approved and provided Actual amount of guarantees provided for 704,949 704,949 for subsidiaries at the end of Reporting Period (B3) subsidiaries at the end of Reporting Period (B4) Total amount of guarantees provided by the Company (namely total amount of the above two items) Total amount of guarantees approved during the Reporting Actual amount of guarantees provided 1,707,896 1,707,896 Period (A1+B1) during the Reporting Period (A2+B2) Total amount of guarantees approved at the end of Reporting Actual amount of guarantees provided 704,949 704,949 Period (A3+B3) at the end of Reporting Period (A4+B4) Ratio of total guarantee amount (i.e. A4+B4) to the Company's net asset (%) 31.95 Of which: Amount of guarantee provided for shareholders, beneficial controlling person and related party (C) 0.00 Amount of guarantee of indebtedness directly or indirectly provided for the guaranteed party with the asset-liability ratio of over 70% (D) 640,478 The portion of total guarantee amount in excess of 50% of net asset (E) 0.00 Total of the abovementioned three guarantee amounts (C+D+E) 640,478 Explanation on several and joint liability possibly borne for undue guarantee Nil Explanation of external guarantees in breach of the specified procedures Nil

Explanation of external guarantees in breach There is no external guarantees in breach of the Company during the Reporting Period.

3. Other material contracts:Nil

47 Important Matters

VIII. Performance of undertakings

1. Undertakings made by the Company and shareholders interested in 5% or more of the shares of the Company made in the Reporting Period or subsisting to the Reporting Period

Party Particulars Underta- Undertaking involved in Details of undertaking Term on the per- king date undertaking formance If the Company is planned to sell the liquid share of Little Swan after the lock up period through the bid trading The system on Shenzhen Stock Exchange and reduces 5% or more shares in hand within 6 months since its first 2009-09-04 Infinite Implementing Company disposal, the Company would make an announcement through Little Swan 2 trading days before its first disposal. Undertaking on shareholding If the Midea Group is planned to sell the liquid share of the Company after the lock up period through the bid structure reformation Midea Group trading system on Shenzhen Stock Exchange and reduces 5% or more shares in hand within 6 months since its 2009-03-26 Infinite Implementing Co., Ltd. first disposal, the Midea Group would make an announcement through the Company 2 trading days before its first disposal. Undertaking made in offering documents or shareholding - - - - - alternation documents Undertaking made during asset - - - - - reconstruction Undertaking made on initial - - - - - public offering or refinancing Midea Group Finance Co.,Ltd.’s undertaking towards funds security for financial business: 1. The Finance Company is a corporate group finance company incorporated in accordance with the Measures on Administration of the Finance Companies under Enterprises Groups, related laws, regulations and regulatory documents. The Finance Company has worked out various business rules and procedures, established and perfected its systems related to internal control, finance and accounting, business risk control and business auditing, etc. Midea Group will urge the Finance Company to perform its business activities in accordance with the regulations and requirements of related laws, regulations and regulatory documents, as well as the agreements in the Financial Service Framework Agreement signed between Midea Group and the Company in the future, so as to ensure the funds security during the financial transactions between the Company and the Finance Company. 2. Whereas the Company is independent from Midea Group in terms of asset, business, personnel, finance and organizational 2010-11-19 Infinite Implementing Other undertakings made to structure, etc., Midea Group will continue guaranteeing the independence of the Company and fully respecting Midea Group minority shareholders of the the Company’s autonomy in management, and allow the Company to independently make decisions on the Co., Ltd. Company financial businesses with the Finance Company according to the related regulatory provisions and the actual needs for business and to perform the internal procedure in accordance with related laws, regulations and the Company’s Articles of Association, and will not interfere with the Company’s decisions. 3. According to the provisions of the Measures on Administration of the Finance Companies under Enterprises Groups, Midea Group will, when the Finance Company finds it difficult to make payment, take effective measures including increase of the Finance Company’s share capital, according to the actual needs for overcoming such difficulty, to ensure the security of funds of the Company. On 23 November 2011 to 29 November 2011, Midea Group Co., Ltd., additionally acquired 67,571,513 A shares through the trading system on Shenzhen Stock Exchange, representing 1.9966% of the total share capital of 2011-12-02 2012- Implementing Midea Electric Appliance. Midea Group Co., Ltd., has undertaken that it would not reduce its shareholding in 2011-12-29 03-26 the Company during the statutory period.

48 Important Matters

Con't

Party Underta- Particulars on the Undertaking involved in Details of undertaking Term king date performance undertaking Non –competition undertakings of Midea Group Co., Ltd., the controlling shareholder of the Company: 1. Midea Group Co., Ltd., states that during the period of it acting as the controlling shareholder of Midea Electric Appliance, it would not establish any subsidiary whose business is same as or similar to the business of Midea Electric Appliance and constitute substantive competition with Midea Electric Appliance; and it agrees that Midea Electric Appliance can reserve the right to acquire such business from time to time at fair value unless Midea Electric Appliance makes a written statement that it would not go into such business or discard such business opportunity; 2. It undertakes that to coordinate the operation of other subsidiaries whose business is similar to the business of Midea Electric Appliance but not constitute substantive competition with Midea Electric Appliance in order to reduce and avoid competition and Midea Group can Other undertakings made to choose to transfer such companies to Midea Electric Appliance, third parties or terminate such business Midea Group minority shareholders of the constituting substantive competition with Midea Electric Appliance; 3. It undertakes that during the period of 2008-04-03 Infinite Implementing Co., Ltd. Company it acting as the controlling shareholder of Midea Electric Appliance, according to the market situation and the operation principle of the controlled subsidiaries determined by their concrete operation situation, if there is any domestic and overseas business opportunity for the declarant or other subsidiaries which would constitute competition with Midea Electric Appliance, the declarant will promptly notify or prompt its subsidiaries to notify Midea Electric Appliance with such opportunity; 4. during the period of it acting as the controlling shareholder of Midea Electric Appliance, if any direct or indirect subsidiaries of the declarant compete with Midea Electric Appliance during business operation, Midea Electric Appliance has the right to require the declarant to resolve; 5. It undertakes that it would not prejudice the interests of Midea Electric Appliance and other shareholders by virtue of its capacity as a controlling shareholder and it beneficial controlling power over Midea Electric Appliance. Does the undertaking performed timely? √ Yes □ No Specific reasons for non-performance and further plans Not applicable Whether undertaking in respect of competition and connected transaction had been made or not √Yes □ No Term for undertaking Not Applicable Solution Not Applicable Implementation of undertaking Preformed in accordance with undertaking

2.The Company’s description of whether the performance of the assets or projects of the Company met their original profit estimates and its reasoning when the Reporting Period was within the term of such profit estimates

During the Reporting Period, the Company did not make any profit estimation in respect of the performance of the assets or projects.

49 Important Matters

IX. Engagement or dismissal of accounting firms

Current accounting firm engaged

Name of the domestic accounting firm Pan-China Certified Public Accountants LLP Remuneration of the domestic accounting firm (RMB’ 0,000) 450 Continued term of service of the domestic accounting firm 1 year Name of certified public accountants of the domestic accounting firm Zhou Rongming, Huang Zhiheng Name of the international accounting firm Nil Remuneration of the international accounting firm (RMB’ 0,000) Nil Continued term of service of the international accounting firm Nil Name of certified public accountants of the international accounting firm Nil

Whether to appoint another accounting firm during the period audit staff of Ascenda has transferred to Pan-China, to ensure □ Yes √ No the continuity of audit work and not prejudice the interests of the Company and the shareholders, it was passed and agreed Whether appointed another accounting firm during the audit at the 24th meeting of the Board of the Company to change the period financial and internal audit institution of the Company for the √ Yes □ No year 2012. The independent directors of the Company have Whether the appointment of another accounting firm comply issued independent opinion for changing accounting firm. The with approval procedure resolution of changing Pan-China to be the audit accounting √ Yes □ No firm for the year 2012 has been considered and approved at the Detailed explanation about the appointment of another first extraordinary general meeting of the Company in 2013.

accounting firm Particulars on recruitment of accounting firms, financial The Company received “The Letter about the Combination consultants or sponsors for internal control and auditing of Accounting Firm” from Pan-China Certified Public purposes

Accountants LLP, that pursuant to the agreement entered into √Applicable □ Not Applicable between Ascenda Certified Public Accountants, Ltd. (Ascenda), The Company appointed Pan-China Certified Public the financial and internal audit institution of the Company for Accountants LLP as the internal accounting firm of the the year 2012, and Pan-China, the Chongqing branch, Sichuan Company. The Company paid a total remuneration of RMB 4.5 branch, Shenzhen branch and Xinjiang branch of Ascenda million to the accounting firm for external audit and internal have been absorbed and merged with Pan-China and the staff audit for the year 2012. of such branches has transferred to Pan-China. As the related

50 Important Matters

X. Opinions of the Supervisory Committee XIII. Other material matters and Independent Shareholders (if applicable) regarding the “modified auditor’s report” for the The seventh session of the Board of the Company passed Reporting Period issued by the accounting firm a series of resolutions at the 25th meeting, including “The Resolution of the Proposal of Absorption and Merger of GD □ Applicable √ Not Applicable Midea Holding Co., Ltd. by Midea Group Co., Ltd. through Share Swap”. Midea Group was proposed to absorb and merge XI. Punishment and rectification the Company through share swap. Upon the completion of this absorption and merger, the legal personality of the Company During the Reporting Period, there was no punishment on the will be canceled and Midea Group will act as surviving Company or administrative regulatory measures made and company to take over all assets, liabilities, business, staff, rectification required by CSRC and its agencies which should contracts and other rights and obligation of the Company. be made by a time limit. For details, please refer to designed media for the purpose of Directors, Supervisors, Senior management or shareholders information disclosure and“Report of Absorption and Merger holding over 5% of the Company’s total shares suspected of of GD Midea Holding Co., Ltd. by Midea Group Co., Ltd. being involved in trading of the Company’s shares against the through Share Swap (Draft)” and the summary of “Draft” regulations and recovery of the profit obtained by such persons issued on Cninf. suspected of being involved in trading of the Company’s shares against the regulations as disclosed by the Company XIV. Material matters of subsidiaries:Nil □ Applicable √ Not Applicable XV. Corporate bonds issued by the Company

XII. Suspension in trading or delisting upon The Company did not issue any corporate bond during the publication of annual report Reporting Period.

The Company did not subject to suspension in trading or delisting.

51 Chapter 5 Changes in Share Capital and Information of Shareholders

52 I. Changes in shares

Opening balance Change during the Reporting Period (Increase/decrease) Closing balance Percentage New Bonus Shares converted Others Percentage Amounts Others Amounts (%) issue shares from reserve Subtotal (%) I. Restricted shares 264,082,374 7.80 -264,082,374 -264,082,374 0 0.00 1.State-owned share 0 0.00 0 0 0 0.00 2. State-owned legal person share 27,077,409 0.80 -27,077,409 -27,077,409 0 0.00 3. Other domestic share 203,634,766 6.02 -203,634,766 -203,634,766 0 0.00 Of which: domestic legal person share 203,634,766 6.02 -203,634,766 -203,634,766 0 0.00 Domestic natural person share 0 0.00 0 0 0 0.00 4. Foreign investment 33,370,199 0.99 -33,370,199 -33,370,199 0 0.00 Of which: foreign legal person share 33,370,199 0.99 -33,370,199 -33,370,199 0 0.00 Foreign natural person share 0 0.00 0 0 0 0.00 5. Shares held by the Senior Management 0 0.00 0 0 0 0.00 II. Non-restricted shares 3,120,265,276 92.20 264,082,374 264,082,374 3,384,347,650 100.00 1. RMB ordinary shares 3,120,265,276 92.20 264,082,374 264,082,374 3,384,347,650 100.00 2. Domestic listed foreign shares 0 0.00 0 0 0 0.00 3. Overseas listed foreign shares 0 0.00 0 0 0 0.00 4. Other 0 0.00 0 0 0 0.00 III. Total number of shares 3,384,347,650 100.00 0 0 3,384,347,650 100.00

The reasons for such changes On 11 March 2011, the Company issued 264,082,37 restricted shares to 6 investors (22 shareholders in total) via non-public offer. Restriction period expired on 12 March 2012 and the shares could be traded freely in the market.

Approval of changes in shareholding □ Applicable √ Not Applicable

Transfer of shares arising from changes in shareholding The effects of changes in shareholding on financial indicators such as basic earnings per share, diluted earnings per share and net assets per share attribute to shareholders of original shares of the Company in the latest year and the latest period □ Applicable √ Not Applicable

53 Changes in Share Capital and Information of Shareholders

II. Issuance and listing of securities

1. As at the end of the Reporting Period, issuance of securities in the last three years

Name of share and its Issue price Amount Amount approved Last transaction date Issue date Listing date derivative (or interest rate) issued for listing and trading for transaction Shares A shares (non-public offer) 2011-02-23 16.51 264,082,374 2011-03-11 264,082,374 - Convertible corporate bonds, bonds with warrants and corporate bonds - Warrants -

2. Changes in the total number of shares and structure of shareholders and the structure of the assets and liabilities of the Company During the Reporting Period, there were no changes in the total number of shares, shareholding structure and assets and liabilities structure of the Company by reason of the issue of bonus shares, conversion of share capital, rights issue, issue of additional new shares, non-public placement, option exercise, share incentive scheme, enterprise merger, convertible corpo-rate bonds to equity, deinvestment, listing of internal employee shares and issue of bonds.

3. Existing internal employee shares The Company has no internal employee shares.

III. Particulars of Shareholders and Ultimate Controller

1. Total number of Shareholders and Shareholdings Total number of shareholders during the Reporting Period:135,592,Total number of shareholders as at the end of the fifth trading day before the publication date of this annual report:135,592.

54 Changes in Share Capital and Information of Shareholders

Shareholdings of shareholders interested in more than 5% of the shares (or top 10 shareholders) of the Company Unit: share

Percentage of Number of shares Changes (increase or Number of Number of Share pledged or locked-up Nature of Name of shareholders shareholding held at the end of the decrease) during the restricted shares non-restrict Status of shareholders Number (%) Reporting Period Reporting Period held shares held shares Domestic non-state- Midea Group Co., Ltd. 41.17 1,393,273,124 1,393,273,124 owned legal person Penghua Value Advantage Domestic non-state- 2.26 76,499,626 76,499,626 Fund owned legal person National Social Security Fund State-owned legal 1.95 66,075,687 66,075,687 102 Portfolio person Ningbo Kailian Industrial Domestic non-state- 1.66 56,224,825 56,224,825 Development Co.,Ltd. owned legal person National Social Security Fund State-owned legal 1.46 49,500,000 49,500,000 501 Portfolio person National Social Security Fund State-owned legal 1.22 41,199,770 41,199,770 104 Portfolio person Guoyuan Securities Company Domestic non-state- 1.11 37,601,030 37,601,030 Limited owned legal person Ping An Life Insurance Domestic non-state- 1.10 37,286,994 37,286,994 Company of China, Ltd. owned legal person E Fund SZSE100 ETF Feeder Domestic non-state- 0.80 27,240,879 27,240,879 Fund owned legal person GF market growth of hybrid Domestic non-state- 0.80 27,000,000 27,000,000 fund owned legal person

Strategic investors or legal placement become the top ten shareholders upon placing of new shares:Nil Connected relationship or connect-party relationship among the above shareholders: Ningbo Kailian Industrial Development Co.,Ltd. is a person acting in concert with Midea Group Co., Ltd.. Save for the above, it is also not aware whether any other shareholders of tradable shares are connected with each other and is not aware whether any other shareholders of tradable shares are persons acting in concert under Administration of Disclosure of Information on the Change of Shareholdings in Listed Companies Procedures.

55 56 Changes in Share Capital and Information of Shareholders

Shareholdings of the top ten shareholders of non-restricted shares Unit: share

Number of non-restricted shares held Class of shares and Number Name of shareholders as at the end of the year Class of shares Number Midea Group Co., Ltd. 1,393,273,124 RMB ordinary 1,393,273,124 Penghua Value Advantage Fund 76,499,626 RMB ordinary 76,499,626 National Social Security Fund 102 Portfolio 66,075,687 RMB ordinary 66,075,687 Ningbo Kailian Industrial Development Co.,Ltd. 56,224,825 RMB ordinary 56,224,825 National Social Security Fund 501 Portfolio 49,500,000 RMB ordinary 49,500,000 National Social Security Fund 104 Portfolio 41,199,770 RMB ordinary 41,199,770 Guoyuan Securities Company Limited 37,601,030 RMB ordinary 37,601,030 Ping An Life Insurance Company of China, Ltd. 37,286,994 RMB ordinary 37,286,994 E Fund SZSE100 ETF Feeder Fund 27,240,879 RMB ordinary 27,240,879 GF market growth of hybrid fund 27,000,000 RMB ordinary 27,000,000

Connected relationship or connect-party relationship among each of the top ten shareholders of non-restricted shares, and between the top ten shareholders of non-restricted shares and the top ten shareholders Ningbo Kailian Industrial Development Co.,Ltd. is a person acting in concert with Midea Group Co., Ltd.. Save for the above, it is also not aware whether any other shareholders of tradable shares are connected with each other and is not aware whether any other shareholders of tradable shares are persons acting in concert under Administration of Disclosure of Information on the Change of Shareholdings in Listed Companies Procedures.

2. Controlling shareholders of the Company

Name of Date of Registered Legal Enterprise controlling establish- Capital Business principally engaged in representative code shareholders ment (RMB ’0,000) Principally engaged in manufacture of household electric appliance, electromechanical parts; import and export, wholesale and processing of household electric appliance (no store; except the commodities subject to the State-run trade management; with regard to the commodities subject to quota; and license management is applied in accordance with the requirements Midea Group Fang Hongbo 2000-04-07 72247334-4 100,000 of state regulation); information technology services; providing investment Co., Ltd. consultation and management services to coporations; development of computer hardware and software; installation and maintainance of household electric appliance and after-sale service; design of industrial products; hotel management; advertisement agency; property management; necessary project and technical research, development and marketing services for corporations.

57 Changes in Share Capital and Information of Shareholders

Operating results, financial condition, cash flows and future attributable to the parent company amounted to RMB 3.259 development strategy billion, and the cash flow generated from operation activities Midea Group Co., Ltd. is a largely integrated corporation of Midea Group in 2012 amounted to RMB 8.090 bilion. principally engaged in manufacture of household electric The development strategy of Midea Group is to become the appliance, which has a comprehensive industrial chain of air- “Industry Leader in Household Electric Appliance Enterprise conditioner, refrigerator and washing machine and complete in China and the Top Three in the World”. series of small household electric appliance. The company is the industry leader for concessive years in terms of various Shareholdings of controlling shareholders who have controls or hold shares in other overseas listed companies during the indicators, including the manufacture scale, sales volume, Reporting Period sales amount, profitability and market share of major and large householde electric appliance and small large householde Except directly controlled companies, Midea Group was electric appliance. Midea Group has become one of the indirectly interested in 32.5% equity in Misr Refrigeration most sizable and competitive household electric appliance And Air Conditioning Manufacturing Co., a listed company around the world. In 2012, Midea Group rated 79 in “Top 500 in Egypt, through its interet in 40.08% equity in Wuxi Little Enterprises of China” and 2 in “Top 100 Manufacturers of Swan Holding Co., Ltd., a indirect controlled company listed Guangdong”. in Shenzhen; Midea Group was indirectly interested in 32.5% equity in As of 31 December 2012, total asset of Midea Group amounted Welling Holding Limited, a listed company in Hong Kong, RMB 87.737 billion, net asst amounted to RMB 33.165 through its controlled subsidiary. billion, equity attributable to the parent company amounted to RMB 14.314 billion, total operation revenue realized in 2012 Change of controlling shareholders during the Reporting amounted to RMB 102.651 billion, operation profits amounted Period to RMB 7.005 billion, total profit amounted to RMB 7.71 □ Applicable √ Not Applicable billion, net profit amounted to RMB 6.141 billion, net profit

3. Beneficial controller of the Company Legal person

Name of beneficial controller Nationality Wheter he has obtained right of abode in other countries or regions He Xiangjian Chinese No He was the chairman of the Company and the chairman of Midea Group Co., Ltd., the controlling Occupication and position for shareholder of the Company. Currently, he is the chairman of Midea Group Co., Ltd., the controlling the last five years shareholder of the Company. Currently, domestic and foreign listing companies under his actual control include: Domestic and foreign listing GD Midea Holding Co., Ltd.(000527.SZ) companies under his control Wuxi Little Swan Holding Co., Ltd.(A: 000418.SZ;B:200418.SZ) for the last 10 years Welling Holding Limited(00382.HK)

Change of beneficial controller during the Reporting Period □ Applicable √ Not Applicable

58 Changes in Share Capital and Information of Shareholders

Chart illustrating the relationship between the Company and the beneficial controllers

He Xiangjian

94.55%

Midea Holding CO.,Ltd 70%

59.85% 30%

Midea Group Co., Ltd. Ningbo Kailian Industrial Development Co., Ltd.

41.17% 1.66% 0.11% GD Midea Holding Co., Ltd.

Beneficial controller controlling the Company through trust or other asset management method

□ Applicable √ Not Applicable

4. Other Legal person shareholders holding over 10% of the shares

□ Applicable √ Not Applicable

IV. Proposal or increase in shareholdings by shareholders of the Company and persons acting in concert with them

□ Applicable √ Not Applicable

Dureing the Reporting Period, there was no proposal or increase in shareholdings by shareholders of the Company and persons acting in concert with them.

59 Chapter 6 Information of Directors, Supervisors, Senior Management and Employees

60 I. Changes in shareholdings of Directors, of Midea Group, the controlling shareholder of the Company, Supervisors and Senior Management as well as a director of Welling Holding Limited, a controlled company of Midea Group. The existing directors of the Company (including independent Mr. Li Feide, master’s degree, joined Midea in 1999 and directors), supervisors and senior management and those was Secretary to the Board, and is currently a Director of the resigned during the Reporting Period did not hold and trade Company. Mr. Li Feide is also a Director and Head of Strategic any share of the Company during the Reporting Period. Operation Departmentof Midea Group, the controlling shareholder of the Company, a Director of Welling Holding II. Employment Limited, a controlled company of Midea Group, and a Director of Wuxi Little Swan Holding Co., Ltd., a listed subsidiary of Major career histories of Directors, Supervisors and Senior the Company. Management Mr. Xiao Mingguang, master’s degree, joined Midea in 2000 Mr. Fang Hongbo, master’s degree, joined Midea in 1992 and was the Head of Audit and Supervision Department of and was Vice-President and President of the Company, and the Company, and is currently a Director of the Company. is currently Chairman of the Board and president of the Mr. Xiao Mingguang is also a Director of Wuxi Little Swan Company. Mr. Fang Hongbo is also the chairman of Midea Holding Co., Ltd., a listed subsidiary of the Company. Group, the controlling shareholder of the Company and the chairman of Wuxi Little Swan Company Limited under the Mr. Wang Qun, doctor’s degree, Deputy Head of Guangdong Company. Institute of Social Sciences, the professor in economics and PhD tutor of Lingnan College in Sun Yat-Sen University, Mr. Huang Xiaoming, master’s degree, joined Midea in 1996 Commissioner of Liberal Arts’ Academic Committee of Sun and was Board Secretary of the Company, and is currently Yat-Sen University, and the President of Guangdong Province Vice-Chairman of the Board of the Company. Mr. Huang Economical Association. He had conducted academic research Xiaoming is also a Director, Senior Vice-President and HR in School of Economics, University of Leicester in the U.K., Director of Midea Group, the controlling shareholder of the Fairbank Center of Harvard University and Sloan School of Company. Management of Massachusetts Institute of Technology in the Mr. Li Jianwei, master’s degree, joined Midea in 1994 and US. Mr. Wang owns extensive and insightful research and was Secretary to the Board of the Company, and is currently unique views in transformational economics, institutional Vice-Chairman of the Board of the Company. Mr. Li Jianwei economics, enterprise theory and industrial cluster theory, etc. is also the President of Midea Group Holding Co. Ltd., the Since May 2007, he started to act as an Independent Director the controlling shareholder of Midea Group which is the of the Company. controlling shareholder of the Company. Mr. Chen Renbao, doctor’s degree, is currently the associate Ms. Yuan Liqun, master’s degree, joined Midea in 1992 and professor of Finance Department of Business School in was Convener of the Supervisory Board of the Company, and National University of Singapore, a director of Keywise is currently a Director of the Company. Ms. Yuan Liqun is also Capital Management Ltd. in the US and a independent a Director, Senior Vice-President and Chief Financial Officer Director of Rosan Resources Holdings Limited. He was the

61 Information of Directors, Supervisors, Senior Management and Employees

academic director of Chinese EMBA program in National and is also the Convener of the Supervisory Board and the University of Singapore, International MBA (IMBA) director Chief Director of Audit and Compliance Department of Midea of National University of Singapore and Peking University Group, the controlling shareholder of the Company. in China, and the consultant of education fund investment in Mr. Lu Shuping, master’s degree, joined Midea in 1998. He is National University of Singapore. He specializes in the fields currently a Supervisor of the Company. Mr. Lu Shuping is also of financial management, risk management and insurance, the Deputy Head of Administrative and HR Depeatrment of employee benefit and retirement plan, etc. He now is the Midea Group, the controlling shareholder of the Company. consultant of a number of Chinese and foreign companies, and provides consultation relating to corporate financial Mr. Li Li, master’s degree, joined Midea in 2002. He acted as management and financial risk management to a number of the Chief Operation Officer and Chairman of the Supervisory large-sized corporations. He was an Independent Director of Board of Wuxi Little Swan Company Limited, a subsidiary the Company since May 2007. of the Company and is currently a Employee Representative Supervisor of the Company. Mr. Wang Bo, postgraduate, is one of the first batch patent attorneys in China who are qualified to engage in Mr. Lu Jianfeng, master's degree, joined Midea in 1997. He securities business; he is currently the Honorary Chairman acted as President of Residential Air-conditioner Domestic of Guangzhou Lawyers Association, Vice-Chairman of Division under the Company and President of the China Guangdong Lawyers Association, an arbitrator of Guangzhou Marketing Headoffice of the Company. He is now Vice- Arbitration Commission, a part-time professor of Southwest President of the Company. University of Political Science & Law, a part-time postgraduate tutor of the Law School of Jinan University, Mr. Jiang Peng, enrolled postgraduate, joined Midea in 2007, and a director and senior partner of King Pound Law Firm. and was Secretary to the Board of Star Lake Bioscience He was awarded The Best Lawyers in China and Ten Best Co., Inc. Zhaoqing Guangdong and the securities affairs Lawyers in Guangzhou. He was an Independent Director of representative of the Company. He is now the Secretary to the the Company since September 2009. Board of the Company.

Ms. Zeng Qiao, master's degree, joined Midea in 1999. She is Mr. Chen Jian Wu, master’s degree, joined Midea in 2008. He now the Convener of the Supervisory Board of the Company, is now the financial officer of the Company.

62 Information of Directors, Supervisors, Senior Management and Employees

Employment at the shareholder of the Company √ Applicable □ Not Applicable

Name of Name of shareholder Position at the shareholder Start date End date Whether receiving any remuneration or employee of the Company of the Company of the term of the term allowance from shareholder of the Company Fang Hongbo Midea Group Co., Ltd. Chairman 2012-08-25 2015-08-24 Yes Director, senior vice-president, Yuan Liqun Midea Group Co., Ltd. 2012-08-25 2015-08-24 Yes chief financial officer Chairman and senior vice-president 2012-08-25 2015-08-24 Huang Midea Group Co., Ltd. Head of administrative and Yes Xiaoming - - HR Department Li Jianwei Midea Holding CO., Ltd President 2012-12-12 2015-12-11 Yes Li Feide Midea Group Co., Ltd. Director, secretary to the Board 2012-08-31 2015-08-24 Yes Zeng Qiao Midea Group Co., Ltd. Convener of the Supervisory Board 2012-08-25 2015-08-24 Yes Deputy Head of administrative Lu Shuping Midea Group Co., Ltd. - - Yes and HR Department

Employment at other units √ Applicable □ Not Applicable

Whether receiving any Name of Position at the Start date End date Name of the other unit remuneration or allowance employee other unit of the term of the term from the other unit Fang Hongbo Wuxi Little Swan Holding Co., Ltd. Chairman 2012-08-21 2015-08-20 No Yuan Liqun Welling Holding Limited Director 2007-01-04 - No Welling Holding Limited 2012-12-12 - Li Feide Director No Wuxi Little Swan Holding Co., Ltd. 2012-08-21 2015-08-20 Xiao Mingguang Wuxi Little Swan Holding Co., Ltd. Director 2012-08-21 2015-08-20 No Guangdong Institute of Social Sciences Deputy Head 2011-12-15 - Yes Wang Qun Independent Guangdong Electric Power Development Co., Ltd. 2011-05-15 2014-05-15 Yes Director Finance Department of Business School in National Associate 1994-07-04 - Yes University of Singapore professor Keywise Capital Management Ltd Independent Chen Renbao 2007-12-15 - Yes (a US fund in Hong Kong) Director Rosan Resources Honldings Ltd Independent 2011-12-15 2014-12-15 Yes (an energy company listed in Hong Kong) Director Wang Bo King Pound Law Firm Officer 1994-01-01 - Yes

63 Information of Directors, Supervisors, Senior Management and Employees

III. Remunerations of Directors, Supervisors and annual salary shall be fixed while the performance-related Senior Management annual salary shall be linked to the fulfillment ratio of the Company’s profit and the results of performance target. The Decision process, basis for determining the remuneration and remuneration system for directors, supervisors and senior actual payment for the remuneration of Directors, Supervisors executives serves the Company’s operation strategies and and Senior Management shall be adjusted correspondingly in response to change Decision process for the remuneration of Directors, in the operation status of the Company in order to cope Supervisors and Senior Management: recommendation is made with the Company’s needs for further development. Bases by the remuneration committee of the Board, which will be for remuneration adjustment for the Company’s directors, implemented after the approval of the Board and consideration supervisors and senior executives are: 1) level of salary/wage at the general meeting. increment in the industry; 2) inflation level; 3) profitability of the Company; 4) adjustment to the organizational structure; Pursuant to the Remuneration Management System for and 5) individual adjustment in relation to change in position. Directors, Supervisors and Senior Executives considered and passed by the Company, the remuneration of the Company’s Pursuant to the Proposal Concerning Adjusting Allowance directors, supervisors and senior executives shall consist of Standards for Independent Directors considered and passed basic annual salary and performance-related annual salary. by the Company, the allowance standards for the Independent The basic remunerations shall be determined upon the Directors of the Company have been increased to RMB150,000 responsibilities, risks and pressure assumed by the directors, (including tax ) per year. supervisors and senior executives respectively. The basic

Remunerations of Directors, Supervisors and Senior Management during the Reporting Period

Total remuneration Total remuneration Actual payment for the Name Position Sex Age Status received from the received from shareholder remuneration during the Company (RMB ’0,000) unit (RMB ’0,000) Reporting Period (RMB ’0,000) Fang Hongbo Chairman and president Male 46 In office 480 0 480 Huang Xiaoming Vice chairmna Male 42 In office 0 338 338 Li Jianwei Vice chairmna Male 47 In office 0 344 344 Yuan Liqun Director Female 44 In office 0 347 347 In office(resigned as the Li Feide Director Male 36 25 60 85 secretary to the Board) Xiao Mingguang Director Male 43 In office 135 0 135 Wang Qun Independent Director Male 55 In office 15 0 15 Chen Renbao Independent Director Male 51 In office 15 0 15 Wang Bo Independent Director Male 51 In office 15 0 15 Convener of the Zeng Qiao Female 40 In office 0 80 80 Supervisory Board

64 Information of Directors, Supervisors, Senior Management and Employees

con't Total remuneration Total remuneration Actual payment for the Name Position Sex Age Status received from the received from shareholder remuneration during the Company (RMB ’0,000) unit (RMB ’0,000) Reporting Period (RMB ’0,000) Lu Shuping Supervisor Male 41 In office 0 105 105 Employee Representative Li Li Male 39 In office 120 0 120 Supervisor Lu Jianfeng Vice president Male 40 In office 337 0 337 Jiang Peng Secretary to the Board Male 40 In office 43 0 43 Chen Jian Wu Financial officer Male 34 In office 40 0 40 Director and financial Zhao Jun Male 38 Resigned 80 11 91 officer Total ------1,305 1,285 2,590

Directors, Supervisors and Senior Management of the Company granted share options as incentives during the Reporting Period

□ Applicable √ Not Applicable

Note: To encourage the core management of the Company, Midea Group, the controlling shareholder of the Company, implemented a stock ownership plan for the core management of Midea Group and its subsidiary. As the subject company for such incentive plan and the shares used for incentive plan are not listed, the incentive plan is not subject to the regulation under the Administrative Measures on Share Incentives of Listed Companies (Trial) issued by CSRC.

IV. Resignation and dismissal of Directors, Supervisors and Senior Management

Name Prior Position Type Date Reason Zhao Jun Director and financial officer Resigned 30 August 2012 Work adjustment Li Feide Secretary to the Board Resigned 30 August 2012 Work adjustment

V. Change of key technical team or key technical staff (other than Directors, Supervisors and Senior Management)

During the Reporting Period, there was no change of key technical team or key technical staff.

VI. Personnel of the Company

At of 31 December 2012, the Group had 67,521 employees in aggregate.

65 Information of Directors, Supervisors, Senior Management and Employees

1. Speciality composition

Speciality composition Number percentage Administrative staff 585 0.87% Financial staff 767 1.14% Sales staff 1115 1.65% Technical staff 3793 5.62% Production staff 61262 90.73%

Speciality composition

Production staff 90.73%

Technical staff 5.62%

Sales staff 1.65%

Financial staff 1.14%

Administrative staff 0.87%

2. Education level

Education level Number percentage Doctorate 32 0.05% Postgraduate 486 0.72% Undergraduate 7318 10.84% Post-secondary and technical secondary 46897 69.46% Other 12787 18.94%

Education level

Post-secondary and technical secondary 69.46%

Undergraduate 10.84%

Postgraduate 0.72%

Doctorate 0.05%

Other 18.94%

66 Information of Directors, Supervisors, Senior Management and Employees

3. During the Reporting Period, there were 1,721 5. Training program employees retired, all of whom participanted th During the Reporting Period, the Company held the 7,252 in pension social insurance in accordance with internal training with 321,776 participants, 15,372 of whom the state regulations. were management staff, 87,612 of whom were sales staff and 218,792 of whom were operators. The training mainly 4. Remuneration policies included: The remuneration of the employees of the Company is (1) 4,765 middle and senior managers engaged in leadership paid on time in accordance with the requirements under training camp, “Reform and Leadership” and “Transformation the remuneration management system of the Company. and Innovation”, as well as studied foregin model enteries; The Company reviews the fixed salary of our empolyees with reference to the value of their position and reviews (2) Focusing on multi-level talent development and promoting the variable salary of our employees with reference to the training for potential management talents and professional the result of the Copmany. The remuneration expense talents. 484 potential management talents and 766 technical of the Company is mainly for strategic talents to ensure and sales talents participanted in 38 training courses; the market competitiveness of the salarty of core (3) Improving learning atmosphere within the Company and talents. Remuneration policies may vary with regions, encouraging all staff to learn. The 20th weekend courses and 15 labour supply, labour turnover rate, changes in business debate competitions were held; environment and the paying capacity of the Company and (4) Promoting the training for critical technicians and front- may be adjusted in a dynacmic manner. line team leaders. Accmulative training hours amounted to 536,849 hours.

67 Chapter 7 Corporate Governance

68 I. Corporate Governance Establishment of and amendments to the systems of the Company during the Reporting Period are as follows: During the Reporting Period, in strict accordance with the requirements of the Company Law, Securities Law, and other Newly Dis- Date of No. Name of the systems established/ closure related laws and regulations of CSRC, the Company kept disclosure Amendment index improving its corporate governance structure and pushing Internal Management System for Newly forward improvement of its standardized operation, and its 1 2012-03-10 Cninfo Trust Financing established actual conditions of corporate governance structure comply The Scope of Work of the Secretary Newly 2 2012-04-24 Cninfo with the requirements of regulatory documents concerning to the Board of Directors established corporate governance of listed companies issued by CSRC. Measures for the Administration of 3 Amendment 2012-05-31 Cninfo Futures Hedging Business The Copmany has prepared “Rules of rocedure” for three Amendments to the Articles of boards and committees as well as a series of regulatory and 4 Amendment 2012-07-17 Cninfo Association governance documents, including “Rules of Procedure” for Shareholders’ Return Plan for the 5 Amendment 2012-07-17 Cninfo board committees, “Information Disclosure Regulations”, “The Next Three Years Administrative System of Proceeds”, “The Administrative Rules Governing Related Party Transactions”, “Rules The Company insists on regulated corporate governance for the Registration and Administration of Holders of structure and enhances relationship with investors, which Insider Information”, “Confidential System for Insider is recognized by the regulatory authorities, society and Information”, “The System for the Internal Reporting on investors. In 2012, the Company was awarded: Significant Information” and “Accountability System for Material Errors in Annual Report”. The general meeting, (1)the quality of information disclosure of the Company has the Board of Directors, the Supervisors Committee and been rated as excellent ((A) grade) by Shenzhen Exchange for operation management teamof the Company have clear-cut three successive years; responsibilities and authorities where they are performing (2)Pursuant to the “Refulatory Measures of Reclassification of their duties accordingly with the check and balance in order Listing Companies in Administrative Region (Trial)” issued and decision making has become a scientific process and by Guangdong Securities Regulatory Bureau, the Company coordination in every operation can be achieved, which lays carried out a self-appraisal for the corporate governance, a solid foundation for the continuous, stable and healthy regulation implementation and risk management. The resulted development of the Copmany. was reviewed by Guangdong Securities Regulatory Bureau and the Company was rated as A class company;

69 Corporate Governance

(3)The Company has been selected as “The Best Board of of discharging duties and to strictly follow the requirements Directors” in the “Golden Round Table Prize” by The Board, under the Corporate Accounting Standards and relative rules of a magazine, for three successive years; as one of the “Top information disclosure in order to further enhance the corporate 100 Golden Bull Listed Companies” by China Securities governance and the continuous and healthy development of the Journal for twelve successive years, as one of the“Top 100 Company. China’s Listed Companies on the Main Board” by Securities The Company set up a series of systems, including Insider Times, as “The Best Board of Directors of Listed Company on Registration System, Confidential System for Insider Main Board in China” by Moneyweek, as “The Best Internal Information and Internal Reporting of Material Information Governance Listed Company” in the “China Companies under the circumstances in accordance with the related Reputation Award” by National Business Daily and “The Best requirements of relevant laws and regulations and the Articles Continuous Investment Value Award” by Chinese Securities of Association of the Company to standardize the management Journal. of insider information, strengthen the confidentiality of its Any incompliance of Companies Law and relevant insider information and maintain information disclosure requirements of CSRC in respect of corporate governance in a fair manner. The systems defined the scope of insider information, the persons with knowledge of insider information □ Yes √ No and their scope, the management of registration and filing, There is no incompliance of Companies Law and relevant confidentiality and the related liabilities. As the management requirements of CSRC in respect of corporate governance. body of insider information, the Board designated the Progress of the corporate governance works and the secretary of the Board to be responsible for the management formulation and implementation of the management policy on of the insider information. The Company strengthened the personnel with insider information registration and management systems of and the supervision and examination works of insiders to standardise the internal Guangdong Securities Regulatory Bureau of CSRC carried out circulation procedure of significant information, thus ensuring on-site inspection against the Company on 5 April to 6 April the information disclosure in a fair manner and specifically 2012 for the quality of information disclosure of the annual preventing leakages of insider information and insider trading. report 2011, during which it made general recommendation In 2012, after self-examination conducted by the Company, for further enhancement and optimization on accounting there were no situations of insiders using inside information information disclosure and other basic work. The Company to trade the Company’s shares before the publication of recognized that it is a long term task for optimizing internal material sensitive information that would affect the share control and improve the quality on information disclosure price, and therefore the Company had not been the subject to and accounting review. The Company will continue to strictly any regulatory measures or administrative punishments by the compaly with the requirements of CSRC and related laws regulatory authorities. and regulations of Stock Exchange to foster the awareness

70 Corporate Governance

II. Annual general meeting and extraordinary general meeting convened during the Reporting Period

1. Annual general meeting during the Reporting Period

Convened Disclosure Meeting Name of the resolutions of the meeting Resolutions Disclosure index Date date 1.2011 Directors’ Report; 2.2011 Supervisory Committee Report;3. 2011 Final Financial Accounts;4.2011 Annual Report and its Summary;5. Resolution for Cinifo (2012-013) 2011 annual Profit Distributation for the year 2011;6, Resolution Concerning Providing All were Announcement of the general 2012-04-23 Guarantee for Controlled subsidiaries under the Company;7. Resolution regarding approved 2012-04-24 resolutions of 2011 meeting the 2012 Continuing Connected Transactions during the Ordinary Course of and passed annual general meeting Business;8. 2012 Investment Report of the Foreign Derivatives;9. 2012 Report for the Hedge of Bulk Materials;10. Resolution about Reappointment of Auditor.

2. Extraordinary general meeting during the Reporting Period

Convened Disclosure Meeting Name of the resolutions of the meeting Resolutions Disclosure index Date date 2012 first All were Cinifo(2012-024)Announcement of the 1, Amendments to the Articles of Association;2.Shareholders’ Return extraordinary 2012-08-23 approved and 2012-08-24 resolutions of 2012 first extraordinary Plan for the Next Three Years (2012-2014) general meeting passed general meeting 2012 second 1, Resolution of appointment of Mr. Xiao Mingguang as a director of All were Cinifo(2012-035)Announcement of the extraordinary 2012-09-10 the Company;2.Resolution Concerning the Adjustment to the Amount approved and 2012-09-11 resolutions of 2012 second extraordinary general meeting of Guarantee for Controlled subsidiaries under the Company. passed general meeting

III. Performance of Independent Directors during the Reporting Period

1. Attendance of Independent Directors in board meetings and general meetings

Attendance of Independent Directors in board meetings Name of Independent Number of board meetings Attend in Attend via comm- Number of appointed Absence for two successive times Absence Directors attended during the period person unication channels attendance (attend in person) Wang Qun 7 2 5 0 0 No Chen Renbao 7 2 5 0 0 No Wang Bo 7 2 5 0 0 No No. of the general meetings presented by Independent Directors 3

2. Objections from Independent Directers on related issues of the Company Were there any objections on related issues of the Company from the Independent Directors? □ Yes √ No There was no objections on related issues of the Company from the Independent Directors.

71 Corporate Governance

3. Other details about the performance of Audit Committee under the Board, the Audit Committee under duties by the Independent Directors the Board discharged of its duties with diligence during the Were there any suggestions from the Independent Directors course of audit process in 2012 and performed the following adopted by the Company? professional duties: √ Yes □ No (1) negotiated and confirmed the general arrangement with the accounting frim for the 2012 annual audit and clearified the IV. Performance of duties by special committees audit planning, staff arrangement, highlighted scope of audit under the Board of Directors and audit strategy, and risk appraisal of the annual audit;

The Strategic Development Committee, Audit Committee, (2) reviewed the preliminary financial statements of the Remuneration and Appraisal Committee and Nomination Company, analyzed the change in each financial data and Committee have been set up under the Board of Directors of financial indicator on the Company’s annual financial the Company. Each special committee has become effective statements by comparison. It was of the view that the financial under the rules of procedure established by the Board of statements complied with the preparation requirements under Directors of the Company for each special committee, the Corporate Accounting Standard and agreed to commence reviews the issues within their specified scope and makes 2012 annual audit on the basis of these financial statements; recommendation as a reference for decision-making process of (3) during the period of on-site auditing conducted by the the Board. audit team of the accounting firm, the Audit Committee issued two Letters of Urging for Completion of Audit Work, , urging 1.Performance of duties by the Strategic the accounting firm to complete the audit work pursuant Development Committee under the Board of to the overall work plan, so as to ensure the preparation the Company and disclosure of the Company's annual reports and related documents; The main responsibilities of the Strategic Development Committee under the Board of the Company are to examine (4) after the CPA Firm in charge of annual audit issued the and advise on the Company’s long-term development strategies preliminary audit report with unqualified opinion for the and major investment decisions in accordance with the Rules financial ststements of the Company, the Audit Committee of Procedure of the Strategic Development Committee under reviwed the financial statements again and formed a written the Board. The Committee performed its duties and reviewed a opinion and was of the view that the financial information three-year rolling strategic planning of the Company. contained in the financial statements with unqualified opinion from CPA Firm in charge of annual audit truly reflected the 2.Performance of duties by the Audit financial position of the Company as of 31 December 2012 Committee under the Board of the Company and the operation result and cash flow for the year 2012 and agreed to prepare 2012 Annual report based on such financial The main responsibilities of the Audit Committee under the statements. Board of the Company are to take charge in the internal and external communication for audit in accordance with the Rules (5) after Pan-China Certified Public Accountants LLP issued of Procedure of the Audit Committee under the Board. In 2012 annual audit report, the Audit Committee concluded accordance with the working procedures for annual audit of

72 Corporate Governance

and appraised the annual audit work of the accounting firm on the position based accountability system and the disclosure and recommend to reappoint Pan-China Certified Public of the remuneration of the directors and senior members of Accountants LLP as the auditor for the 2013 annual result. the Company complied with the remuneration management system of the Company and was not in violation of the remuneration management system nor was it inconsistent with 3. Performance of duties by the Remuneration the remuneration management system. and Appraisal Committee under the Board of the Company 4. Performance of duties by the Nomination The main responsibilities of the Remuneration and Appraisal Committee under the Board of the Company Committee under the Board of the Company are to establish and examine the Company’s remuneration policies and plans The main responsibilities of the Nomination Committee for its directors and senior management members pursuant under the Board are to study and advice on the candidates to the Rules of Procedure of the Remuneration and Appraisal of Directors and senior management of the Company, the Committee under the Board. The Remuneration and Appraisal selection criteria and procedure in accordance with the Rules Committee under the Board reviewed the remuneration of the of Procedure of the Nomination Committee under the Board. directors and senior management members of the Company During the Reporting Period, the Nomination Committee disclosed for the Reporting Period and was of the view that under the Board reviewed the changes and adjustment of the the remuneration payment for the Reporting Period complied directors and senior management members of the Company with the appraisal system established by the Company based and examined the qualification of related staff.

V. Performance of duties by the Supervisory Committee

Were there any risks of the Company identified by Supervisory Committee when performing its duties during the Reporting Period?

□ Yes √ No

Convened Supervisors Res- Disclosure index on the specified Disclosure Meeting Name of the resolutions of the meeting Date present olutions website for the resolutions date 1. Work Report of the Supervisory Board for 2011; 2.Financial Statements Report for 2011; 3.2011 Annual Report and its Summary; 4. Proposal Concerning Profit Distribution for 2011; 5. Resolution Concerning Providing Guarantee for Controlled subsidiaries under the Company; 6. Resolution regarding the 2012 Continuing Connected The fourteenth Cinifo(2012-005)Announcement Transactions during the Ordinary Course of Business; 7. Internal Supervisory Board All were of the resolutions of the fourteenth 2012-03- All Control Self-Appraisal Report; 8. Special Explanatory Report on 2012-03- meeting of the approved Supervisory Board meeting 09 supervisors Deposit and Utilisation of the Subscription Proceeds for 2011; 9. 10 seventh session of the and passed of the seventh session of the 2012 Investment Report of the Foreign Derivatives;10, 2012 Report Supervisory Board Supervisory Board for the Hedge of Bulk Materials; 11.Report on Trust Financing with Self-owned Fund ; 12.Report on the continuous risk appraisal of the connected loan and borrowing business of Midea Group Co, Ltd., Midea Group Finance Co., Ltd; 13.Resolution of reappointment of accounting firm

73 Corporate Governance

Con't Convened Supervisors Res- Disclosure index on the specified Disclosure Meeting Name of the resolutions of the meeting Date present olutions website for the resolutions date The fifteenth Cinifo(2012-016)Announcement Supervisory Board All were of the resolutions of the fifteenth 2012-04- All 2012-04- meeting of the 2012 First Quarterly Report approved Supervisory Board meeting 23 supervisors 24 seventh session of the and passed of the seventh session of the Supervisory Board Supervisory Board The sixteenth Cinifo(2012-021)Announcement 1, Amendments to the Articles of Association;2, Shareholders’ Supervisory Board All were of the resolutions of the sixteenth 2012-07- All Return Plan for the Next Three Years (2012-2014);3, Resoultion of 2012-07- meeting of the approved Supervisory Board meeting 16 supervisors the connected transacrtion in relation to the loan with Shunde Rural 17 seventh session of the and passed of the seventh session of the Commerical Bank Supervisory Board Supervisory Board The seventeenth Cinifo(2012-026)Announcement 1,The 2012 semi-annual report and abstract;2,Resolution Concerning Supervisory Board All were of the resolutions of the 2012-08- All the Adjustment to the Amount of Guarantee for Controlled subsidiaries 2012-08- meeting of the approved seventeenth Supervisory Board 23 supervisors under the Company;3,Related transactions on trademark licensing; 25 seventh session of the and passed meeting of the seventh session of 4,Related transactions on Property rental Supervisory Board the Supervisory Board The eighteenth Cinifo(2012-045)Announcement Supervisory Board 1, 2012 Third Quarterly Report;2, Specal Explanation for the All were of the resolutions of the eighteenth 2012-10- All 2012-10- meeting of the Retrospective Adjustment to the Financial Data Disclosed in the Prior approved Supervisory Board meeting 25 supervisors 27 seventh session of the Periods and passed of the seventh session of the Supervisory Board Supervisory Board

The Supervisory Board of the Company had no objection better protect the interests of shareholders, especially minority to the matters of supervision during the Reporting Period, shareholders. The senior management of the Company, specified details are as follows: including directors and managers carried out their duties honestly, discharged of its duties with diligence, ventured into 1. The legality of the operation of the Company development, complied with the laws and truthfully performed duty without violation againt laws and regulations and Articles The Supervisory Board was of the opinion that: The Board of of Association or without any act which would prejudice the the Copmany has complied with the Company Law, Securities interests of of the Copmany and shareholders. Law, Articles of Association and other regulated laws in respect of its standardized operations. The Board strictly implemented the resolutions and properly performed its duties and assumed 2. Examination of the financial position of the its authroities and followed a scientific and legitimate decision- Company making procedure. The Company has established a regulated The Superviory Board of the Company examined the financial and efficient legal person governance structure with clear system and financial position of the Company in accordance authority and responsibility and optimized the management with laws. The Superviory Board is of the view that 2012 Final system of the Company. Besideds, it has established a all- Financial Accounts truly and fairly reflect the financial position round, reasonable and effieient internal control system, which and operation result of the Company and the unqualified audit can ensure the accuracy and completeness of information to

74 75 Corporate Governance

report issued by Pan-China Certified Public Accountants LLP (1) The Company has established a proper and strong internal for the financial report of 2012 is objective and fair. control system to ensure smooth business operation and risk control and to protect the safety and completeness of the 3. The actual usage of the proceeds raised Company’s assets in accordance with the Company Law, the by the Company lately was identical to its Securities Law, relevant provisions of CSRC and Shenzhen commitment. The permanent replenishment Stock Exchange and other relevant laws and regulations of the of working capital by surplus capital raised State, taking into account industry-specific factors as well as from public offer complied with the relevant the mode of operation, asset structure and other characteristics requirements of Standardize Operational of the Company. Guidelines of Shenzhen Stock Exchange (2) The Company has established a more comprehensive Concerning Main Board Listed Companies internal organizational structure and departments and staff for whereas the consideration procedure is internal audit are well in place which ensured the effective legitimate and valid. implementation and supervision on key internal control activities. 4. During the Reporting Period, the Company acquired and disposed of assests at a (3) During the Reporting Period, the Company did not violate reasonable price and there was no insider the Standardize Operational Guidelines of Shenzhen Stock trade, which did not prejudice the interests of Exchange Concerning Main Board Listed Companies and the the shareholders or loss of assets; Internal Control System of the Company. Taking into account the above mentioned, the Supervisory 5. There was no connected transaction with Board is of the view that the self-appraisal report on internal connected party during the Reporting Period. control of the Copmany is complete, true and accurate, which Transactions were fairly and reasonably carried reflects the actual internal control of the Company. out at fair pricing, which did not prejudice the interests of non connected party as well as the VI. Particulars about the integrity of businesses, listed companies. personnel, assets, organizations, and finance from the controlling shareholder 6. Opinion of the Supervisory Board of the The Company is totally separate in businesses, personnel, Company on the self-appraisal report on assets, organisations, and finance from Midea Group Co., Ltd., internal control of the Copmany the controlling shareholder of the Company, with the integrity Pursuant to the relevant requirements of Basic Standard of capacity in both business and operation. for Enterprise Internal Control jointly issued by the MOF and CSRC and the Standardize Operational Guidelines of 1. In terms of business: Shenzhen Stock Exchange Concerning Main Board Listed The Company has a complete industrial chain for manufacture Companies, the Supervisory Board of the Company has given business, has its completely independent purchase and sale its opinion on the self-appraisal report on internal control of system, and has its independent and complete business the Copmany: operation capability.

76 Corporate Governance

2. In terms of personnel: according to the relevant laws. The Company was completely independent from the controlling shareholder in terms of personnel. The labour, VII. Industry competition personnel and remuneration management of the Company are The Company is principally engaged in the development, fully independent. All senior management of the Company design, manufacture and sales of air conditioner and received remuneration from the Company except that some components, refrigerator and components and washing of them hold directorship in some members of the controlling machine and components. Except for the 41.17% equity shareholder. interests in Midea Electric Appliance, Midea Group, the controlling shareholder of the Company neither engage in and 3. In terms of assets: operate in air conditioner, refrigerator and washing machine businesses nor control or involove in the investment in the The Company has its own independent production system as enterprises which compete or potentially compete with the well as ancillary production system and facilities. Intangible Company. There is no industry competition between Midea assets such as industrial right, trademark ownership and non- Group and the Company. patent technology are held by the Company.

VIII. Assessment and incentive mechanism for 4. In terms of organisation: the Senior Management during the Reporting The Company sets up independent organizational structure and Period maintains its independent operation. The Company has its own The Company established an appraisal system on the basis of right for the appointment or removal of personnel and there is its post-target responsibility system. For senior management no overlapping with the controlling shareholder. members, the Company adopted an agreement for appraisal on the basis of its post-target responsibility system to determine 5. In terms of finance: the appraisal criterion, appraisal method and the measure The Company has independent financial management. It has related to the appraisal result. During the Reporting Period, its own accounting department, accounting system, financial the Company carried out appraisal for senior management management system, and bank accounts. The Company members on the basis of its post-target responsibility system idependently makes financial decision and pays its own tax and the appraisal result was reflected in the performancebased incentive.

77 Chapter 8 Interal Control

78 I. Establishment of internal control documents; monitor the identification of the internal control problems and whether the rectification proposals confirmed Pursuant to the requirements of the Basic Standards for by the management have been implemented as scheduled, Enterprise Internal Control and the Application Guidelines etc. for Enterprise Internal Control (Hereinafter referred to as In the process of conducting the Company’s self-assessment the “Internal Control Regulations”)jointly issued by five of the internal control, the Company took full consideration Ministries, including the Ministry of Finance , National Audit of the five elements covering internal environment, Administration, CIRC, CBRC and CSRC, as the pilot unit for risk assessment, control activities, information and implementation of internal control regulations in the first batch communication, and internal supervision and the relevant of listed companies in Guangdong Province, the Company has requirements of the assessment guidelines. Using the established a set of relatively complete and effective internal appropriate methods, such as individual interview, control system, and the systematic internal control and the investigation of problems, forum, pass-through test, site necessary internal control mechanism are established from inspection, sampling test and comparative analysis, the the Company to the levels of business flows, which provided Company widely collected evidences on whether the design reasonable assurance for the legal and regulation-compliant and operation of the internal control of the Company is operation and management, assets safety, the authenticity of the effective, completed the working papers of the assessment, financial reports and the relevant information. In 2012, adhering analyzed and identified the internal control defects. Based to the risk-oriented principle, combining the actual conditions on the analysis of the influence of internal control on the of the operation and management of the Company, the financial report and its importance, the Company selected Company conducted an ongoing improvement and optimisation its scope of assessment for internal control to implement to its internal control system to adapt to the requirements of the the effectiveness test, sample size for test is selected with changing external environment and internal management. In reference to the control frequency of internal control 2012, the Company reappointed KPMG to assist in improving and the test method is in general representative. The the internal control, and included a total of 13 subsidiaries in businesses and issues included in scope of this assessment the scope of promotion of Internal Control Regulations on the include organizational structure, development strategy, basis of the Company and its six major subsidiaries which were corporate culture, social responsibility, internal information included in the construction and assessment of the Internal communication, risk assessment, internal supervision, Control Regulations in 2011. The total assets, operating revenue financial report, asset management , capital management, and net profits of the above entities, in aggregate, reached more business outsourcing, purchase business, production than 90% of the corresponding items in the annual combined management, sales management, human resources financial statements. management, guarantee business , significant investments, Relying upon the internal control implementation team, the management of subsidiaries, connected transactions, Company continued to carry on the specific implementation management of funds raised, information disclosure, of the internal control project, including recording the internal engineering project, R&D, contracts, key information control of the important business units relating to the financial system. The internal control of the above businesses and reports, important business flows and transactions; assess the issues covered the major aspects of the operation and effectiveness of the design and implementation of the internal management of the Company and selected key subsidiaries, control; maintain and update the internal control assessment and there were no material omissions.

79 Interal Control

II.The Board’s representation about the Standardized Operational Guidelines of Shenzhen Stock responsibilities for internal control Exchange Concerning Main Board Listed Companies and the relevant notices and requirements of Guangdong Securities The Board reviewed and passed the Company’s Self- Regulatory Bureau concerning implementation of internal assessment Report on Internal Control for 2012. The Board control regulations of listed companies. and all directors guarantee that no false records, misleading statements or material omissions are contained in the Self- assessment Report on Internal Control, and shall assume IV. Self-assessment Report on Internal Control joint and several liability for the authenticity, accuracy and Particulars of material deficiencies in internal control detected completeness of the contents hereof. during the Reporting Period which were contained in the Self- The Board is responsible for establishing, improving and assessment Report on Internal Control effectively implementing the internal control; the Supervisory During the Reporting Period, the Company set up internal Committee supervises the establishment and implementation of control systems for businesses and issues included into internal control by the Board; the managers are responsible for evaluation scope, and put them into effect earnestly, with organizing and leading the daily operation of the Company’s relevant goals achieved without any significant defects. internal control. Date of Disclosure of Self-assessment Report on Internal The objectives of the Company’s internal control are: to Controls: 30 March 2013 provide reasonable assurance for the legal and regulation- Index of Self-assessment Report on Internal Controls compliant operation and management, assets safety, Disclosure:Full text uploaded to www.cninfo.com.cn authenticity and completeness of financial reports and the relevant information, enhance the operating efficiency V. Auditors’ report on internal control and results and to facilitate the enterprise to achieve its √ Applicable □ Not Applicable development strategy. Due to the inherent limitations of internal control, only reasonable assurance can be provided to Auditors’ opinion contained in the Auditors’ report on internal the above objectives. control

III. Basis of establishing internal control of As of 31 December 2012, Midea Electric Appliance had in financial reports all material aspects maintained effective internal control over the financial statements in accordance with the Basic Internal The basis of establishing internal control of financial Control Norms for Enterprises. reports includes: Companies Law, Articles of Association, Basic Standards for Enterprise Internal Control and the Date of Disclosure of Auditors’ report on internal control: Complementary Guidelines jointly issued by five Ministries, 30 March 2013 including the Ministry of Finance and CSRC, Internal Index of full text of Auditors’ report on internal control Accounting Control Standards by the Ministry of Finance,

80 Interal Control

Disclosure:www.cninfo.com.cn Reports and its Implementation Note: Index of disclosure can disclose the number, name of The Company had formulated Accountability System for the announcement and the website where the announcement is Major Errors in Information Disclosure in Annual Reports, disclosed. intensified efforts in liability investigation against relevant responsible persons for disclosure of annual reports, carefully Any opinions of no standardization set out in the Auditors’ prepared the annual report in strict accordance with the Report on Internal Control issued by accountants requirements of the relevant laws, regulations and Information □Yes √No Disclosure Management System and increased the quality and transparency of disclosure of annual reports, so as to ensure Auditors’ Report on Internal Control issued by accountants the authenticity, accuracy and completeness of the information was in line with Directors’ opinions contained in Self- disclosure of the annual reports. assessment Report During the Reporting Period, there were no incidents such √Yes □No as amendments to material accounting errors, supplementary information to material omissions and rectification. VI. Establishment of Accountability System for Major Errors in Information Disclosure in Annual

81 Chapter 9 Financial Report

82 I. Auditors’ Report

Type of auditors’ opinion standard and unqualified auditors’ opinions The date of the audit report signed 28 March 2013 Name of the auditor Pan-China Certified Public Accountants LLP Reference number of the auditors’ report Tian Jian Shen[2013] No. 3-78

Auditors’ Report

To: All the Shareholders of GD Midea Holding Co., Ltd.

We have audited the financial statements of GD Midea Holding Co., Ltd. (hereinafter referred to as “Midea Electric Appliance”) attached hereinafter, including the consolidated balance sheet and balance sheet of the parent company as at December 31st, 2012, the consolidated profit and loss statement, profit and loss statement of the parent company, consolidated cash flow statement, cash flow statement of the parent company, consolidated statement of changes in equity and statement of changes in equity of the parent company for the year ended December 31st, 2012, as well as the notes to these financial statements.

I. Management’s responsibility for the financial statements The Company’s management is responsible for the preparation and fair presentation of the financial statements. This responsibility includes (1) preparing the financial statements in accordance with the requirements of Accounting Standards for Business Enterprises so that the financial statements provide a fair view of the actual situation; and (2) designing, implementing and maintaining the necessary internal control so that the financial statements are free from material misstatement whether due to fraud or error.

II. Auditors’ responsibility Our responsibility is to express an opinion on the financial statements based on the audit we have conducted. We conduct our audit in accordance with the Chinese Auditing Standards issued by the Chinese Institute of Certified Public Accountants. Those standards require that we comply with ethical codes of Chinese certified public accountants and plan and perform the audit to obtain a reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. When conducting risk assessment, certified public accountants consider internal control relevant to the preparation and fair presentation of financial statements so as to design appropriate audit procedures, but not for the purpose of expressing an opinion on the effectiveness of the internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

III. Opinion In our opinion, the financial statements of Midea Electric Appliance have been prepared in accordance with the Accounting Standards for Business Enterprises, and present fairly, in all material aspects, the consolidated financial position and the financial position of the parent company as at December 31st, 2012 and the consolidated financial performance and cash flows and those of the parent company for the year then ended.

Pan-China Certified Public Accountants LLP Certified Public Accountant: Zhou Rongming

Hangzhou, the People’s Republic of China Certified Public Accountant: Huang Zhiheng

28 March 2013

83 Financial Report

II. Financial Statements Consolidated Balance Sheet

Prepared by: GD Midea Holding Co., Ltd. December 31st, 2012 Unit: RMB’000

Amount at the Amount at the Item Note End of the Year Beginning of the Year

Current assets: Monetary fund 1 11,770,987.87 11,078,305.36 Trading financial assets 2 117,335.89 181,817.29 Notes receivable 3 9,716,022.54 7,359,470.33 Accounts receivables 4 6,071,276.01 5,707,738.49 Prepayments 5 820,610.91 1,968,420.27 Premium receivable Receivables from reinsurers Other receivables 6 399,695.90 607,743.60 Inventories 7 9,916,653.21 12,363,439.23 Non-current assets due within one year Other current assets 8 1,800,375.76 2,535,105.26 Total of current assets 40,612,958.09 41,802,039.83 Non-current assets: Entrusted loans and advances to customers Available-for-sale financial assets 9 286.94 284.59 Held-to-maturity investments Long-term receivables Long-term equity investments 11 1,084,853.61 1,048,254.29 Investment properties 12 362,669.46 474,713.94 Fixed assets 13 12,527,223.99 10,714,826.46 Construction in progress 14 810,077.55 2,073,583.06 Construction materials Disposal of fixed assets Intangible assets 15 1,873,065.10 1,810,195.66 Development expenditure Goodwill 16 2,510,893.93 2,510,893.93 Long-term prepaid expenses 17 407,496.91 444,539.07 Deferred income tax assets 18 710,073.25 631,034.95 Other non-current assets Total non-current assets 20,286,640.74 19,708,325.95 Total assets 60,899,598.83 61,510,365.78

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

84 Financial Report

Consolidated Balance Sheet(con't)

Prepared by: GD Midea Holding Co., Ltd. December 31st, 2012 Unit: RMB’000

Amount at the Amount at the Item Note End of the Year Beginning of the Year Current liabilities: Short-term borrowings 20 3,225,400.02 3,213,690.52 Held-for-trading financial liabilities 21 13,608.96 3,425.96 Bills payable 22 5,402,241.53 6,486,738.64 Accounts payable 23 11,197,637.89 12,298,852.43 Advance receipts 24 2,476,908.69 4,760,174.91 Staff remuneration payables 25 859,407.64 707,716.13 Taxes payable 26 584,275.84 658,848.03 Interest payable Dividend payable 27 72,646.27 2,916.76 Other payables 28 572,214.18 711,143.96 Non-current liabilities due within one year 29 438,476.48 Other current liabilities 30 7,046,277.87 6,017,859.19 Total of current liabilities 31,889,095.37 34,861,366.53 Non-current liabilities: Long-term borrowings 31 1,483,609.54 1,381,362.96 Bonds payable Long-term payables Special payables 12,594.55 Estimated liabilities 32 24,611.19 21,844.47 Deferred income tax liabilities 18 33,392.17 33,415.24 Other non-current liabilities 33 61,810.74 23,022.64 Total non-current liabilities 1,616,018.19 1,459,645.31 Total liabilities 33,505,113.56 36,321,011.84 Owers' equity: Share capital 34 3,384,347.65 3,384,347.65 Capital reserves 35 6,350,757.64 6,123,282.16 Less: Treasury shares Special reserves Surplus reserves 36 1,046,286.28 841,658.36 General risk provisions Retained profit 37 11,387,992.00 9,638,294.50 Foreign currency translation differences -103,985.88 26,772.81 Total equity attributable to equity holders of the company 22,065,397.69 20,014,355.48 Minority interests 5,329,087.58 5,174,998.46 Total owners’ equity 27,394,485.27 25,189,353.94 Totaal liabilities and owners' equity 60,899,598.83 61,510,365.78

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

85 Financial Report

Balance sheet

Prepared by: GD Midea Holding Co., Ltd. December 31st, 2012 Unit: RMB’000

Amount at the Amount at the Item Note End of the Year Beginning of the Year Current assets: Monetary funds 6,948,869.66 7,081,770.78 Held-for-trading financial assets Bills receivable 3,662,002.31 1,197,694.76 Accounts receivable 1 118,261.26 488,245.50 Prepayments 78,205.57 38,095.61 Interest receivable Dividend receivable 219,314.39 Other receivables 2 89,512.21 1,501,761.09 Inventories 69,382.19 Non-current assets due within one year Other current assets 3,620.80 Total current assets 11,116,165.40 10,380,570.73 Non-current assets: Available-for-sale financial assets Held-to-maturity investment Long-term receivables Long-term equity investments 3 11,268,944.15 11,055,826.08 Investment properties 959,807.65 1,138,574.59 Fixed assets 609,246.79 683,150.83 Construction in progress 210,501.90 72,102.66 Construction materials Disposal of fixed assets Intangible assets 240,814.20 171,966.01 Development expenditure Goodwill Long-term prepaid expenses 78,161.53 66,284.20 Deferred income tax assets 1,819.91 1,649.21 Other non-current assets Total non-current assets 13,369,296.13 13,189,553.58 Total assets 24,485,461.53 23,570,124.31

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

86 Financial Report

Balance sheet(con't)

Prepared by: GD Midea Holding Co., Ltd. December 31st, 2012 Unit: RMB’000

Amount at the Amount at the Item Note End of the Year Begiing of the Year Current liabilities: Short-term borrowings Held-for-trading financial liabilities Bills payable 8,346.12 Accounts payable 127,241.64 218,410.41 Advance receipts 25,804.41 Staff remuneration payables 5,813.05 3,840.42 Taxes payable 37,116.56 114,696.91 Interest payable Dividend payable Other payables 10,115,846.35 9,804,604.30 Non-current liabilities due within one year Other current liabilities 6,528.76 Total current liabilities 10,292,546.36 10,175,702.57 Non-current liabilities Long-term borrowings Bonds payable Long-term payables Special payables Estimated liabilities eferred income tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities 10,292,546.36 10,175,702.57 Owners' equity Share capital 3,384,347.65 3,384,347.65 Capital reserves 6,026,805.71 6,024,885.00 Less: Treasury shares Special reserves Surplus reserves 989,506.13 784,878.21 Retained profit 3,792,255.68 3,200,310.88 Total owners’ equity 14,192,915.17 13,394,421.74 Total liabilities and owners' equity 24,485,461.53 23,570,124.31

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

87 Financial Report

Consolidated Income Statement

Prepared by: GD Midea Holding Co., Ltd. For the year 2012 Unit: RMB’000

Amounts for Amounts for Item Note the reporting period the prior period I. Total revenue 68,071,200.64 93,108,058.26 Including: Revenue 1 68,071,200.64 93,108,058.26 II. Total operating costs 63,599,748.40 88,846,519.01 Including: Operating costs 1 52,541,311.99 75,618,779.24 Business taxes and surcharges 2 321,629.45 351,891.66 Selling and distribution expenses 3 6,736,386.53 8,590,884.80 General and administrative expenses 4 3,619,391.52 3,191,097.79 Finance expenses 5 322,740.49 1,051,478.28 Loss on impairment of assets 6 58,288.42 42,387.24 Plus: Gain on change in fair value (“-” denotes loss) 7 -75,823.32 38,744.49 Investment income (“-” denotes loss) 8 348,095.70 732,811.25 Including: Investment income from associates and joint ventures 72,256.04 84,902.41 III. Operating profit (“-” denotes loss) 4,743,724.62 5,033,094.99 Plus: Non-operating income 9 430,318.41 676,342.40 Less: Non-operating expenses 10 97,696.58 138,419.71 Including: Loss on disposal of non-current assets 23,421.86 46,405.36 IV. Total profit (“-” denotes total loss) 5,076,346.45 5,571,017.68 Less: Income tax expenses 11 947,501.22 1,019,558.89 V. Net profit (“-” denotes net loss) 4,128,845.23 4,551,458.79 Net profit attributable to shareholders of the Company 3,477,331.87 3,709,296.25 Minority interests 651,513.36 842,162.54 VI. Earnings per share: (I) Basic earnings per share 12 1.03 1.11 (II) Diluted earnings per share 12 1.03 1.11 VII. Other comprehensive income 13 -248,550.18 6,598.79 VIII. Total comprehensive income 3,880,295.05 4,558,057.58 Total comprehensive income attributable to shareholders of the Company 3,366,231.26 3,708,626.93 Total comprehensive income attributable to minority interests 514,063.79 849,430.65

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

88 Financial Report

Income statement

Prepared by: GD Midea Holding Co., Ltd. For the year 2012 Unit: RMB’000

Amounts for Amounts for Item Note the reporting period the prior period I. Revenue 1 635,453.47 3,705,700.99

Less: Operating costs 1 169,285.74 3,025,535.61

Business taxes and surcharges 32,685.58 45,654.49

Selling and distribution expenses 613.46

General and administrative expenses 478,655.76 424,702.99

Finance expenses -229,743.56 -163,531.68

Loss on impairment of assets -740.32 1,395.07

Plus: Gain on change in fair value (“-” denotes loss)

Investment income (“-” denotes loss) 2 2,183,512.50 1,764,119.39

Including: Investment income from associates and joint ventures 49,325.23 29,942.89

II. Operating profit (“-” denotes loss) 2,368,209.31 2,136,063.90

Plus: Non-operating income 3,309.67 4,993.91

Less: Non-operating expenses 2,840.00 2,401.17

Including: Loss on disposal of non-current assets 172.03

III. Total profit (“-” denotes total loss) 2,368,678.98 2,138,656.64

Less: Income tax expenses 49,149.83 92,377.47

IV. Net profit (“-” denotes net loss) 2,319,529.15 2,046,279.17

V. Other comprehensive income 412.13 -15,445.34

VI. Total comprehensive income 2,319,941.28 2,030,833.83

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

89 Financial Report

Consolidated cash flow statement

Prepared by: GD Midea Holding Co., Ltd. For the year 2012 Unit: RMB’000

Amounts for Amounts for Item Note the reporting period the prior period I. Cash flows from operating activities: Cash received from sales of goods and rendering of services 53,109,710.94 47,086,533.99 Tax rebates received 2,610,303.56 2,745,097.10 Cash received relating to other operating activities 1 2,502,930.44 1,339,511.37 Subtotal of cash inflows from operating activities 58,222,944.94 51,171,142.46 Cash paid for goods and services 38,307,831.87 30,915,887.47 Cash paid to and for employees 3,940,703.13 4,245,299.07 Payments of taxes and surcharges 2,912,522.01 3,108,851.73 Cash paid relating to other operating activities 2 8,755,342.65 9,942,187.81 Subtotal of cash outflows from operating activities 53,916,399.66 48,212,226.08 Net cash flows from operating activities 4,306,545.28 2,958,916.38 II. Cash flows from investing activities: Cash received from investments 127,200.00 Cash received from investment income 345,924.49 396,865.77 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 14,497.77 51,312.47 Net cash received from disposal of subsidiaries and other business units 34,472.21 Cash received relating to other investing activities 1,579.03 Subtotal of cash inflows from investing activities 360,422.26 611,429.48 Cash paid for purchase of fixed assets, intangible assets and other long-term assets 1,524,093.12 3,852,517.57 Cash paid on investments Net cash paid for acquisition of subsidiaries and other business units 171,305.68 1,473,866.31 Cash paid relating to other investing activities Subtotal of cash outflows from investing activities 1,695,398.80 5,326,383.88 Net cash flows from investing activities -1,334,976.54 -4,714,954.40 III. Cash flows from financing activities: Cash received from capital contribution 92,146.79 4,304,373.93 Including: cash received from minority interest contribution to subsidiaries 92,146.79 Cash received from borrowings 11,423,896.44 12,119,842.92 Cash received relating to other financing activities Subtotal of cash inflows from financing activities 11,516,043.23 16,424,216.85 Cash repayments of amounts borrowed 10,871,463.89 8,984,386.78 Cash paid for dividend and profit distribution or interest payment 2,246,820.72 919,487.34 Including: dividend and profit paid to minority interests by subsidiaries 435,676.29 481,154.74 Cash paid relating to other financing activities Subtotal of cash outflows from financing activities 13,118,284.61 9,903,874.12 Net cash flows from financing activities -1,602,241.38 6,520,342.73 IV. Effect of foreign exchange rate changes on cash and cash equivalents V. Net increase in cash and cash equivalents 1,369,327.36 4,764,304.71

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

90 Financial Report

Cash flow statement

Prepared by: GD Midea Holding Co., Ltd. For the year 2012 Unit: RMB’000

Amounts for Amounts for Item Note the reporting period the prior period I. Cash flows from operating activities: Cash received from sales of goods and rendering of services 599,381.41 1,038,549.11 Tax rebates received Cash received relating to other operating activities 34,502,726.23 21,988,231.23 Subtotal of cash inflows from operating activities 35,102,107.64 23,026,780.34 Cash paid for goods and services 16,988.34 896,243.83 Cash paid to and for employees 82,656.61 66,246.86 Payments of taxes and surcharges 175,870.32 173,145.29 Cash paid relating to other operating activities 34,350,159.95 19,488,648.74 Subtotal of cash outflows from operating activities 34,625,675.22 20,624,284.72 Net cash outflows from operating activities 476,432.42 2,402,495.62 II. Cash flows from investing activities: Cash received from investments Cash received from investment income 1,931,476.30 1,734,176.50 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 9,333.00 Net cash received from disposal of subsidiaries and other business units Cash received relating to other investing activities Subtotal of cash inflows from investing activities 1,931,476.30 1,743,509.50 Cash paid for purchase of fixed assets, intangible assets and other long-term assets 256,491.70 292,055.20 Cash paid on investments Net cash paid for acquisition of subsidiaries and other business units 178,887.68 4,237,559.72 Cash paid relating to other investing activities Subtotal of cash outflows from investing activities 435,379.38 4,529,614.92 Net cash flows from investing activities 1,496,096.92 -2,786,105.42 III. Cash flows from financing activities: Cash received from capital contribution 4,300,149.99 Cash received from borrowings Cash received from bond issue Cash received relating to other financing activities 3,207,549.00 Subtotal of cash inflows from financing activities 7,507,698.99 Cash repayments of amounts borrowed 3,207,549.00 Cash paid for dividend and profit distribution or interest payment 1,522,956.44 354,643.83 Cash paid relating to other financing activities Subtotal of cash outflows from financing activities 1,522,956.44 3,562,192.83 Net cash flows from financing activities -1,522,956.44 3,945,506.16 IV. Effect of foreign exchange rate changes on cash and cash equivalents V. Net increase in cash and cash equivalents 449,572.90 3,561,896.36

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

91 Financial Report

Consolidated statement of changes in owners’ equity

Prepared by: GD Midea Holding Co., Ltd. For the year 2012 Unit: RMB’000

Amounts for the reporting period Equity attributable to shareholders of the Company Item Less: Minority Total Share Capital Special Surplus Retained treasury Others interests owners’ equity Capital reserves reserves reserves profit shares I. Balance as at the end of the prior year 3,384,347.65 6,123,282.16 841,658.36 9,638,294.50 26,772.81 5,174,998.46 25,189,353.94 Plus: accounting policy change Corrections of prior period errors Others II. Balance as at the beginning 3,384,347.65 6,123,282.16 841,658.36 9,638,294.50 26,772.81 5,174,998.46 25,189,353.94 of the year III. Changes in the period 227,475.48 204,627.92 1,749,697.50 -130,758.69 154,089.12 2,205,131.33 (“-” denotes decrease) (I) Net profit 3,477,331.87 651,513.36 4,128,845.23 (II) Other comprehensive income 19,658.08 -130,758.69 -137,449.57 -248,550.18 Sub-total of (I) and (II) above 19,658.08 3,477,331.87 -130,758.69 514,063.79 3,880,295.05 (III) Capital paid in and reduced 215,451.60 163,700.31 379,151.91 by owners 1. Capital paid in by owners 92,151.91 92,151.91 2. Amounts of share-based payments recognised 215,451.60 71,548.40 287,000.00 in owners’ equity 3. Others (IV) Profit distribution 204,627.92 -1,727,634.37 -504,521.50 -2,027,527.95 1. Transfer to surplus reserves 204,627.92 -204,627.92 2. Transfer to general risk provision 3. Distribution to shareholders -1,522,956.45 -504,521.50 -2,027,477.95 4. Others -50.00 -50.00 (V) Transfer within owners’ equity -7,634.20 -19,153.48 -26,787.68 1. Transfer from capital reserves to share capital 2. Transfer from surplus reserves to share capital 3. Transfer from surplus reserves to make up for losses 4. Others -7,634.20 -19,153.48 -26,787.68 (VI) Special reserves 1. Appropriated in the period 2. Used in the period (VII) Others IV. Balance as at the end of the period 3,384,347.65 6,350,757.64 1,046,286.28 11,387,992.00 -103,985.88 5,329,087.58 27,394,485.27

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

92 Financial Report

Consolidated statement of changes in owners’ equity(con't)

Prepared by: GD Midea Holding Co., Ltd. For the year 2012 Unit: RMB’000

Amounts for the prior year Equity attributable to shareholders of the Company Item Less: Minority Total Share Capital Special Surplus Retained treasury Others interests owners’ equity capital reserves reserves reserves profit shares I. Balance as at the end of the prior year 3,120,265.28 2,092,101.33 741,469.17 6,367,622.21 14,879.44 4,046,359.41 16,382,696.84 Plus: accounting policy change Corrections of prior period errors Others II. Balance as at the beginning of the year 3,120,265.28 2,092,101.33 741,469.17 6,367,622.21 14,879.44 4,046,359.41 16,382,696.84 III. Changes in the period 264,082.37 4,031,180.83 100,189.19 3,270,672.29 11,893.37 1,128,639.05 8,806,657.10 (“-” denotes decrease) (I) Net profit 3,709,296.25 842,162.54 4,551,458.79 (II) Other comprehensive income -12,562.69 11,893.37 7,268.11 6,598.79 Sub-total of (I) and (II) above -12,562.69 3,709,296.25 11,893.37 849,430.65 4,558,057.58 (III) Capital paid in and 264,082.37 4,036,260.57 759,959.47 5,060,302.41 reduced by owners 1. Capital paid in by owners 264,082.37 4,036,260.57 759,959.47 5,060,302.41 2. Amounts of share- based payments recognised in owners’ equity 3. Others (IV) Profit distribution 100,189.19 -438,623.96 -465,519.44 -803,954.21 1. Transfer to surplus reserves 100,189.19 -100,189.19 2. Transfer to general risk provision 3. Distribution to shareholders -338,434.77 -465,519.44 -803,954.21 4. Others (V) Transfer within owners’ equity 7,482.95 -15,231.63 -7,748.68 1. Transfer from capital reserves to share capital 2. Transfer from surplus reserves to share capital 3. Transfer from surplus reserves to make up for losses 4. Others 7,482.95 -15,231.63 -7,748.68 (VI) Special reserves 1. Appropriated in the period 2. Used in the period (VII) Others IV. Balance as at the end of the period 3,384,347.65 6,123,282.16 841,658.36 9,638,294.50 26,772.81 5,174,998.46 25,189,353.94

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

93 Financial Report

Statement of changes in owners’ equity

Prepared by: GD Midea Holding Co., Ltd. For the year 2012 Unit: RMB’000

Amounts for the reporting period

Item Share Capital Less: Special Surplus Retained Total Capital reserves treasury shares reserves reserves profit owners' equity

I. Balance as at the end of the prior year 3,384,347.65 6,024,885.00 784,878.21 3,200,310.88 13,394,421.74 Plus: accounting policy change Corrections of prior period errors Others II. Balance as at the beginning of the year 3,384,347.65 6,024,885.00 784,878.21 3,200,310.88 13,394,421.74 III. Changes in the period 1,920.71 204,627.92 591,944.80 798,493.43 (“-” denotes decrease) (I) Net profit 2,319,529.15 2,319,529.15 (II) Other comprehensive income 412.13 412.13 Sub-total of (I) and (II) above 412.13 2,319,529.15 2,319,941.28 (III) Capital paid in and reduced by owners 1.Capital paid in by owners 2.Amounts of share- based payments recognised in owners’ equity 3.Others (IV) Profit distribution 204,627.92 -1,727,584.35 -1,522,956.43 1. Transfer to surplus reserves 204,627.92 -204,627.92 2. Transfer to general risk provision 3. Distribution to shareholders -1,522,956.43 -1,522,956.43 4. Others (V) Transfer within owners’ equity 1,508.58 1,508.58 1. Transfer from capital reserves to share capital 2.Transfer from surplus reserves to share capital 3.Transfer from surplus reserves to make up for losses 4.Others 1,508.58 1,508.58 (VI) Special reserves 1. Appropriated in the period 2. Used in the period (VII) Others IV. Balance as at the end of the period 3,384,347.65 6,026,805.71 989,506.13 3,792,255.68 14,192,915.17

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

94 Financial Report

Statement of changes in owners’ equity(con't)

Prepared by: GD Midea Holding Co., Ltd. For the year 2012 Unit: RMB’000

Amounts for the prior year

Item Capital Less: Special Surplus Retained Total Share capital reserves treasury shares reserves reserves profit owners’ equity

I. Balance as at the end of the prior year 3,120,265.28 2,004,262.72 684,689.02 1,592,655.66 7,401,872.68 Plus: accounting policy change Corrections of prior period errors Others II. Balance as at the beginning of the year 3,120,265.28 2,004,262.72 684,689.02 1,592,655.66 7,401,872.68 III. Changes in the period 264,082.37 4,020,622.28 100,189.19 1,607,655.22 5,992,549.06 (“-” denotes decrease) (I) Net profit 2,046,279.17 2,046,279.17 (II) Other comprehensive income -15,445.34 -15,445.34 Sub-total of (I) and (II) above -15,445.34 2,046,279.17 2,030,833.83 (III) Capital paid in and reduced by owners 264,082.37 4,036,067.62 4,300,149.99 1. Capital paid in by owners 264,082.37 4,036,067.62 4,300,149.99 2. Amounts of share-based payments recognised in owners’ equity 3. Others (IV) Profit distribution 100,189.19 -438,623.95 -338,434.76 1. Transfer to surplus reserves 100,189.19 -100,189.19 2. Transfer to general risk provision 3. Distribution to shareholders -338,434.76 -338,434.76 4. Others (V) Transfer within owners’ equity 1. Transfer from capital reserves to share capital 2.Transfer from surplus reserves to share capital 3.Transfer from surplus reserves to make up for losses 4.Others (VI) Special reserves 1. Appropriated in the period 2. Used in the period (VII) Others IV. Balance as at the end of the period 3,384,347.65 6,024,885.00 784,878.21 3,200,310.88 13,394,421.74

Legal Representative: Fang Hongbo Person in charge of accounting: Chen Jianwu Head of accounting department:LiYan

95 Financial Report

III. Notes to the Financial Statements Unit: RMB’000

I. General Information of the Company the raw materials, auxiliary materials, machines, equipment, instruments, parts, components and parts and relevant GD Midea Holding Co., Ltd. (hereinafter referred to as “the technologies required for technical research; processing with Company”) is a company with limited liabilities restructured incoming materials,and three forms of OEM and compensation on 10 August 1992 on the basis of original Guangdong Midea trades of the Company (which is governed by Official Electric Appliance Enterprises Group; on 7 September 1993, Document [99] Wai Jing Mao Zheng Shen Han Zi No.528, and the Company completed its initial public offering and its business items subject to approval pursuant to related laws and shares were listed in the stock market. regulations are not included in the above-mentioned items). Registration No. of the Company’s Business License for an Enterprise as a Legal Person is 440000000020099. II. Principal accounting policies and accounting estimates Registered office and head office address: No.6 Midea Road, Beikao Township, Shunde District, Foshan, Guangdong (i) Basis for preparation of financial statements Province. The Company operates on the basis of going concern. The legal representative is Mr. Fang Hongbo and the controlling shareholder is Midea Holding Co., Ltd. and the (ii) Statement of compliance with Accounting ultimate controller is Mr. He Hengjian. Standards for Business Enterprises As at 31 December 2012, the registered capital and total share The financial statements prepared by the Company are in capital of the Company amounted to RMB3,384,347.65. compliance with the requirements under the Accounting Standards for Business Enterprises which give a true The Company is engaged in the household electric appliance presentation of the relevant information regarding the manufacturing with the major products including air- Company’s financial status and operating results and cash flow. conditioners, air-conditioner compressors, refrigerators and washing machines etc. (iii) Fiscal year The business scope of the Company covers manufacturing The financial year of the Company is from 1 January to 31 and sales of home electric appliances, electric motors, December of each calendar year. communication equipment and components; relevant technical consultation services for above-mentioned products, (iv) Currency denomination fabrication of the moulds and equipment for its own use, hotel RMB was adopted as the denominated currency. management, advertising agency; sales of metal wares and AC power supply hardwares, electronic products, metal materials, (v) Accounting treatment for merger of building materials, chemical products (excluding hazardous enterprises under the same control and not chemicals), mechanical equipment and general merchandise; under the same control export of self-produced products and related technologies 1. Accounting treatment for merger of enterprises under the of the Company and its member companies; production and same control processing of metallic products and plastic products; import of

96 Financial Report

The assets and liabilities acquired by the Company in the (vii) Recognition criteria of cash and cash merger of enterprises are recorded on the basis of their carrying equivalents value in the merged party on the merger date. If there is any Cash shown in the Statement of Cash Flows refers to cash difference between the carrying value of net assets acquired by on hand and deposits that are available for payment at any merging party and the carrying value of merger consideration time; cash equivalents refer to short-term investments with (or the total amount of par value of the issued shares) paid by high liquidity that are readily converted into cash with known the Company, capital reserve is adjusted; if the capital reserve is amount and are subject to a low risk of change in value. insufficient for offsetting, the retained earnings will be adjusted accordingly. 2. Accounting treatment for merger of enterprises not under the (viii) Conversions of foreign currency transaction same control and foreign currency financial statements

The excess of the consideration paid for business combination 1. Conversions of foreign currency transaction over the share of the attributable net identifiable assets of Upon initial recognition, foreign currency transactions are the acquiree, measured at fair value at the combination date, translated into Renminbi amounts using the spot exchange was recognized as goodwill. In case the fair value of the rate at the dates of the transactions. At the balance sheet date, consideration paid is less than the fair value of the share of the foreign currency monetary items are translated using the attributable net identifiable assets of the acquiree, a review of spot exchange rate at the balance sheet date. The translation the measurement of the fair values of the identifiable assets, differences arising from different exchange rates, except those liabilities and contingent liabilities of the acquiree and the relating to the principle of and interests on the foreign currency consideration paid for the combination is conducted. If the borrowings for the acquisition, construction or production of review indicates that the fair value of the consideration paid is assets eligible for capitalization, are recognized in current profit indeed less than the fair value of the share of the attributable net or loss. The foreign currency non-monetary items measured identifiable assets of the acquiree, the difference is recognized at the historical cost are still converted at the spot exchange in current profit or loss. rate announced on the transaction date, whose amount in the denominated currency is not changed. Foreign currency (vi) Preparation of consolidated financial nonmonetary items measured at fair value are translated using statements the spot exchange rate at the fair value recognition dates. The The parent includes all subsidiaries under its control in the differences arising from the above translations are recognized consolidation scope for consolidated financial statements, in current profit or loss or capital reserves. which are prepared by the parent pursuant to ASBE 33 — 2. Conversions of foreign currency financial statements Consolidated financial statements based on the financial The asset and liability items in the balance sheet are converted statements of the parent and its subsidiaries and other relevant at the spot exchange rate on the balance sheet date. Among information, adjusted for long-term equity investments in the owners’ equity items, except the “undistributed profits” subsidiaries using the equity method. item, all the other items are converted into RMB at the

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spot exchange rate at the time when they are incurred. The to and settled by way of delivery of such equity investments revenue and expense items in the profit and loss statements are carried at cost. are converted into RMB at the exchange rate approximate Financial liabilities are subsequently measured using the to the exchange rate announced on the transaction date. The effective interest method on the basis of amortised cost, except difference arising from such conversion of foreign currency that: (i) financial liabilities at FVTPL are measured at fair financial statements is presented separately under the owners’ value without deduction of the possible transaction costs upon equity item in the balance sheet. the settlement thereof in the future; (ii) derivative financial liabilities linked to and settled by way of delivery of equity (ix) Financial instruments investments not quoted in an active market and whose fair value cannot be reliably measured are carried at cost; and 1. Classification of financial assets and financial liabilities (iii) Financial guarantee contracts not classified as financial The Company classifies its financial assets into four categories liabilities designated as at FVTPL or the loan commitment for at initial recognition: financial assets at fair value through loans to be granted at an interest rate below the market rate profit or loss (FVTPL) (including financial assets held for which is not designated as at FVTPL, after initial recognition, trading and financial assets designated as at FVTPL), held-to- are subsequently measured at the higher of: (a) the amount maturity investments, loans and receivables, and available-for- determined under ASBE 13 — Contingency; and (b) the initial sale financial assets. recognized amount less accumulated amortization determined The Company classifies its financial liabilities into two according to ASBE 14 — Revenue.

categories at initial recognition: financial liabilities at FVTPL Any gains or losses arising from the change in fair value on (including financial liabilities held for trading and financial financial assets or financial liabilities, except for those falling liabilities designated at FVTPL) and other financial liabilities. under cash flow hedging, are accounted for as follows: (i) gains 2. Recognition, measurement and derecognition of financial or losses arising from the change in fair value on financial assets and financial liabilities. assets or financial liabilities at FVTPL are recorded as gain or loss from changes in fair value. Interests or cash dividends The Company recognizes a financial asset or a financial received during the period in which such assets are held, are liability when it becomes a party to the contractual provisions recognized as investment income. On disposal, the differences of the financial instrument. Financial assets or financial between the consideration received and initial recognised liabilities are initially recognized at fair value. For financial amount are recognised as investment income and adjust the assets or financial liabilities at FVTPL, the relevant transaction gain or loss from changes in fair value accordingly; and (ii) costs are directly recognized in current profit or loss; for other changes in fair value of available for-sale financial assets are financial assets or financial liabilities, the relevant transaction recorded in capital reserves. Interests calculated using the costs are recognized in their initial recognition amount. effective interest method for the period in which the assets are Financial assets are subsequently measured at fair value held, are recognised as investment income. Cash dividends without deduction of the possible transaction costs upon the from available-for-sale equity investments are recognised disposal thereof in the future, except that: (i) held-to-maturity as investment income when the dividends are declared investments and loans and receivables are measured using the by the investee. On disposal, the differences between the effective interest method on the basis of amortised cost; and (ii) consideration received and the carrying amount of assets after equity investments not quoted in an active market and whose deducting the accumulated fair value adjustments previously fair value cannot be reliably measured and derivatives linked recorded in capital reserves are recorded as investment income.

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A financial asset is derecognized when the contractual rights to (2) The sum of consideration of the portion whose recognition receive cash flows from the asset have expired, or substantially has been stopped, and the portion of the accumulative amount all the risks and rewards associated with the ownership of the changes in the fair value originally recorded into the of the asset have been transferred. A financial liability is owner’s equities which is corresponding to the portion whose derecognised when the underlying present obligations (or part recognition has been stopped. of it) are discharged. 4. Determination of fair value of primary financial assets and 3. Recognition and measurement of transfer of financial assets financial liabilities

If the Company has transferred substantially all the risks and For a financial asset or a financial liability which has an active rewards associated with the ownership of a financial asset market, the Company uses the quoted price in the active to the transferee, the asset should be derecognized. If the market to establish its fair value. For a financial asset or a Company retains substantially all the risks and rewards of financial liability which has no active market, the Company ownership of a financial asset, the transferred asset should establishes fair value by using a valuation technique, which continue to be recognized, with the received consideration includes using recent arm’s length market transactions between recognized as a financial liability. When the Company has knowledgeable, willing parties, reference to the current fair neither transferred nor retained substantially all the risks and value of another financial instrument that is substantially rewards of ownership of the financial asset, it may either (1) the same, discounted cash flow analysis and option pricing derecognize the financial asset and recognize any associated models. For financial asset acquired or originated or, financial assets and liabilities if control of the financial asset has not liability assumed initially, its fair value is based on the market been retained; or (2) recognizes the financial asset to the extent transaction price. of its continuing involvement in the transferred financial 5. Assessment and provision for impairment on financial assets asset and recognizes an associated liability if control has been retained. The carrying amount of financial assets, other than financial assets at FVTPL, is accessed at the balance sheet date. If the transfer of an entire financial asset satisfies the Provision for impairment is made when there is objective conditions for derecognizing, the difference between the evidence indicating that a financial asset is impaired. amounts of the following 2 items shall be recorded into the profits and losses of the current period: (1) The book value of For a financial asset that is individually significant, the the transferred financial asset; (2) The sum of consideration Company assesses the asset individually for impairment. For a received from the transfer, and the accumulative amount of the financial asset that is not individually significant, the Company changes of the fair value originally recorded into the owner’s assesses the asset individually for impairment or includes equities If the transfer of partial financial asset satisfies the the asset in a group of financial assets with similar credit risk conditions to stop the recognition, the entire book value characteristics and collectively assesses them for impairment. of the transferred financial asset shall, between the portion If the Company determines that no objective evidence of whose recognition has been stopped and the portion whose impairment exists for an individually assessed financial asset recognition has not been stopped , be apportioned according to (whether significant or not), it includes the asset in a group their respective relative fair value, and the difference between of financial assets with similar credit risk characteristics and the amounts of the following 2 items shall be included into collectively reassesses them for impairment. the profits and losses of the current period : (1) The book If a financial asset carried at amortised cost is impaired value of the portion whose recognition has been stopped; as indicated by objective evidence at the period end, an

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impairment loss is recognized as the excess of the carrying Provision method for single significant amounts and single amount of the asset over the present value of estimated future provision of bad debts cash flows. If an equity investment not quoted in an active Individually assessed for impairment with bad-debt provisions market and whose fair value cannot be reliably measured or made based on the difference between the present value of its a derivative financial asset linked to and settled by way of estimated future cash flows and its carrying amount. delivery of such equity investment is impaired, an impairment loss is recognized as the excess of the carrying amount of the 2. Receivables for which provision of bad debts is made by investment or asset over the present value of estimated future combination cash flows discounted at the current market rate of return for (1) Basis for determining the group and method of provisioning a similar financial asset. When there is a significant decline, for bad debt or a prolonged decline is expected, in fair value of available- Basis for determining the combinations: for-sale financial assets, taken into account all considerations, Name of combination:Basis accumulated loss on fair value that previously recorded in Aging analysis method combination:Trade receivables at the equity is recorded as impairment loss. same age with similar credit risk characteristics Combinaions of receivables within the scope of consolidated (x) Receivables statements:Receivables within the scope of consolidated 1.Receivables that have significant single amount and financial statement provision for bad debts is made for a single item Method for making provision for bad debts by combination: Criteria or amount standards for significant single amounts Name of combination:Method of making provision Aging analysis method combination:Aging analysis method Accounts receivable with a single amount of RMB5 million Receivables within the scope of consolidated statements: or above and other receivables with a single amount of Individually assessed for impairment with bad-debt provisions RMB500,000 are determined by the Company as accounts made based on the difference between the present value of its receivable with significant single amounts. estimated future cash flows and its carrying amount.

(2) Aging analysis method 1)The Company and the subsidiaries (excluding Wuxi Little Swan Company Limited and Midea-Carrier Latin American Company Litimited. ( 美的开利拉美公司))

Provision for bad debts for accounts receivable Provision for bad debts for other receivables Age (percentage of the accounts receivable)( %) (percentage of the receivables) (%) Within 1 year (inclusive, the same below) 5.00 5.00 1-2 years 10.00 10.00 2-3 years 30.00 30.00 3-5 years 50.00 50.00 Over 5 years 100.00 100.00

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2)Wuxi Little Swan Company Limited, the holding subsidiary of the Company

1-2 years 10.00 10.00

2-3 years 20.00 20.00

3-5 years 60.00 60.00

Over 5 years 100.00 100.00

3)Midea-Carrier Latin American Company Litimited.

1-2 years 100.00 0.00

2-3 years 100.00 0.00

3-5 years 100.00 0.00

Over 5 years 100.00 0.00

the Company for sale in the ordinary course of its operation, 3. Accounts receivable with insignificant single amounts for or products in process or the materials to be consumed in the which provision is made for bad debt separately production process or during rendering of labor services.

Reason for making provision of bad debt separately:An 2. Cost of dispatched inventories obvious difference exists among the carrying amount of Cost of dispatched inventories is determined using the future cash flows of account receivables, the combination of weighted average method at the end of each month. receivables which in which the age is credit risk characteristics and receivables within the scope of consolidated statements. 3. Basis for recognizing the net realizable value of inventories and making provision for inventories impairment Method of making provision for bad debts:Individually assessed for impairment with bad-debt provisions made based At the balance sheet date, inventories are carried at the lower on the difference between the present value of its estimated of cost and net realizable value. Any excess of the cost over the future cash flows and its carrying amount. net realisable value of each item of inventories is recognised as a provision for diminution in the value of inventories. For inventories directly for sale, net realisable value is measured (xi) Inventories based on the estimated selling price in the ordinary course of 1. Classification of inventories business less the estimated costs necessary to make the sale and relevant taxes. For inventories that need processing, net Inventories refer to finished products or merchandise held by

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realisable value is measured based on the estimated selling profits. price of finished goods in the ordinary course of business (2) For a long-term equity investment obtained through a less the estimated costs of completion and the estimated business combination not involving entities under common costs necessary to make the sale and relevant taxes. At the control, the initial investment cost is the fair value of the balance sheet date, for an item of inventories where a portion consideration given for combination at the acquisition date. is subject to contractual price while the remainder is not, their net realisable values are determined and compared with their (3) A long-term equity investment acquired otherwise than corresponding costs respectively to recognize the amount of through a business combination is initially recognised at the provision, or reversal of provision, for diminution in the value actual consideration paid if the investment is acquired by of inventories. cash, or at the fair value of the equity securities issued if the investment is acquired by issuing equity securities, or at the 4. Inventory taking system value stipulated in the investment contract or agreement if the The Company adopts the perpetual inventory system for taking investment is contributed by shareholders, unless the value so its inventories. agreed is deemed unfair.

5. Amortisation methods for consumables including low-value 2. Subsequent measurement and recognition consumables and packaging materials When the Company controls the investee, a long-term (1) Low-value consumables equity investment is accounted for using the cost method, and adjusted to equity method when preparing consolidated Low-value consumables are amortised in full when received financial statements. The cost method is used when the for use. Company does not jointly control or has significant influence (2) Packaging materials over the investee, and the long term equity investment is not Packaging materials are amortised in full when received for quoted in an active market, and have no reliably measurable use. fair values. The equity method is used to account for long-term equity investment when the Company has a joint control or significant influence over the investee. (xii) Long-term equity investment 3. Basis for determining the existence of joint control or 1. Determination of investment cost significant influence over an investee (1) The initial investment cost of a long-term equity Joint control is the contractually agreed sharing of control investment obtained through a business combination involving where the significant financial and operating decisions of the entities under common control is the Company’s share of the investee require the unanimous consent of the parties sharing carrying amount of shareholders’ equity of the party being control under the contract. Significant influence is the power combined at the combination date, if the consideration for to participate in the financial and operating policy decisions of combination is settled in cash, by way of transfer of non- investee but is not control or joint control over those policies. cash assets, assumption of liabilities or issuance of equity securities. The difference between the initial investment cost 4. Impairment test and provision methods for impairment

of the long-term equity investment and the carrying amounts For an investment in subsidiaries, associates, and jointly of the consideration given or the total nominal value of shares controlled entities, an impairment is provided for based issued is adjusted to capital reserve. If the balance of the on the excess of the carrying amount over the recoverable capital reserve is insufficient, any excess is adjusted to retained amount when there is objective evidence that the investment

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is impaired at the balance sheet date. For a long-term equity (2) Wuxi Little Swan Company Limited, the holding investment without joint control or significant influence over subsidiary of the Company the investee, not quoted in an active market, and whose fair value cannot be reliably measured, an impairment is provided Useful life Residual value Annual depreciation Class for under ASBE 22 — Recognition and measurement of (years) rate(%) rate (%) financial instruments. Plant and buildings 30-40 5 2.38-3.17 Machinery and equipment 10-18 5 5.28-9.50 (xiii) Investment property Electronics equipment 3-8 5 11.88-31.67

1. Investment property includes land use rights let out, land Motor vehicles 4-12 5 7.92-23.75 use rights held for sale, and buildings let out. Other equipment 8 5 19.00

2. Investment property is initially measured at cost and (3) Midea-Carrier Latin American Company Litimited. subsequently through the cost pattern, and depreciated or amortised using the same method for fixed assets and Useful life Residual value Annual depreciation Class intangible assets. At the balance sheet date, an impairment (years) rate(%) rate (%) is provided for based on the excess of the carrying amount Plant and buildings 25 4.00 over the recoverable amount when there is evidence that the Machinery and 8 12.50 investment property is impaired. other equipment

(xiv) Fixed assets 3. Impairment test methods and impairment provision methods

1. Recognition, measurement and depreciation of fixed assets for fixed assets Fixed assets represent the tangible assets held for production At the balance sheet date, an impairment is provided for based or supply of goods or services, rental or for administrative on the excess of the carrying amount over the recoverable purposes with useful lives over one accounting year. amount when there is evidence that the fixed assets are Fixed assets are accounted for at the actual cost on acquisition impaired. and depreciated using the straight-line method from the following month after they are ready for intended use. (xv) Construction in progress 2. Depreciation methods for different types of fixed assets 1. Construction-in-progress is recognised when the inflow (1) The Company and the subsidiaries (excluding Wuxi Little of economic benefits is probable and the cost can be reliably Swan Company Limited and Midea-Carrier Latin American measured, and is measured at the actual cost incurred till it is Company Litimited.) ready for intended use.

Useful life Residual value Annual deprecia- 2. Construction-in-progress is transferred into fixed assets Class (years) rate(%) tion rate (%) when it is ready for its intended use based on the actual cost. Plant and buildings 20-35 5 4.75-2.71 For a completed project ready for intended use but with final Machinery and equipment 10-15 5 9.50-6.33 account unsettled, the asset is transferred into fixed assets Motor vehicles 5 5 19.00 based on estimated value. After final account of the project has Electronics and other equipment 3-5 5 31.67-19.00

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been settled, the Company shall base on actual cost to make any interest earned from depositing the unused borrowings in adjustment on the previous estimated value, but need not to the bank or any investment income arising from the temporary adjust the depreciation retrospectively. investment of those borrowings during the capitalization 3. At the balance sheet date, an impairment is provided period. For general borrowings used to acquire, construct for based on the excess of the carrying amount over or produce assets qualified for capitalization, the capitalized the recoverable amount when there is evidence that the amount of interests on general borrowings shall be determined construction in progress is impaired. on the basis that the weighted average (of the excess of cumulative assets expenditures over the specific borrowings) (xvi) borrowing costs times capitalization rate (of used general borrowings). 1. Capitalization of borrowing costs (xvii) Intangible asset Borrowing costs directly attributable to the acquisition, construction or origination of assets qualified for capitalization 1. Intangible assets, including land use rights, non-patented are capitalized as part of the cost of those assets. Other technologies and software are initially measured at cost.

borrowing costs are expensed and charged to current profit or 2.Intangible assets with definite useful lives are reasonably loss when incurred. amortized over their useful lives based on the pattern of the 2. Timing of borrowing costs capitalization economic benefits relating to the intangible assets are expected to be realised. Intangible assets whose economic benefits (1) Borrowing costs shall be capitalized when capital realization pattern cannot be reliably anticipated are amortised expenditures and borrowing costs have been incurred, and on a straight-line basis over the following useful life: activities relating to the acquisition, construction or production of the asset that are necessary to prepare the asset for its Type Useful life (year) intended use or sale have commenced. Land use right Beneficial period (2) Capitalization of borrowing costs should be suspended Period specified in the Non-patent technologies during periods in which abnormal interruption has lasted for contract or beneficial period more than three months during the process of acquisition, construction or production of assets qualified for capitalization. 3. For intangible assets with definite useful lives, an The borrowing cost incurred during interruption is recognised impairment is provided for based on the excess of the carrying as current expenses until the acquisition, construction or amount over the recoverable amount when there is evidence at production activities resume. the balance sheet date that the intangible assets are impaired. (3) The capitalization of borrowing costs ceases when the For intangible assets with indefinite useful lives and those assets acquired, constructed or produced and qualified for not ready for use, an impairment test is performed each year, capitalization are ready for their intended use or sale. irrespective of whether there is evidence of impairment.

3. Capitalized amount of borrowing costs 4. The research expenditures for internal research and development projects are recorded into the profits and For specific borrowings used to acquire, construct or produce losses of the current period in which they are incurred; assets qualified for capitalization, the amount of interest costs the development expenditures for internal research and (including amortization of discount or premium determined development projects are recorded into the profits and losses using the effective interest method) actually incurred on such of the current period in which they are incurred, unless they borrowings for the period shall be capitalized after deducting

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are recognized as intangible assets when they satisfy all the (xx) Provisions following conditions: (1) it is feasible technically to finish 1. Provisions are recognised when the Company has a present intangible assets for use or sale; (2) it is intended to finish and obligation as a result of contingencies such as provision of use or sell the intangible assets; (3) the usefulness of methods external guarantee, litigation, quality warranty, and loss- for intangible assets to generate economic benefits is proved, making contract, and it is probable that an outflow of economic including being able to prove that there is a potential market benefits will be required to settle the obligation and a reliable for the products manufactured by applying the intangible estimate of the amount of the obligation can be made. assets or there is a potential market for the intangible assets 2. Provisions are initially stated at the best estimate of the itself or the intangible assets will be used internally; (4) it is expenditure expected to settle the present obligation. Carrying able to finish the development of the intangible assets, and amounts of all provisions are reviewed at each balance sheet able to use or sell the intangible assets, with the support of date. sufficient technologies, financial resources and other resources; (5) the development expenditures attributable to the intangible (xxi) Employee compensation assets can be reliably measured. Employee compensation refers to all kinds of remunerations (xviii) Goodwill and other relevant expenditures paid by the Company in exchange of the services provided by its employees, mainly Goodwill refers to the difference between the merge costs of including wages, salaries, bonuses, allowances and subsidies, the enterprises not under the same control and the shares of welfare expenses for the employees, social insurance and fair value of the identifiable net asset of the invested entity or housing provident fund, labour union expenditures, employee the acquired party that should be enjoyed on the acquisition education expenses, non-monetary welfare, compensations for date or purchase date. the employees dismissal and other expenditures related with The goodwill relating to subsidiaries is separately stated in the services provided by the employees. financial statements, and the goodwill relating to associated 1. Compensations for the dismissal of employees corporations and joint ventures is included in the carrying value of long-term equity investment. If the Company cancels the labour relationship with any employee prior to the expiration of the relevant labour The goodwill separately stated in the financial statements contract or brings forward any compensation proposal for the is tested for impairment at the end of each year. In the purpose of encouraging the employee to accept a layoff, and impairment test, the carrying value of goodwill is amortized that where the Company has formulated a formal plan on the to the beneficial asset group or asset group combination cancellation of labour relationship or has brought forward a according to the synergistic effect of enterprise merger. proposal on voluntary layoff and will execute it soon, and that the Company is unable to unilaterally withdraw the plan on the (xix) Long-term prepaid expenses cancellation of labour relationship or the layoff proposal, the Long-term prepaid expenses are measured at actual amount Company recognizes the estimated liabilities caused due to the and amortized evenly over the beneficial or required period. compensation for the cancellation of labour relationship with If the Long-term prepaid expenses are no longer beneficial to the employee, and record them into the profits and losses of the subsequent accounting periods, the unamortized balance is the current period. then fully transferred to current profit or loss. 2.Other forms of employee compensation

During the accounting period in which an employee provides

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services to the Company, the Company recognizes the of employee services that cannot be exercised until the compensation payable as liabilities, which, except for the services are fully rendered during vesting period or specified compensations for the employee dismissal, are recorded into performance targets are met, on each balance sheet date within the corresponding product costs, service costs, asset costs and the vesting period, the services acquired in the current period the profits and losses of the current period, depending on the shall, based on the best estimate of the number of exercisable subjects for which the employee provides services. instruments, be recognized in relevant costs or expenses and the capital reserves shall be adjusted accordingly at the fair (xxii) share-based payments and equity value of such instruments on the date of the grant. instruments For the cash-settled share-based payment made in return for the 1. Types of share-based payments rendering of employee services, if the fair value of the services of other parties can be reliably measured, it shall be measured It includes equity-settled share-based payment and cash-settled based on the fair value of the services of other parties on the share-based payment. obtaining date. If the fair value of the services of other parties 2. Determination of fair value of equity instruments cannot be reliably measured, while the fair value of the equity (1) If an active market is available, the fair value of the equity instruments can be reliably measured, it shall be recognized instrument determined according to the quoted price in the in relevant costs or expenses and the owner’s equity shall be active market. increased accordingly at the fair value of such instruments on the date of acquiring the services (2) If an active market is not available, the fair value of the equity instrument is estimated using valuation techniques, (3) Cash-settled share-based payment

valuation techniques applied include recent arm’s length For the cash-settled share-based payment made in return for market transactions between knowledgeable and willing the rendering of employee services that may be exercised parties, reference to the fair value of another instrument that is immediately after the grant, the fair value of the liability substantially the same, discounted cash flow techniques, option incurred by the Company shall, on the date of the grant, be pricing models. recognized in relevant costs or expenses and the liabilities shall 3.Recognition basis for the best estimate of fair value of be increased accordingly. For cash-settled share-based payment exercisable equity instruments made in return for the rendering of employee services that cannot be exercised until the services are fully provided during The estimation is conducted based on the latest subsequent vesting period or specified performance targets are met, on information as to changes in the number of employees with each balance sheet date within the vesting period, the services exercisable rights. acquired in the current period shall, based on the best estimate 4.Accounting for implementation, amendment and termination of the number of exercisable instruments, be recognized in of share-based payments relevant costs or expenses and the corresponding liabilities at

(1) equity-settled share-based payment the fair value of the liability incurred by the Company.

For equity instruments that may be exercised immediately after (4) Revision and termination of share-based payment plans the grant, the fair value of such instrument shall, on the date If the revision results in an increase in the fair value of the of the grant, be recognized in relevant costs or expenses with equity instruments granted, the Company shall recognize the the adjustment in the capital reserve accordingly. For equity- increase in the services rendered accordingly at the increased settled share-based payment made in return for the rendering fair value of the equity instruments. If the revision results in

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an increase in the number of equity instruments granted, the the provision of services including repair and installation etc. Company will recognize the increase in the services rendered to the users by the Company. accordingly at the fair value of the increased number of equity 3. Transfer of assets use rights instruments. If the Company revises the vesting conditions on terms favorable to the employees, the Company will take into Revenue from transfer of assets use rights is recognised consideration of the revised vesting conditions when dealing when the relevant economic benefits will probably flow to with the vesting conditions. the Company, and the amount of revenue can be measured reliably. Interest income is recognized according to the length If the revision results in a decrease in the fair value of the equity instruments granted, the Company shall continue of time for which the Company’s monetary funds are used by recognize the amount of services rendered accordingly at others and the effective interest rate. Income from usage fee the fair value of the equity instruments on the date of grant is recognized according to timing and method as agreed under without considering the decrease in the fair value of the relevant contracts or agreements. equity instruments. If the revision results in a decrease in the number of equity instruments granted, the Company will (xxiv) Government grants account for such decrease by reducing part of the cancellation 1. Government grants include government grants relating to of equity instruments granted. If the Company revises the assets and those relating to income. vesting conditions on terms not favorable to the employees, the Company will not take into consideration of the revised 2. The grant is measured as the amount received or receivable vesting conditions when dealing with the vesting conditions. where it takes the form of a cash asset, or at fair value where If the Company cancels the equity instruments granted or it is not a cash asset. Where the fair value cannot be reliably settles the equity instruments granted during the vesting obtained, it should be measured at the nominal value. period (other than cancellation as a result of failure to satisfy 3. Government grants relating to assets are recognised as a the vesting conditions), such cancellation or settlement will deferred income and allocated to current profit or loss over be treated as accelerated exercisable rights and the original the expected useful life of the relevant asset by equal annual amount in the remaining vesting period will be recognized instalments. Government grants relating to income and applied immediately. towards reimbursement of related costs or losses in subsequent periods are recognised as deferred income and taken to (xxiii) Revenue current profit or loss for the period in which the related 1. Sales of goods costs are recognized.Government grants, applied towards

Revenue from sales of goods is recognised when the significant reimbursement of related costs or losses already incurred, are risks and rewards of ownership have been transferred to the directly recognized in current profit or loss. buyer if it is probable that the economic benefits will flow to the Company and the amount of revenue and related costs (xxv) Deferred tax assets or deferred tax liabilities incurred or to be incurred can be measured reliably, provided 1. Deferred tax assets or deferred tax liabilities are recognised that the Company maintains neither managerial involvement based on the difference between the carrying amounts of the to the degree usually associated with ownership, nor effective assets or liabilities and their tax bases (or, for an item not control over the goods sold. recognised as assets or liabilities but whose tax base can be

2. Rendering of services determined under tax laws, the difference between the tax base and the carrying amount), and are calculated at the tax Revenue is recognised upon completion of services which is

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rates expected to apply to the period in which the assets are 1. Hedges include fair value hedges, cash flow hedges and net recovered or the liabilities are settled. investment of foreign operationshedges.

2. Deferred tax assets are recognised for all deductible 2. Hedge accounting is applied to hedges that meet the temporary differences, to the extent that it is probable that following conditions: (i) at the inception of a hedge taxable profit will be available against which the deductible relationship, the Company formally designates the hedge temporary differences can be utilised. At the balance sheet relationship (ie the relationship between the hedging date, deferred tax assets unrecognised in prior periods are instrument and the hedged item) and documents the hedge recognised to the extent that there is obvious evidence that relationship, the risk management objective and its strategy it has become probable that sufficient taxable profit will be for undertaking the hedge; (ii) Such hedges are expected to available in subsequent periods against which the deductible be highly effective and comply with the risk management temporary differences can be utilised. strategy set by the Company for the hedge relationship at the inception; (iii) for cash flow hedges for expected transactions, 3.The carrying amount of deferred tax assets is reviewed at such expected transactions will probably take place and the balance sheet date and written down to the extent that must expose the Company to risks of movement in cash it is no longer probable that sufficient taxable profit will be flows that will eventually affect the profit or loss; (iv) the available against which the deferred tax asset can be utilised. hedge effectiveness can be reliably measured; (v) the hedge Such amount is written back to the extent that it has become effectiveness is evaluated on an ongoing basis, ensuring the probable that sufficient taxable profit will be available. hedge is highly effective in the period in which the hedge 4. The Company’s current and deferred income taxes are relationship is designated. A hedge is deemed highly effective recognised in current profit or loss as tax expense or profit, if (i) it is expected at the inception or for subsequent periods to excluding income tax arising from business combination, as effectively offset movement in fair value or cash flows arising well as transactions or items directly recognised in equity. from the hedged risks in the period in which the hedge is designated; and (ii) the actual offset result of the hedge ranges (xxvi) Operating leases from 80% to 125%. When the company acts as lessee, rental expenses under 3. Hedge accounting treatment operating leases are recognized as relevant asset costs or in current profit or loss on the straight-line basis over the lease (1) Fair value hedges

term, with any initial direct cost incurred directly charged to If the hedging instrument is a derivative, the gain or loss arising current profit or loss. Contingent rental is charged to current from movement in the fair value thereof is recognized in current profit or loss when incurred. profit or loss. If the hedging instrument is not a derivative, the When the company acts as lessor, rental under operating leases gain or loss on the carrying amount thereof due to exchange rate are recognized in current profit or loss on the straight-line movement is recognized in current profit or loss.

basis over the lease term, with any initial direct cost incurred The gain or loss on the hedged item arising from the hedged directly charged to current profit or loss (except for significant risks is recognized in current profit or loss, with adjustment to amount which will be capitalized and included in profit or loss the carrying amount of the hedged item. in installments). Contingent rental is credited to current profit (2) Cash flow hedges or loss when incurred. 1) The effective portion of the gain or loss on the hedging (xxvii) Hedge accounting

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instrument is recognised directly in equity, while the as financial status, operating results and cash flows can be ineffective portion is recognised in current profit or loss. obtained. 2) If the hedged item is an expected transaction for which the The Company’s reporting segments are determined on the Company subsequently recognises a financial asset or financial basis of its operating segments among which any price transfer liability, the gain or loss directly recognized in equity is is determined by reference to market price and that the assets transferred to current profit or loss in the same period in which and relevant expenses shared by the respective segments the financial asset or financial liability affects the profit or loss. are allocated among the different segments proportional to If the Company subsequently recognises a non-financial asset revenue. or non-financial liability due to the expected transaction, the gain or loss directly recognized in equity is transferred to the III. Taxation amount initially recognised on the non-financial asset or non- financial liability. If the Company subsequently recognises a (1) Main Tax Types and Tax Rates asset or liability due to the expected transaction, the gain or loss directly recognized in equity is transferred to current profit Tax type Basis of taxation Tax rate or loss in the same period in which the asset or liability affects Value added tax Sales of good or provision of services 17% the profit or loss. Business tax Taxable turnover 5% For other cash flow hedges, the gain or loss on the hedging For price-based property, subject to 1.2% tax rate after a 30% cut in original instrument directly recognized in equity is transferred to Property tax 1.2%, 12% price; for rent-based, subject to 12% tax current profit or loss in the same period in which the hedged, rate for the rental income expected transaction affects the profit or loss. Urban maintenance Value-added tax and business tax 5%, 7% 3) Net investment of foreign operations edges. and construction tax payables In the profit or loss from the hedging instrument, the portion Educational Value-added tax and business tax 3% that is effective hedging is recognized as the owners’ equity surcharges payables Local educational Value-added tax and business tax directly, it will be transferred to profit or loss when the foreign 1%, 2% surcharges payables operations are disposed. The ineffective portion of hedges of Enterprise income tax Taxable income 15%, 25% the profit or loss generated from the hedging instruments is recognised in current profit or loss. (2) Tax preferential treatments

(xxviii) Segment reporting 1. On 5 November 2010, Anhui Meizhi Refrigeration The Company’s operating segments are determined on Equipment Co., Ltd., a controlled subsidiary of the Company, the basis of internal organizational structure, management was recognised as an enterprise of new and high technology requirements and internal reporting system. The Company’s for a vaild term of 3 years. The certificate number was operating segments refer to the component that satisfies the GR201034000128. From 1 January 2010 to 31 December following conditions concurrently: 2012, Anhui Meizhi Refrigeration Equipment Co., Ltd. was (1) The component can generate income and incur expenses in subject to 15% corporate income tax rate. the day-to-day operations; 2. On 23 August 2011, Guangdong Meizhi Refrigeration (2) The management can perform regular appraisal against the Equipment Co., Ltd., a controlled subsidiary of the Company, operating results of the component to make decisions about was recognised as an enterprise of new and high technology resources allocation and performance appraisal therefore; for a vaild term of 3 years. The certificate number was (3) Relevant accounting information of the component such GF201144000601. From 1 January 2011 to 31 December 2013,

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Guangdong Meizhi Refrigeration Equipment Co., Ltd. was 2013, GD Midea Group Wuhu Refrigerating Equipment Co., subject to 15% corporate income tax rate. Ltd. was subject to 15% corporate income tax rate.

3. On 11 October 2011, Chongqing Midea General 8. On 24 November 2011, Little Swan (Jingzhou) Electric Refrigeration Equipment Co, Ltd, a controlled subsidiary of Appliance Co., Ltd., a controlled subsidiary of the Company, the Company, was recognised as an enterprise of new and high was recognised as an enterprise of new and high technology technology for a vaild term of 3 years. The certificate number for a vaild term of 3 years. The certificate number was was GF201151100035. From 1 January 2011 to 31 December GR201142000163. From 1 January 2011 to 31 December 2013, Chongqing Midea General Refrigeration Equipment Co, 2013, Little Swan (Jingzhou) Electric Appliance Co., Ltd. was Ltd was subject to 15% corporate income tax rate. subject to 15% corporate income tax rate.

4. On 13 October 2011, Guangdong Midea Refrigeration 9. On 21 May 2012, Wuxi Little Swan Holding Co., Ltd., a Equipment Co., Ltd., a controlled subsidiary of the Company, controlled subsidiary of the Company, was recognised as an was recognised as an enterprise of new and high technology enterprise of new and high technology for a vaild term of 3 for a vaild term of 3 years. The certificate number was years. The certificate number was GF201232000096. From 1 GF201144001038. From 1 January 2011 to 31 December January 2012 to 31 December 2014, Wuxi Little Swan Holding 2013, Guangdong Midea Refrigeration Equipment Co., Ltd. Co., Ltd. was subject to 15% corporate income tax rate. was subject to 15% corporate income tax rate. 10. On 3 July 2012, Anhui Meizhi Precise Manufacture Co., 5. On 14 October 2011, Hefei Royalstar Refrigerator Co., Ltd., a controlled subsidiary of the Company, was recognised Ltd., a controlled subsidiary of the Company, was recognised as an enterprise of new and high technology for a vaild term of as an enterprise of new and high technology for a vaild term 3 years. The certificate number was GR201234000097. From of 3 years. The certificate number was GF201134000330. 1 January 2012 to 31 December 2014, Anhui Meizhi Precise From 1 January 2011 to 31 December 2013, Hefei Royalstar Manufacture Co., Ltd. was subject to 15% corporate income Refrigerator Co., Ltd. was subject to 15% corporate income tax rate. tax rate. 11. On 12 September 2012, Guangdong Meizhi Precise 6. On 14 October 2011, Hefei Hualing Co., Ltd., a controlled Manufacture Co., Ltd., a controlled subsidiary of the subsidiary of the Company, was recognised as an enterprise Company, was recognised as an enterprise of new and high of new and high technology for a vaild term of 3 years. The technology for a vaild term of 3 years. The certificate number certificate number was GF201134000498. From 1 January was GF201244000087. From 1 January 2012 to 31 December 2011 to 31 December 2013, Hefei Hualing Co., Ltd. was 2014, Guangdong Meizhi Precise Manufacture Co., Ltd. was subject to 15% corporate income tax rate. subject to 15% corporate income tax rate.

7. On 14 October 2011, GD Midea Group Wuhu Refrigerating 12. On 14 December 2012, Guangdong Midea Heating & Equipment Co., Ltd., a controlled subsidiary of the Company, Ventilation Equipment Co., Ltd. passed the examination was recognised as an enterprise of new and high technology for and was recognized as an enterprise of new and high for a vaild term of 3 years. The certificate number was technology but had not obtained the certificate of enterprise GF201134000548. From 1 January 2011 to 31 December of new and high technology. Guangdong Midea Heating & Ventilation Equipment Co., Ltd. was subject to 15% corporate income tax rate for the year.

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IV. Business Combination and Consolidated Financial Statements

(1) Subsidiaries The Company regards those subsidiaries whose assets account for more than 2% (inclusive) total asset in the Company’s consolidated financial statements as important subsidiaries. Other subsidiaries with less importance are not listed below.

1. Subsidiaries acquired through establishment or investment

Place of Organization Full name of subsidiary Type of subsidiary Business nature Registered capital Business scope registration code Guangdong Midea Refrigeration Manufacturing of Manufacturing and sales of Controlled subsidiary Foshan City RMB 854,000.00 72547107-X Equipment Co., Ltd. air conditioner refrigeration equipment Guangdong Meizhi Precise Manufacturing of Manufacturing and sales of Controlled subsidiary Foshan City USD 7,740.00 76157878-X Manufacture Co., Ltd. compressor compressor British Virgin Import and export trade, and Midea Appliance(BVI) Co., Ltd. Controlled subsidiary Investment USD 33,000.00 Islands overseas investment Manufacturing and Manufacturing and installation of GD Midea Heating & Ventilation Controlled subsidiary Foshan City installation of air RMB 100,000.00 air conditioners, and other heating 78115339-1 Equipment Co., Ltd. conditioners & ventilation equipment Wuhu Meizhi Air-conditioning Subsidiary of controlled Manufacturing of Manufacturing and sales of Wuhu City RMB 810,000.00 55458322-8 Equipment Co., Ltd. subsidiary air conditioners refrigeration equipment Hefei Midea Materials Supply Purchase and sales Processing and sales of metal Controlled subsidiary Hefei City RMB 130,000.00 55183611-1 Co., Ltd. of materials materials Hefei Midea Heating & Manufacturing of Manufacturing and sales of Controlled subsidiary Hefei City RMB 1,060,000.00 56341004-6 Ventilation Equipment Co., Ltd. air conditioners commercial air conditioners Anhui Meizhi Precise Compressor Manufacturing and sales of Controlled subsidiary Wuhu City RMB 842,105.26 56342212-7 Manufacture Co., Ltd. manufacturing compressors Anhui Meizhi Compressor Sales Sales and services Controlled subsidiary Wuhu City RMB 100,000.00 Sales of compressors 57178941-2 Co., Ltd. of home appliances

(Continued)

Actual amount of Balance of other items Percentage of Percentage of Whether Name of subsidiary capital contribution at essentially constituting net shareholding voting rights consolidated end of the period investment in subsidiary (%) (%) Guangdong Midea Refrigeration Equipment Co., Ltd. 819,091.81 80.00 80.00 Yes Guangdong Meizhi Precise Manufacture Co., Ltd. 38,437.80 60.00 60.00 Yes Midea Appliance(BVI) Co., Ltd. 236,542.62 100.00 100.00 Yes Guangdong Midea Heating & Ventilation Equipment Co., Ltd. 100,000.00 100.00 100.00 Yes Wuhu Meizhi Air-conditioning Equipment Co., Ltd. 810,000.00 100.00 100.00 Yes Hefei Midea Materials Supply Co., Ltd. 130,000.00 100.00 100.00 Yes Hefei Midea Heating & Ventilation Equipment Co., Ltd. 1,060,000.00 100.00 100.00 Yes Anhui Meizhi Precise Manufacture Co., Ltd. 842,105.26 100.00 100.00 Yes Anhui Meizhi Compressor Sales Co., Ltd. 100,000.00 100.00 100.00 Yes

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(Continued)

Setting off of the loss attributable to the minority shareholders Minority interest used to Minority of the subsidiaries in the current period from the owner’s equity Full name of subsidiary offset the profit or loss interests of the Company exceeds the minority shareholders’ portion of of the minority interests the opening balance of owners’ equity of the subsidiary Guangdong Midea Refrigeration Equipment Co., Ltd. 514,488.55 Guangdong Meizhi Precise Manufacture Co., Ltd. 233,231.00 Midea Appliance(BVI) Co., Ltd. Guangdong Midea Heating & Ventilation Equipment Co., Ltd. Wuhu Meizhi Air-conditioning Equipment Co., Ltd. Hefei Midea Materials Supply Co., Ltd. Hefei Midea Heating & Ventilation Equipment Co., Ltd. Anhui Meizhi Precise Manufacture Co., Ltd. Anhui Meizhi Compressor Sales Co., Ltd.

2. Subsidiaries acquired through business combination under common control

Place of Organization Name of subsidiary Type of subsidiary Registered capital Business nature Business scope registration code Guangdong Midea Group Wuhu Manufacturing of air Manufacturing and sales of Controlled subsidiary Wuhu City USD 6,928.00 70490853-5 Refrigeration Equipment Co., Ltd conditioner electrical appliances Subsidiary of controlled Refrigerator Manufacturing and sales of Hefei Royalstar Refrigerator Co., Ltd. Hefei City USD 92,109.87 14906759-6 subsidiary manufacturing electrical appliances Midea Group Wuhan Refrigeration Manufacturing of air Manufacturing and sales of Controlled subsidiary Wuhan City USD 8,000.00 75817991-3 Equipment Co, Ltd. conditioner refrigeration equipment

(Continued)

Actual amount of Balance of other items Percentage of Percentage of Whether Name of subsidiary capital contribution essentially constituting net voting rights shareholding(%) consolidated at end of the period investment in subsidiary (%) Guangdong Midea Group Wuhu 377,030.09 80.00 80.00 Yes Refrigeration Equipment Co., Ltd. Hefei Royalstar Refrigerator Co., Ltd. 414,685.93 75.00 75.00 Yes Midea Group Wuhan Refrigeration 79,504.33 80.00 80.00 Yes Equipment Co, Ltd.

(Continued)

Setting off of the loss attributable to the minority shareholders Minority interest used to of the subsidiaries in the current period from the owner’s equity Full name of subsidiary Minority offset the profit or loss of the Company exceeds the minority shareholders’ portion of of the minority interests the opening balance of owners’ equity of the subsidiary Guangdong Midea Group Wuhu 234,068.97 Refrigeration Equipment Co., Ltd Hefei Royalstar Refrigerator Co., Ltd. 265,254.82 Midea Group Wuhan Refrigeration 129,948.12 Equipment Co, Ltd.

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3. Subsidiaries acquired through business combination not under common control

Place of Registered Organization Name of subsidiary Type of subsidiary Business nature Business scope registration capital code

Guangdong Meizhi Refrige- Foshan Manufacturing and installation of Controlled subsidiary USD 55,270.00 Compressor manufacturing 61741137-9 ration Equipment Co., Ltd. City compressors Wuxi Little Swan Company Manufacturing of electrical Manufacturing and sales of electrical Controlled subsidiary Wuxi City RMB 632,487.76 70404676-0 Limited and mechanical appliances and mechanical appliances

Little Swan(Jingzhou) Sanjin Jingzhou Manufacturing of home Controlled subsidiary RMB 850,000.00 Manufacturing of refrigerators 70696333-5 Electric Co., Ltd. City appliances

South American Subsidiary of Manufacturing of home Manufacturing and sales of electrical Holland USD 156,985.85 Holding Co.II. B.V. controlled subsidiary appliances appliances Subsidiary of Manufacturing of home Manufacturing and sales of electrical Frylands B.V. Holland USD 20,000.00 controlled subsidiary appliances appliances Subsidiary of Manufacturing of home Manufacturing and sales of electrical Carrier Midea India PVT Ltd India INR 480,100.00 controlled subsidiary appliances appliances

(Continued)

Actual amount of capital Balance of other items Percentage of Percentage of Whether Name of subsidiary contribution at end of the essentially constituting net shareholding(%) voting rights(%) consolidated period investment in subsidiary Guangdong Meizhi Refrigeration Equipment Co., Ltd. 89,787.77 60.00 60.00 Yes Wuxi Little Swan Company Limited 2,615,431.77 40.08 40.08 Yes Little Swan(Jingzhou) Sanjin Electric Co. 863,239.03 100.00 100.00 Yes South American Holding Co.II. B.V. 1,175,890.82 51.00 51.00 Yes Frylands B.V. 355,931.53 51.00 51.00 Yes Carrier Midea India PVT Ltd 126,537.27 51.00 51.00 Yes

(Continued)

Minority interest Setting off of the loss attributable to the minority shareholders used to offset the of the subsidiaries in the current period from the owner’s equity Full name of subsidiary Minority profit or loss of the of the Company exceeds the minority shareholders’ portion of minority interests the opening balance of owners’ equity of the subsidiary Guangdong Meizhi Refrigeration Equipment Co., Ltd. 589,258.64 Wuxi Little Swan Company Limited 2,145,207.27 Little Swan(Jingzhou) Sanjin Electric Co. South American Holding Co.II. B.V. 477,303.21 Frylands B.V. 238,628.90 Carrier Midea India PVT Ltd 78,346.62

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4. Other explanation 2. Subsidiaries no longer be included in the scope of consolidated financial statements during the Reporting Period (1) The reason for the scope of consolidated finfnacial statements to include the subsidiaries which the Company only holds half or less of In May 2012, Anhui Meizhi Air-conditioning Equipment Sales Co., its voting rights Ltd. was deregistered. Therefore, it has been deconsolidated from the scope of consolidated financial statements since June 2012. The Company is the first major shareholder of Little Swan and has actual control over its financal and operational decision. Therefore, it is included in the scope of consolidated finfnacial statements. (3) Entities newly included in the scope of (2) Reason for the Company holds half or more of its voting rights in consolidation during the Reporting Period and a subsidiary but fails to control it entities ceasing to be included in the scope of The Company has no actural control over the financal and operational consolidation during the Reporting Period decision of PT.Midea Planet Indonesia, a joint venture in Malaysia. Therefore, it is excluded from the scope of consolidated finfnacial 1. Entities newly included in the scope of consolidation during statements. the Reporting Period

Net assets at the Net profit for Name of company (2) Change in the scope of consolidated end of the period the period financial statements PT.MIDEA HVAC INDONESIA 5,939.06 -504.10 1. New subsidiary added into the scope of consolidated financial Carrier Midea India PVT Ltd 189,239.64 -13,622.67 statements during the Reporting Period Century Carrier Residential Air- 6,298.48 3,163.47 (1) Subsidiary added by establishment or investment conditionioning Equipment Co., Limited. In January 2012, Midea Electrical Appliance (Singapore) Trading 2. Entities ceasing to be included in the scope of consolidation Co., Ltd. established PT.MIDEA HVAC INDONESIA (a commercial during the Reporting Period joint venture in Malaysia) through investment. The registed capital of the company was IDR 10,000,000,000. Midea Electrical Appliance Net assets as (Singapore) Trading Co., Ltd. contributed USD 600,000 and holds Net profit for the period from the beginn- Name of company at the date of 51.00% equity interests and actual control in the copmany. Therefore, ing of the period to the date of disposal disposal since the date of incorporation, it has been included in the scope of Anwei Meizhi Air consolidated financial statements. Conditioner Equipment 0.99 0.19 In March 2012, Foshan Midea Carrier Refrigeration Equipment Sales Company Limited Co., Ltd. independently established Century Carrier Residential Air- conditioning Equipment Co., Ltd. with registered capital of HKD 3,880,000. Foshan Midea Carrier Refrigeration Equipment Co., (4) Exchange rate of translating major financial Ltd. has actual control over the company. Therefore, since the date statement items of overseas operating entities of incorporation, it has been included in the scope of consolidated The exchange rate for the conversion of major financial statement financial statements. items of the overseas operating entities included in the consolidated (2) Subsidiaries added through business combination not under financial statements for the Reporting Period: for the conversion of common control the asset and liability items on the Balance Sheet, the spot exchange Pursuant to the Equity Transfer Agreement dated 15 februery 2012 rate on the Balance Sheet date was used, i.e. US$1=RMB6.2855; for entered into between Midea Electric Appliance (Holland) Co., Ltd. and the conversion of the owners’ equity items (except the undistributed Carrier Co., Ltd, Midea Electric Appliance (Holland) Co., Ltd. accepted profit item), the spot exchange rate announced on the occurrence the transfer of 60.00% equity in Carrier Midea India PVT Ltd held by date was used; and for the conversion of the profit and loss statement Carrier Co., Ltd at EUR 872 (approximately RMB 7,280). Midea Electric and cash flow statement, the spot exchange rate announced on the Appliance (Holland) Co., Ltd. paid the consideration for equity transfer occurrence date was used, i.e. US$1=RMB6.3108. on 20 February 2012. Therefore, the company has been included in the scope of consolidated financial statements since 20 February 2012.

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V. Notes to Major Items on the Consolidated Financial Statements

(1) Notes to the consolidated balance sheet

1. Monetary funds (1) Breakdown

Amount at the end of the period Item Original currency Exchange rate RMB equivalent Cash RMB 684.12 US$ 500.65 6.2855 3,146.84 HKD 0.01 0.8108 0.01 JPY 242.33 0.0730 17.7 EUR 0.02 8.3176 0.17 BRL 122.49 3.0426 372.69 VND 2,158.00 0.0003 0.65 Subtotal 4,222.18 Bank deposit RMB 8,490,816.97 US$ 181,444.84 6.2855 1,140,471.54 JPY 130,960.17 0.0730 9,566.51 HKD 15,296.08 0.8108 12,402.06 EUR 63,037.27 8.3176 524,318.80 VND 25,545,298.72 0.0003 7,709.09 S$ 1,377.23 5.0929 7,014.09 BRL 79,496.22 3.0426 241,875.20 Subtotal 10,434,174.26 Other monetary fund RMB 1,332,591.43 Subtotal 1,332,591.43 Total 11,770,987.87

(Continued)

Amount at the beginning of the period Item Original currency Exchange rate RMB equivalent Cash RMB 551.57 US$ 3.45 6.3009 21.77 JPY 522.66 0.0811 42.39 BRL 239.67 3.3775 809.49 VND 141,630.40 0.0003 42.49 Subtotal 1,467.71

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con. Amount at the beginning of the period Item Original currency Exchange rate RMB equivalent Bank deposit RMB 7,963,027.67 US$ 100,743.57 6.3009 634,775.14 JPY 22.02 0.0811 1.79 HKD 4,359.34 0.8107 3,534.10 EUR 11,881.78 8.1625 96,985.01 VND 77,232,059.71 0.0003 23,169.62 S$ 1,115.64 4.8679 5,430.84 BRL 65,305.95 3.3775 220,570.85 Subtotal 8,947,495.02 Other monetary fund RMB 2,091,775.34 BRL 11,122.81 3.3775 37,567.29 Subtotal 2,129,342.63 Total 11,078,305.36

(2) As of 31 December 2012, the Company’s and its subsidiaries’ cash deposited at Midea Group Finance Co., Ltd. was RMB 958,376,960, of which pledged deposit amounted to RMB 79,220,530.

2. Trading financial assets

Item Amount at the end of the period Amount at the beginning of the period Derivative financial instruments 117,335.89 181,817.29 Total 117,335.89 181,818.29

3. Notes receivable (1) Breakdown

Amount at the end of the period Amount at the beginning of the period Type Provision Provision Book balance Book value Book balance Book value for bad debts for bad debts Bank acceptance bills 9,716,022.54 9,716,022.54 7,359,470.33 7,359,470.33 Total 9,716,022.54 9,716,022.54 7,359,470.33 7,359,470.33

(2) Pledged note receivable of the Company at the end of period (Top 5 in terms of amount)

Issuing Company Issuing date Maturity date Amount Zhengzhou Midea Refrigeration Products Sales Co., Ltd. 2012-09-21 2013-03-21 10,000.00 Zhengzhou Midea Refrigeration Products Sales Co., Ltd. 2012-09-21 2013-03-21 10,000.00 Zhengzhou Midea Refrigeration Products Sales Co., Ltd. 2012-09-21 2013-03-21 10,000.00 Zhengzhou Midea Refrigeration Products Sales Co., Ltd. 2012-09-21 2013-03-21 10,000.00 Wuhan Midea Refrigeration Products Sales Co., Ltd. 2012-09-21 2013-03-21 10,000.00 Subtotal 50,000.00

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(3) Undue note receivable endorsed by the Company in favor of other party at the end of the period(Top 5 in terms of amount)

Issuing Company Issuing date Maturity date Amount TCL Corporation 2012/10/26 2013-04-26 25,000.00 Xiamen Midea Refrigeration Products Sales Co., Ltd. 2012/10/31 2013-04-30 22,600.00 Nanjing Procurement Centre, Suning Appliance Co., Ltd. 2012/11/12 2013-05-12 18,178.38 Nanjing Procurement Centre, Suning Appliance Co., Ltd. 2012/11/12 2013-05-12 16,665.90 Qingdao Haidarui Procurement Services Company Limited 2012-08-15 2013-02-08 11,087.70 Subtotal 93,531.98

4. Accounts receivable (1) Breakdown 1) By type

Amount at the end of the period Type Book balance Provision for bad debts Amount Percentage % Amount Percentage % Accounts receivable with significant single amounts and provision made for bad debts for each single account receivable Accounts receivable with provision made for bad debts for combination of accounts receivable Combination 1: aging combination 6,530,845.08 99.98 459,569.07 7.04 Combination 2: accounts receivable within the scope of consolidated statements Subtotal 6,530,845.08 99.98 459,569.07 7.04 Accounts receivable with insignificant single amounts but provision made for 1,005.62 0.02 1,005.62 100.00 bad debts for each single account receivable Total 6,531,850.70 100.00 460,574.69 7.05

(Continued)

Amount at the beginning of the period Type Book balance Provision for bad debts Amount Percentage % Amount Percentage % Accounts receivable with significant single amounts and provision made for bad debts for each single account receivable Accounts receivable with provision made for bad debts for combination of accounts receivable Combination 1: aging combination 6,148,317.30 99.98 441,028.81 7.17 Combination 2: accounts receivable within the scope of consolidated statements Subtotal 6,148,317.30 99.98 441,028.81 7.17 Accounts receivable with insignificant single amounts but provision made 1,201.11 0.02 751.11 62.53 for bad debts for each single account receivable Total 6,149,518.41 100.00 441,779.92 7.18

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2) Accounts receivable in the combinations for which provision for bad debt is made by using age analysis method:

Amount at the end of the period Aging Book balance Provision for bad debts Amount Percentage (%) Within 1 year 6,319,540.55 96.75 271,459.44 1-2 years 64,666.85 0.99 51,588.23 2-3 years 71,037.67 1.09 62,998.93 3-5 years 75,600.01 1.17 73,522.47 Subtotal 6,530,845.08 100.00 459,569.07

(Continued)

Amount at the beginning of the period Aging Book balance Provision for bad debts Amount Percentage (%) Within 1 year 5,922,048.05 96.32 254,288.51 1-2 years 84,064.82 1.37 49,196.51 2-3 years 58,183.12 0.95 54,569.31 3-5 years 84,021.31 1.36 82,974.48 Subtotal 6,148,317.30 100.00 441,028.81

3) Other receivable that are individually significant and are provided for bad debts on individual basis

Book Provision for Provision Reason for bad Particulars of accounts receivable balance bad debts rate (%) debts provision Wuxi Shengchao Petrochemical Metallurgical Equipment Fittings Factory 861.08 861.08 100.00 Difficult to collect upon collection Panasonic Home Appliances Refrigerator(Wuxi) Co.,Ltd 76.26 76.26 100.00 Difficult to collect upon collection Yanfeng Visteon Automotive Electronics Co.,Ltd 21.34 21.34 100.00 Difficult to collect upon collection ShangHai Ruking Electronics Co.,Ltd. 15.56 15.56 100.00 Difficult to collect upon collection Fujitsu General (Shanghai) Company Limited 13.77 13.77 100.00 Difficult to collect upon collection Welco Technology (Suzhou)Limited 12.15 12.15 100.00 Difficult to collect upon collection Yanfeng Visteon Betung Automobile Meter Co., Ltd. 5.46 5.46 100.00 Difficult to collect upon collection Subtotal 1,005.62 1,005.62

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(2) Accounts receivable actually written off for the year

Nature of accounts Amount Whether arising from Name of customer Reason for writing off receivable written off connected transactions USHA INTERNATIONAL Payment for goods sales 994.45 Customer declined to pay upon shipping No Customer declined to pay due to quality UNICOMP SRL Payment for goods sales 427.68 No problem after receiving the goods MABE Mexico S de RL de CV Payment for goods sales 1.54 Unable to be collected upon collection No The General Logistics Department of PLA Payment for goods sales 30.64 Unable to be collected upon collection No Subtotal 1,454.31

(3) No amounts due from shareholders holding 5% (inclusive) or more of the shares conferring voting rights in the Company (4) Particulars of top five accounts receivable

Name of customer Relationship with the Company Book balance Aging Percentage of total accounts receivable(%) First Non-related party 218,077.93 Less than 1 year 3.34 Second Non-related party 141,724.61 Less than 1 year 2.17 Third Non-related party 138,288.57 Less than 1 year 2.12 Fourth Non-related party 110,611.09 Less than 1 year 1.69 Fifth Non-related party 83,349.96 Less than 1 year 1.28 Subtotal 692,052.16 10.60

(5) Particulars of accounts receivables of the related parties

Relationship with the Percentage of total accounts Name of entity Book balance Company receivable(%) Guangdong Welling Motor Co., Ltd. Related party 780.74 0.01 Guangdong Midea Microwave Electric Manufacturing Co., Ltd Related party 1,239.81 0.02 Guangdong Midea Environment Appliances Manufacturing Co., Ltd Related party 185.27 0.00 Foshan Welling Washer Motor Manufacturing Co., Ltd. Related party 270.93 0.00 Foshan Welling Electronic and Electric Appliances Co., Ltd. Related party 99.64 0.00 Foshan Shunde Midea Drinking Manufacturing Co., Ltd. Related party 37.07 0.00 Foshan Shunde Midea Electric Appliance Manufacturing Co., Ltd Related party 55.47 0.00 Foshan Shunde Century Tongchuang Plastic Industry Co., Ltd Related party 2,832.40 0.04 Foshan Midea Kitchen Appliances Manufacturing Co., Ltd. Related party 7.48 0.00 Wuhu Midea Household Appliance Sales Co., Ltd. Related party 9,557.08 0.15 Foshan Midea Clear Lake Water purification equipment Related party 5,028.20 0.08 Manufacturing Co., Ltd Subtotal 20,094.09 0.31

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5. Prepayments (1) Aging analysis

Amount at the end of the period Aging Book balance Percentage(%) Provision for bad debts Book value Less than one year 781,295.80 95.21 781,295.80 1-2 years 39,315.11 4.79 39,315.11 Total 820,610.91 100.00 820,610.91

(Continued)

Amount at the beginning of the period Aging Book balance Percentage(%) Provision for bad debts Book value Less than one year 1,968,420.27 100.00 1,968,420.27 Total 1,968,420.27 100.00 1,968,420.27

(2) Top five companies with the largest prepayment amount

Relationship with Amount at the Name of company Aging Reason for unsettlement the Company end of the period Guangzhou Baosteel Southern Trading Co., Ltd. Non-related party 150,591.99 Less than one year Payment for goods sales not settled Beijing Zhongtian Riyue Advertising Co., Ltd. Non-related party 125,948.70 Less than one year Ad expense not settled Guangzhou Wuhan Iron and Steel, Non-related party 44,120.10 Less than one year Payment for goods sales not settled Southern China Sales Company Limited Angang Steel Company Limited Non-related party 34,644.70 Less than one year Payment for goods sales not settled Shougang Jingtang Iron and Steel Co., Ltd. Non-related party 26,834.40 Less than one year Payment for goods sales not settled Subtotal 382,139.89

(3) No amount due from shareholders holding 5% (inclusive) or more of the shares conferring voting rights in the Company (4) Reasons for not yet settled prepayment with material amounts aging more than 1 year or above

Name of company Amount at the end of the period Reason for unsettlement China Building Technique Group Co., Ltd. Shenzhen Branch 4,500.00 Deposit margin for quality, unsettled There is problem with the equipment SANYO MACHINE CO.,LTD 6,223.25 of factory, unsettled Wuhu Mingyuan Power Equipment Manufacturing Co., Ltd. 1,427.98 Within the term of the contract Guangzhou Borch Machinery Co., Ltd. 1,360.00 Within the term of the contract Subtotal 13,511.23

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6. Other receivables (1) Breakdown 1) By type

Amount at the end of the period Type Book balance Provision for bad debts Amount Percentage % Amount Percentage % Other receivable with significant single amounts and provision made for bad debts for each single other receivable Other receivable with provision made for bad debts for combination of other receivables Combination 1: aging combination 414,339.01 99.95 14,643.11 3.53 Combination 2: other receivables within the scope of consolidated statements Subtotal 414,339.01 99.95 14,643.11 3.53 Other receivable with insignificant single amounts but provision made for 221.07 0.05 221.07 100.00 bad debts for each single account receivable Total 414,560.08 100.00 14,864.18 3.59

(Continued)

Amount at the beginning of the period Type Book balance Provision for bad debts Amount Percentage % Amount Percentage % Other receivable with significant single amounts and provision made for bad debts for each single other receivable Other receivable with provision made for bad debts for combination of other receivables Combination 1: aging combination 619,622.29 99.96 11,878.69 1.92 Combination 2: other receivables within the scope of consolidated statements Subtotal 619,622.29 99.96 11,878.69 1.92 Other receivable with insignificant single amounts but provision made for bad 221.07 0.04 221.07 100.00 debts for each single account receivable Total 619,843.36 100.00 12,099.76 1.95

2) Other receivables in the combinations for which provision for bad debt is made by using age analysis method

Amount at the end of the period Amount at the beginning of the period

Aging structure Book balance Provision Book balance Provision Book balance Percentage ( %) for bad debts Book balance Percentage ( %) for bad debts Less than 1 year 385,267.14 92.98 5,293.78 598,759.90 96.63 5,236.83 1 to 2 years 14,170.29 3.42 1,421.23 9,561.25 1.54 911.01 2 to 3 years 3,631.29 0.88 717.47 2,060.71 0.33 412.14 3 to 5 years 11,270.29 2.72 7,210.63 9,240.43 1.50 5,318.71 Total 414,339.01 100.00 14,643.11 619,622.29 100.00 11,878.69

121 Financial Report

3) Other receivable that are individually significant and are provided for bad debts on individual basis

Book Provision for Provision Content of other receivables Reason for provision balance bad debts rate(%) Qingdao Bitron Electromechanical Co., Ltd. 126.36 126.36 100.00 Difficult to collect upon collection Wuxi Keytown Mech&Elec. Technology Development Co. Ltd. 40.78 40.78 100.00 Difficult to collect upon collection Wuxi Dongcheng Plastic Hardware Co., Ltd. 30.10 30.10 100.00 Difficult to collect upon collection Emerson Appliance Solutions (Shenzhen) Co.Ltd. 15.59 15.59 100.00 Difficult to collect upon collection Wuxi Xishan Hengfeng Paper Co., Ltd. 2.29 2.29 100.00 Difficult to collect upon collection Wuxi Pengde Vehicle Parts Co., Ltd CO.,LTD 2.14 2.14 100.00 Difficult to collect upon collection Wuxi Ruilong Printing Co., Ltd. 2.00 2.00 100.00 Difficult to collect upon collection Wuxi No.2 Plastic Factory Co.,Ltd 1.07 1.07 100.00 Difficult to collect upon collection Taizhou Yongsheng Color Printing Packing Co., Ltd. 0.50 0.50 100.00 Difficult to collect upon collection Wuxi Wanji Washing Machine Fittings Co., Ltd. 0.24 0.24 100.00 Difficult to collect upon collection Subtotal 221.07 221.07

(2) Other receivables actually written off during the year

Nature of other Amount Whether it is occurred Name of company Reason receivables written-off due to connected transaction Changzhou Dikaben Unable to be collected Current accounts 126.00 No Electro-machanical Co., Ltd. upon collection

(3) No amount due from shareholders holding 5% (inclusive) or more of the shares conferring voting rights in the Company (4) Top five companies with the largest other receivables

Relationship with Book Percentage to total Name of company Aging Content of payment the Company balance other receivables (%) Foshan City Shunde District National Taxation Bureau Non-related party 124,938.24 Less than one year 30.12 Export tax rebate Feixi County Finance Bureau Non-related party 25,101.91 Less than one year 6.06 Land margin Hefei Economic and Technical Development Non-related party 14,795.43 Less than one year 3.57 Export tax rebate Zone, State Administration of Taxation Hefei Hi-tech Industrial Development Zone, Production safety risk depsosit Non-related party 11,215.19 Less than one year 2.71 National Treasury Payment Center margin, material special funds Hefei Administration of Labor and Social Security Non-related party 3,353.43 Less than one year 0.81 Security fund for migrant workers Subtotal 179,404.20 43.27

122 Financial Report

7. Inventories (1) Breakdown

Amount at the end of the period Amount at the beginning of the period Item Provision for Provision for Book balance Book value Book balance Book value price falling price falling

Raw materials 1,852,051.87 2,772.56 1,849,279.31 2,240,793.48 5,019.95 2,235,773.53

Entrusted processing materials 98,706.35 98,706.35 27,555.73 27,555.73 Consumables with low value 7,985.73 7,985.73 541.17 541.17 Products in process 448,038.28 448,038.28 473,058.52 763.42 472,295.10 Merchandise in stock 7,574,467.58 61,824.04 7,512,643.54 9,670,320.60 43,046.90 9,627,273.70 Total 9,981,249.81 64,596.60 9,916,653.21 12,412,269.50 48,830.27 12,363,439.23

(2) Provisions for respective inventory price falling

Amount at the Increase during Decrease during the period Amount at the Item beginning of the period the period Reversed Written-off end of the period Raw materials 5,019.95 2,028.83 4,276.22 2,772.56 Work in progress 763.42 763.42 Merchandise in stock 43,046.90 27,501.02 8,723.88 61,824.04 Total 48,830.27 29,529.85 13,763.52 64,596.60

8. Other current assets

Item Amount at the end of the period Amount at the beginning of the period Deferred expenses 150,594.85 296,199.87 Hedging Instruments 29,516.25 3,306.55 Hedge margin 190,759.30 20,833.68 Non-credited VAT 1,373,796.41 2,160,852.37 Prepaid enterprise income tax 55,708.95 53,912.79 Total 1,800,375.76 2,535,105.26

9. Financial assets available for sale

Amount at the end Amount at the Item of the period beginning of the period Equity instruments available for sale 286.94 284.59 Less: provision for impairment of Financial assets available for sale Net 286.94 284.59

123 Financial Report

10. Investment in associated corporations

Share- Voting Total assets Total liabilities Total net assets Total operating Net profit Name of investee company holding right at the end of at the end of at the end of revenue for the for the (%) (%) the period the period the period period period Midea Group Finance Co, Ltd. 40.00 40.00 4,419,111.91 2,751,544.34 1,667,567.57 310,731.06 126,094.75 Golden Eagle Asset Management co., Ltd. 20.00 20.00 195,018.02 13,216.21 181,801.81 112,214.00 -5,563.34 Joint venture in Malaysia(SEE) 51.00 51.00 64,808.50 64,938.56 -130.06 124,325.64 -2,602.17 Guangzhou Attend Logistics Co., Ltd. 20.00 20.00 20,500.66 4,071.41 16,429.25 8,819.65 -715.00 PT.MIDEA PLANET INDONESIA 51.00 51.00 70,882.17 83,687.70 -12,805.53 122,944.84 -8,825.24 MIDEA ELECTRIC TRADING THAILAND CO., LTD. 49.00 49.00 19,492.45 7,802.95 11,689.50 44,383.98 2,935.08 Misr Refrigeration And Air Conditioning Manufacturing Co. 32.50 32.50 647,926.06 211,552.35 436,373.71 1,162,061.55 89,848.31

Since the Company has no decision-making power and actual control over the financial and operating affairs of (SEE), PT.MIDEA PLANET INDONESIA , a Malaysia Joint Venture, this joint venture was not included in the scope of consolidated financial statements for the yeat.

11. Long-term equity investment

Measurement Initial amount Amount at the Increase/ Amount at the Name of invested party Method of investment beginning of the period decrease end of the period Midea Group Finance Co., Ltd. Equity method 600,000.00 631,092.55 35,934.48 667,027.03 Golden Engle Asset Management Co., Ltd. Equity method 50,000.00 37,473.03 -1,112.67 36,360.36 Malaysia Joint Venture(SEE) Equity method 7,186.32 1,854.53 -1,441.21 413.32 Guangzhou Attend Logistics Co., Ltd. Equity method 2,000.00 3,428.85 -143.00 3,285.85 Bank of Jiangsu Co., Ltd. Cost method 1,100.00 1,210.00 1,210.00 (Malaysia) Midaqi Little Swan Industry Co., Ltd Cost method 4,224.74 4,224.74 4,224.74 Jingzhou City Commercial Bank Co., Ltd. Cost method 5,000.00 5,000.00 5,000.00 Inner Mongolia Baotou Department Store Co., Ltd. Cost method 50.00 50.00 50.00 Suzhou People’s Department Store Cost method 150.00 150.00 150.00 Hengtai Insurance Brokers Co., Ltd. Cost method 1,000.00 1,000.00 1,000.00 PT.MIDEA PLANET INDONESIA Equity method 6,755.15 -2,130.80 -5,021.59 -7,152.39 MIDEA ELECTRIC TRADING THAILAND CO., LTD. Equity method 5,282.32 3,927.14 1,443.98 5,371.12 Misr Refrigeration And Air Conditioning Manufacturing Co. Equity method 380,880.56 365,198.99 6,939.33 372,138.32 Total 1,063,629.09 1,052,479.03 36,599.32 1,089,078.35

124 Financial Report

(Continued)

Percentage of Percentage Explanation of the inconsis- Amount of Cash Provision for Name of invested party shareholding of voting tency of shareholding and impairment provi- dividends for impairment (%) right(%) voting right in the investee sion for the period the year Midea Group Finance Co., Ltd. 40.00 40.00 16,603.42 Golden Engle Asset Management Co., Ltd 20.00 20.00 Malaysia Joint Venture(SEE) 51.00 51.00 Guangzhou Attend Logistics Co., Ltd. 20.00 20.00 Bank of Jiangsu Co., Ltd. 246.81 (Malaysia) Midaqi Little Swan Industry Co., Ltd 4,224.74 Jingzhou City Commercial Bank Co., Ltd. Inner Mongolia Baotou Department Store Co., Ltd. Suzhou People’s Department Store 40.00 Hengtai Insurance Brokers Co., Ltd 55.00 PT.MIDEA PLANET INDONESIA 51.00 51.00 MIDEA ELECTRIC TRADING THAILAND CO., LTD. 49.00 49.00 Misr Refrigeration And Air Conditioning Manufacturing Co. 32.50 32.50 22,498.05 Total 4,224.74 39,443.28

12. Investment real estates

Amount at the Increase during Decrease during Amount at the Item beginning of the period the period the period end of the period 1) Subtotal of original book value 695,334.52 92,788.77 602,545.75 Buildings 604,280.00 84,723.29 519,556.71 Land use right 91,054.52 8,065.48 82,989.04 2) Subtotal of accumulated depreciation and amortization 220,620.58 29,103.15 9,847.44 239,876.29 Buildings 200,846.58 27,902.37 9,658.19 219,090.76 Land use right 19,774.00 1,200.78 189.25 20,785.53 3) Subtotal of net book value 474,713.94 362,669.46 Buildings 403,433.42 300,465.95 Land use right 71,280.52 62,203.51 4) Subtotal of accumulated amount of impairment provision Buildings Land use right 5) Total carrying value 474,713.94 362,669.46 Buildings 403,433.42 300,465.95 Land use right 71,280.52 62,203.51

Depreciation and amortization provided for the year amounted to RMB 29,103,150.

125 Financial Report

13. Fixed assets (1)Breakdown

Amount at the Decrease Amount at the Inrease during Item beginning during end of the period of the period the period the period 1) Subtotal of original book value 15,334,254.33 3,394,864.99 598,977.39 18,130,141.93 Buildings 5,895,796.87 1,376,278.97 118,790.99 7,153,284.85 Machinery and equipment 7,945,548.27 1,740,086.87 323,766.50 9,361,868.64 Transport equipment 197,004.58 40,995.07 16,128.29 221,871.36 Electronic equipment and others 1,295,904.61 237,504.08 140,291.61 1,393,117.08 Transfer into Provision made during the period during the period 2) Subtotal of accumulated depreciation 4,593,933.31 1,340,239.18 347,567.89 5,586,604.60 Buildings 1,104,410.13 321,735.72 45,598.11 1,380,547.74 Machinery and equipment 2,779,519.69 721,528.37 249,778.92 3,251,269.14 Transport equipment 89,631.65 33,736.52 13,581.26 109,786.91 Electronic equipment and others 620,371.84 263,238.57 38,609.60 845,000.81 3) Subtotal of net book value 10,740,321.02 12,543,537.33 Buildings 4,791,386.74 5,772,737.11 Machinery and equipment 5,166,028.58 6,110,599.50 Transport equipment 107,372.93 112,084.45 Electronic equipment and others 675,532.77 548,116.27 4) Subtotal of impairment provision 25,494.56 16,313.34 Buildings 11,583.17 15,098.71 Machinery and equipment 10,796.50 776.59 Transport equipment 376.40 24.35 Electronic equipment and others 2,738.49 413.69 5) Total carrying value 10,714,826.46 12,527,223.99 Buildings 4,779,803.57 5,757,638.40 Machinery and equipment 5,155,232.08 6,109,822.91 Transport equipment 106,996.53 112,060.10 Electronic equipment and others 672,794.28 547,702.58

Depreciation for the year amounted to RMB 1,340,239,180 Original price of construction in progress transferred into fixed assets for the year was RMB 2,272,920,630.

126 Financial Report

(2) Particulars of fixed assets without obtaining property right certificates

Expected time for the completion Project Reason of the certificate of ownership Hefei Hi-tech Zone Meizhi Industrial Park,Nos. Submitted documents to the relevant 2013 2-4 Shift Building government authorities, and being processed Hefei Hi-tech Zone, Meizhi Industrial Park, Production Submitted documents to the relevant 2013 Workshop, Workshops 3-5 government authorities, and being processed Submitted documents to the relevant Plants Nos. 9-11 Beijiao Zhen Mei Fifth Industrial Park 2013 government authorities, and being processed Plants Nos 3-6, Shift Buildings Nos. 4-7 , Hefei Midea Submitted documents to the relevant 2013 Heating & Ventilation Equipment Co., Ltd. Hefei Base government authorities, and being processed

14. Construction in progress (1) Breakdown

Amount at the end of the period Amount at the beginning of the period Project Provision for Provision for Book balance Book value Book balance Book value impairment impairment Refrigeration R&D Building 138,701.34 138,701.34 Meizhi Compressor Project 25,199.65 25,199.65 16,305.82 16,305.82 Expansion project of Hefei Hualing Refrigerator 2,855.00 2,855.00 2,877.80 2,877.80 Compressor (Anhui) Project 136,187.78 136,187.78 779,705.51 779,705.51 Residential air-conditioner (Wuhu) project 102,301.72 102,301.72 Residential air-conditioner (Nansha) project 333,696.73 333,696.73 Central AC (Hefei) project 1,036.80 1,036.80 165,611.91 165,611.91 Refrigerator (Jingzhou) project 6,419.80 6,419.80 Expansion project of Handan Airconditioner 2,472.00 2,472.00 140,331.55 140,331.55 Residential air-conditioner (Chongqing) project 316,537.63 316,537.63 166,158.45 166,158.45 Other projects 331,321.98 5,533.29 325,788.69 221,472.43 221,472.43 Total 815,610.84 5,533.29 810,077.55 2,073,583.06 2,073,583.06

(2) Quantity change of major projects in progress

Amount at the Increase during Amount transferred Other Engineering investment Project beginning of the period the period into fixed assets decrease as a cost of the budget(%) Refrigeration R&D Building 138,701.34 22,720.42 161,421.76 100.00 Meizhi Compressor Project 16,305.82 133,276.88 124,383.05 61.49 xpansion project of Hefei Hualing Refrigerator 2,877.80 3,434.20 3,457.00 100.00 Compressor (Anhui) Project 779,705.51 142,357.41 785,875.14 63.94 Residential air-conditioner (Wuhu) project 102,301.72 19,025.37 121,327.09 75.68 Residential air-conditioner (Nansha) project 333,696.73 49,026.13 382,722.86 87.58 Central AC (Hefei) project 165,611.91 167,473.74 332,048.85 99.92

127 Financial Report

(Continued)

Amount at the Increase during Amount transferred Other Engineering investment Project beginning of the period the period into fixed assets decrease as a cost of the budget(%) Refrigerator (Jingzhou) project 6,419.80 2,301.50 8,721.30 100.00 Expansion project of Handan Airconditioner 140,331.55 4,858.97 142,718.52 46.44 Residential air-conditioner (Chongqing) project 166,158.45 150,379.18 92.00 Other projects 221,472.43 320,094.61 210,245.06 Total 2,073,583.06 1,014,948.41 2,272,920.63

(Continued)

Accumulated Amount of inte- Annual interest rate Amount at Project amount of interest capitalized for the interest capita- Source of funds the end of rest capitalized for the period lized for the period (%) the period Refrigeration R&D Building Self-financing Meizhi Compressor Project Self-financing and raised funds 25,199.65 Expansion project of Hefei Hualing Refrigerator Self-financing 2,855.00 Compressor (Anhui) Project Self-financing 136,187.78 Residential air-conditioner (Wuhu) project Self-financing and raised funds Residential air-conditioner (Nansha) project Self-financing and raised funds Central AC (Hefei) project 4,910.00 37.59 6.10 Self-financing and raised funds 1,036.80 Refrigerator (Jingzhou) project Self-financing and raised funds Expansion project of Handan Airconditioner Self-financing 2,472.00 Residential air-conditioner (Chongqing) project Self-financing 316,537.63 Other projects Self-financing 331,321.98 Total 4,910.00 37.59 815,610.84

(3) Impairment provision forconstruction in progress

Amount at the Increase during Decrease during Amount at the Name of project Reason for the provision beginning of the period the period the period end of the period

The land and the buildings thereon had been Other projects 5,533.29 5,533.29 returned to the local government at the original land premium sebsequent to the balance sheet date.

Subtotal 5,533.29 5,533.29

128 Financial Report

15. Intangible assets

Amount at the Increase during the Decrease Amount at the Item beginning of the period period during the period end of the period 1)Subtotal of the original book value 2,080,824.16 136,845.47 11,067.90 2,206,601.73 Land use right 1,949,119.99 104,895.15 6,049.41 2,047,965.73 Non-patented technologies 129,957.84 30,209.20 5,018.49 155,148.55 Others 1,746.33 1,741.12 3,487.45 2)Subtotal of accumulated amortization 270,628.50 67,920.16 5,478.46 333,070.20 Land use right 179,920.94 59,082.21 1,593.73 237,409.42 Non-patented technologies 89,532.72 8,583.29 3,884.73 94,231.28 Others 1,174.84 254.66 1,429.50 3)Subtotal of net book value 1,810,195.66 68,925.31 5,589.44 1,873,531.53 Land use right 1,769,199.05 45,812.94 4,455.68 1,810,556.31 Non-patented technologies 40,425.12 21,625.91 1,133.76 60,917.27 Others 571.49 1,486.46 2,057.95 4)Subtotal of impairment provision 466.43 466.43 Land use right 466.43 466.43 Non-patented technologies Others 5)Total book value 1,810,195.66 68,458.88 5,589.44 1,873,065.10 Land use right 1,769,199.05 45,346.51 4,455.68 1,810,089.88 Non-patented technologies 40,425.12 21,625.91 1,133.76 60,917.27 Others 571.49 1,486.46 2,057.95

Amortization for the year amounted to RMB 67,920,160.

16. Goodwill (1) Change in goodwill

Amount at the Increase Decrease Amount at Provision for Name of investee company beginning of during the during the the end of impairment at the the period period period the period end of the period Wuhu Lexiang Electrical Appliance Company Limited 4,817.20 4,817.20 Guangdong Meizhi Refrigeration Equipment Co., Ltd. 13,732.33 13,732.33 Guangdong Midea Huwu Refrigeration Equipment Co., Ltd. 46,787.54 46,787.54 Guangdong Midea Refrigeration Equipment Co., Ltd. 11,436.08 11,436.08 Midea Group Wuhu Refrigeration Equipment Co, Ltd. 10,160.73 10,160.73 Guangdong Midea Commercial Air Conditioning Equipment Co., Ltd. 4,107.14 4,107.14 Hefei Midea Royalstar Refrigerator Co,.Ltd. 5,259.68 5,259.68 Hefei Royalstar and Midea Electric Appliance Marketing Co., Ltd. 7,710.02 7,710.02

129 Financial Report

(Continued)

Amount at the Increase Decrease Amount at Provision for Name of investee company beginning of during the during the the end of impairment at the the period period period the period end of the period Hefei Royalstar Washing Machine Manufacture Co., Ltd. 34,373.76 34,373.76 Chongqing Midea General Refrigeration Equipment Co., Ltd 8,210.30 8,210.30 Wuxi Little Swan Company Limited 1,326,932.45 1,326,932.45 Midea Carrier Latin America Company 1,037,366.70 1,037,366.70

Total 2,510,893.93 2,510,893.93

(2) Impairment test method and impairment provision on goodwill The Company assesses the recoverable amount of the assets or a group of assets of the subsidiaries producing goodwill and engages independent and professional institution to assess significant goodwill to determine whether it is impaired. After calculation, the assets or a group of assets to which the carrying amounts of the above goodwill correspond did not impair and no impairment provision should be made.

17. Long-term deferred expenses

Amount at the Increase during Amortization Other Amount at the Item beginning of the period the period during the period decrease end of the period Mould expenses 273,418.58 155,271.30 182,081.48 13,268.64 233,339.76 Technology access fees 7,653.25 3,237.14 4,416.11 IT expenses 57,250.33 57,941.63 38,549.75 76,642.21 The improvement expenditure 4,115.55 192.45 2,002.13 2,305.87 for the assets under operating lease Others 102,101.36 115,061.76 92,550.22 33,819.94 90,792.96 Total 444,539.07 328,467.14 318,420.72 47,088.58 407,496.91

18. Deferred income tax assets and deferred income tax liabilities (1) Recognized deferred income tax assets and deferred income tax liabilities

Item Amount at the end of the period Amount at the beginning of the period Deferred income tax Loss to be made up 174,231.72 179,632.61 Asset impairment loss 53,805.96 111,105.01 Employee remuneration and laid-off fees 88,734.25 86,706.15 Deferred income 14,027.61 Estimated liabilities 3,691.68 3,022.90 Accrued expenses 337,757.22 211,359.20 Internal unrealized profit 36,352.20 34,852.11

130 Financial Report

(Continued)

Item Amount at the end of the period Amount at the beginning of the period Changes in fair value 155.16 Others 1,317.45 4,356.97 Total 710,073.25 631,034.95 Deferred income tax liabilities Changes in fair value 33,392.17 33,415.24 Total 33,392.17 33,415.24

(2) The breakdown of tax payable differences and deductible differences

Item Amount at the end of the period Amount at the beginning of the period Deductible temporary differences Loss to be made up 786,750.72 713,333.17 Provision for asset impairment loss 350,405.31 508,252.21

Employee remuneration and laid-off fees 557,315.78 497,364.26

Deferred income 61,810.74 Estimated liabilities 24,611.19 20,152.64 Accrued expenses 1,744,288.41 1,228,560.50 Internal unrealized profit 225,300.08 186,493.86 Changes in fair value 1,009.23 Others 8,782.96 21,948.56 Total 3,760,274.42 3,176,105.20 Taxable temporary differences Changes in fair value 224,744.48 265,103.10 Total 224,744.48 265,103.10

19. Provision for asset impairment

Amount at the Provision for impairment Decrease for the period Amount at the Item beginning of the period during the period Reversal Written-off end of the perid Provisioin for bad debts 453,879.68 85,757.76 62,618.26 1,580.31 475,438.87 Provision for inentories price falling 48,830.27 29,529.85 13,763.52 64,596.60 Provision for impairment of long-term equity investment 4,224.74 4,224.74 Provision for impairment of intangible assets 466.43 466.43 Provision for impairment of construction in progress 5,533.29 5,533.29 Provision for impairment of fixed assets 25,494.56 9,181.22 16,313.34 Total 532,429.25 121,287.33 62,618.26 24,525.05 566,573.27

131 Financial Report

20. Short-term borrowings

Item Amount at the end of the period Amount at the beginning of the period Credit loans 80,988.98 604,897.89 Pledged loans 1,169,751.78 6,961.49 Guaranteed loans 1,060,457.84 1,625,604.78 Trade finance 914,201.42 976,226.36 Total 3,225,400.02 3,213,690.52

21. Trading financial liabilities

Item Amount at the end of the period Amount at the beginning of the period Derivative financial instrument 13,608.96 3,425.96 Total 13,608.96 3,425.96

22. Notes payable

Type Amount at the end of the period Amount at the beginning of the period Banker’s acceptance bill 5,232,241.53 6,486,738.64 Commercial acceptance bill 170,000.00 Total 5,402,241.53 6,486,738.64

Amount to be due in the next accounting period amounted to RMB 5,402,241,530.

23. Accounts payable (1) Aging analysis

Item Amount at the end of the period Amount at the beginning of the period Less than 1 year 10,325,484.58 11,511,885.20 1-2 years 528,039.74 740,826.86 2-3 years 298,022.72 21,150.54 3-5 years 46,090.85 24,989.83 Total 11,197,637.89 12,298,852.43

132 Financial Report

(2) Accounts payable due to any shareholders holding over 5% (5% inclusive) voting rights of the Company’s shares

Amount at the end Amount at the beginning Name of company of the period of the period Zhongshan Midea Environment Electrical Engineering 1,572.97 1,350.47 Installation Services Co., Ltd. Foshan Midea Domestic Electric Co., Ltd. 4,591.26 Wuhu Welling Motor Sales Co., Ltd. 312,195.10 Wuhu Midea Material Supply Co., Ltd. 1,351.66 Wuhu Century Science & Technology Development Co., Ltd. 11,581.97 15,975.80 Welling (Wuhu) Motor Manufacturing Co., Ltd. 659.71 89,000.66 Huaian Welling Motor Manufacturing Co., Ltd. 40,022.97 66,518.90 Guangdong Ganey Precision Machinery Co., Ltd. 1,186.69 358.88 Guangdong Welling Motor Manufacturing Co., Ltd. 1.58 251,153.97 Guangdong Midea Environment Appliances Manufacturing Co., Ltd. 474.53 273.00 Foshan Welling Electronic and Electric Appliances Co., Ltd 417.83 8,837.66 Guangdong Midea Microwave Electric Manufacturing Co., Ltd. 1,033.54 Foshan Shunde Century Tongchuang Plastic Industry Co., Ltd. 50,686.08 8,821.05 Foshan Shunde Century Technology Co., Ltd. 17,688.97 3,286.16 Foshan Jimei Detection Technology Co., Ltd. 9.39 Annto Logistics Company Limited 784.91 681.60 GD Midea Kitchen Electric Manufacturing Co., Ltd. 6,129.96 Ningbo Ande Logistics Co., Ltd 331.94 Guangdong Weiji Electric Material Co., Ltd 54,602.10 4,695.81 Hefei Huitong New Materials Co., Ltd. 6,884.50 2,061.10 Hefei Century Plastic Mold Science and Technology Co., Ltd. 17,208.29 23,474.77 Shanxi Huaxiang Group Co., Ltd. 8,259.30 Shanxi Huaxiang Tongchuang Casting Co., Ltd. 28,284.98 Foshan Shunde Yuanrong New Materials Co., Ltd. 1,710.82 Subtotal 556,949.83 487,211.05

(3) Explanation on significant trade payables aged over 1 year Trade payables aged over 1 year totaled RMB 383,441,200, which was mainly due to such not yet settleted amount for equipment and loan.

133 Financial Report

24. Accounts received in advance (1) Breakdown

Item Amount at the end of the period Amount at the beginning of the period Loans 2,476,908.69 4,760,174.91 Total 2,476,908.69 4,760,174.91

(2) No amounts due from shareholders holding 5% (inclusive) or more of the shares conferring voting rights in the Company

25. Wages payable (1) Breakdown

Amount at the Increase Decrease Amount at Item beginning of during the during the the end of the period period period the period Wages, bonus, allowance and subsidy 557,334.49 3,241,414.34 3,139,377.60 659,371.23 Employee welfare 5,119.53 289,334.23 254,809.14 39,644.62 Social insurance cost 12,627.19 457,178.90 429,842.25 39,963.84 Of which: Medical insurance cost 3,395.29 207,887.51 193,011.27 18,271.53 Basic endowment insurance cost 8,123.70 221,661.79 209,797.12 19,988.37 Unemployment insurance cost 626.58 12,937.17 12,765.32 798.43 Employment injury insurance cost 179.53 10,134.01 9,799.26 514.28 Birth insurance cost 302.09 4,558.42 4,469.28 391.23 Housing providend fund 6,155.94 73,578.70 72,862.98 6,871.66 Labor union expenditures and employee education expenses 17,090.88 9,501.65 10,176.35 16,416.18 Compensation for cancellation of labor relationship with employees 109,388.10 18,040.13 30,288.12 97,140.11 Others 3,346.69 3,346.69 Total 707,716.13 4,092,394.64 3,940,703.13 859,407.64

As at the reporting date, all wages payable provided at the end Reporting Period has been delivered.

26. Taxes payable (1)Breakdown

Item Amount at the end of the period Amount at the beginning of the period Value-added tax 135,462.81 24,693.56 Business tax 31,864.90 18,043.93 Enterprise income tax 373,833.12 580,841.19 Urban maintenance and construction tax 5,395.09 9,070.27 Property tax 7,602.02 8,234.99 Land use tax payable 1,502.70 6,855.41 Individual income tax 10,619.99 4,284.31 Education surcharge 3,458.70 6,134.65 Others 14,536.51 689.72 Total 584,275.84 658,848.03

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(2) Reclassification of negative taxes payable

Amount reclassified Amount reclassified Item particulars for the period for the same period last year Value-added tax 1,373,796.41 2,160,852.37 Enterprise income tax 55,708.95 53,912.79 Subtotal 1,429,505.36 2,214,765.16

27. Dividends payable

Amount at the end Amount at the beginning Reason for not paying the dividends Name of Unit of the period of the period after 1 year from due date Shareholders of the subsidiaries 72,646.27 2,916.76 No Total 72,646.27 2,916.76

28. Other payables (1) Aging analysis

Item Amount at the end of period Amount at the beginning of period Within 1 year 467,284.95 635,017.52 1-2 years 76,405.75 56,300.57 2-3 years 18,426.41 13,444.61 3-5 years 10,097.07 6,381.26 Total 572,214.18 711,143.96

(2) Amounts due from shareholders holding 5% (inclusive) or more of the shares conferring voting rights in the Company and particulars of other payables

Name of Unit Amount at the end of the period Amount at the beginning of the period Wuhan Midea Life Electric Manufacturing Co., Ltd. 360.00 Subtotal 360.00

(3) Explanation on significant other payables aged over 1 year Significant other payables aged over 1 year amounted to RMB 12,416,040, which was mainly due such not yet settleted temporary receipts and delinquent payment.

29. Non-current liabilities due within one year (1) Breakdown

Item Amount at the end of the period Amount at the beginning of the period Long-term borrowings due within one year 438,476.48 Total 438,476.48

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(2) Long-term borrowings due within one year

Item Amount at the end of the period Amount at the beginning of the period Guaranteed loans 438,476.48 Subtotal 438,476.48

30. Other current liabilities

Item Amount at the end of the period Amount at the beginning of the period Accrued expenses-sales promotion fees 242,444.29 497,087.87 -utilities 50,599.86 52,976.63 -sales rebates 3,357,949.31 2,560,116.59 -installation and maintenance fee 2,220,169.35 2,259,984.32 -rental 78,637.60 63,004.74 -technology royalties 122,730.86 29,102.71 -shipping expense 258,713.81 174,230.70 -others 715,032.79 381,355.63 Total 7,046,277.87 6,017,859.19

31. Long-term borrowings

Item Amount at the end of the period Amount at the beginning of the period Guaranteed loans 1,483,609.54 1,381,362.96 Total 1,483,609.54 1,381,362.96

32. Estimated liabilities

Amount at the Increase Decrease Amount at the Item beginning of the period for the year for the year end of the period Deposit for assurance of product quality 21,844.47 57,520.49 54,753.77 24,611.19 Total 21,844.47 57,520.49 54,753.77 24,611.19

33. Other Non-current liabilities

Item Amount at the end of the period Amount at the beginning of the period Deferred gains 61,810.74 9,655.43 Other 13,367.21 Total 61,810.74 23,022.64

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34. Share capital

Amount at the Amount at the Change for the period beginning of the period end of the period Item Percentage Shares converted New Percentage Quantity Others Subtotal Quantity (%) from capital reserve issue (%) I. Shares subject to trading restrictions 264,082.37 7.80 -264,082.37 -264,082.37 1. State-owned shares 2. Shares held by state-owned legal person 27,077.41 0.80 -27,077.41 -27,077.41 3. Shares held by other domestic shareholders 203,634.76 6.01 -203,634.76 -203,634.76 Of which: Shares held by domestic legal persons 203,634.76 6.01 -203,634.76 -203,634.76 Shares held by domestic natural persons 4. Shares held by foreign shareholders 33,370.20 0.99 -33,370.20 -33,370.20 Of which: Shares held by overseas legal persons 33,370.20 0.99 -33,370.20 -33,370.20 Shares held by overseas natural persons II. Shares not subject to trading restrictions 3,120,265.28 92.20 264,082.37 264,082.37 3,384,347.65 100.00 1. RMB ordinary shares 3,120,265.28 92.20 264,082.37 264,082.37 3,384,347.65 100.00 2. Domestically-listed foreign shares 3. Overseas -listed foreign shares 4.Others III. Total number of shares 3,384,347.65 100.00 3,384,347.65 100.00

35. Capital reserves (1) Breakdown

Amount at the Increase for Decrease for Amount at the Item beginning of the period the period the period end of the period Share premium 6,022,319.02 6,022,319.02 Other capital reserve 100,963.14 237,209.67 9,734.19 328,438.62 Total 6,123,282.16 237,209.67 9,734.19 6,350,757.64

(2) Explanation on the change in capital reserves On 22 November 2012, Midea Group Co., Ltd. (“Midea Group”) implemented a stock ownership plan for the core management of Midea Group and its subsidiary, through which Midea Holding CO.,Ltd in Shunde District, Foshan City, the controlling shareholder of Midea Group (“Midea Holding”), will transfer its entire property in the 99.90% equity interest in Ningbo Meisheng equity investment partnership enterprise (“Ningbo Meisheng”) to the management team who participates in the plan. Ningbo Meisheng is interested in 3% total share equity in Midea Group. The core management members of the Company participate in this stock ownership plan and the Company accured the related expense of RMB 287,000,000 in total, of which RMB 215,451,600 was included in capital reserves. Please refer to note 7 to the report for details.

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Change in fair value of hedging instruments for the period created an impact of RMB 19,657,280 and resulted in a change in the interests in subsidiary of RMB 800. The decrease in capital reserves for the period was mainly due to increase in shareholding in subsidiaries for the period.

36. Surplus reserve

Amount at the Increase for Decrease for Amount at the Item beginning of the period the period the period end of the period Statutory surplus reserve 812,640.15 204,627.92 1,017,268.07 Discretionary surplus reserve 29,018.21 29,018.21 Total 841,658.36 204,627.92 1,046,286.28

37. Retained profit

Item Amount Percentage of appropriation or distribution Undistributed profit at the end of previous period before adjustment 9,638,294.50 Adjustment of the total undistributed profit at the beginning of the period ("+" denotes increase, and" - "denotes decrease) Undistributed profit at the beginning of the period after adjustment 9,638,294.50 Plus: Net profit attributable to the owners of the parent company for the period 3,477,331.87 Less: Appropriation to statutory surplus reserve 204,627.92 10.00% Appropriation to discretionary surplus reserve Appropriation to general risk provision Appropriation to employee rewards and benefits funds 50.00 Ordinary share dividend payable 1,522,956.45 Ordinary share dividend converted into share capital Other Undistributed profits at the end of the period 11,387,992.00

(2) Notes to Consolidated Profit and Loss Statement

1. Revenue and operating costs (1) Breakdown

Item Amount for current period Amount for the same period of the previous year Operating revenue from main business 63,628,983.80 84,956,583.70 Operating revenue from other business 4,442,216.84 8,151,474.56 Operating cost 52,541,311.99 75,618,779.24

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(2) Revenue and operating costs(by product)

Amount for current period Amount for the same period of the previous year Category of product or business Revenue Cost Revenue Cost Main business Air conditioner and components 51,464,085.60 39,002,559.00 63,790,987.40 50,689,531.45 Refrigerator and components 5,950,630.13 4,925,833.19 11,405,784.83 9,190,240.39 Washing machine and components 6,214,268.07 4,730,805.74 9,759,811.47 8,069,382.95 Total 63,628,983.80 48,659,197.93 84,956,583.70 67,949,154.79

(3) Revenue and operating costs(by geographical area)

Amount for current period Amount for the same period of the previous year Region Revenue Cost Revenue Cost China 36,130,234.75 26,592,355.10 59,025,284.60 45,116,775.47 Other countries 27,498,749.05 22,066,842.83 25,931,299.10 22,832,379.32 Total 63,628,983.80 48,659,197.93 84,956,583.70 67,949,154.79

(4) Revenue from top 5 customers of the Company

Item Operating revenue Percentage of total operating revenue of the Company(%) First 3,197,674.63 4.70 Second 1,809,562.40 2.66 Third 917,770.94 1.35 Fourth 908,651.34 1.33 Fifth 847,140.64 1.23 Subtotal 7,680,799.95 11.27

2. Business taxes and surcharges

Amount for Amount for the same Calculation and Item current period period of the previous year payment standard Business tax 25,989.79 40,823.24

Urban maintenance and construction tax 141,332.42 174,375.02 See the explanation to the Education surcharge 98,592.47 127,407.42 taxes of the notes to the Others 55,714.77 9,285.98 financial statements for details Total 321,629.45 351,891.66

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3. Selling and distribution expenses

Item Amount for current period Amount for the same period of the previous year Sales expenses 6,736,386.53 8,590,884.80 Total 6,736,386.53 8,590,884.80

4. General and administrative expenses

Item Amount for current period Amount for the same period of the previous year Management expenses 3,619,391.52 3,191,097.79 Total 3,619,391.52 3,191,097.79

5. Finance expenses

Item Amount for current period Amount for the same period of the previous year Interest expenses 512,461.25 768,424.07 Less: interest income 367,582.15 192,115.23 Plus: exchange loss 80,503.86 374,640.95 Plus: others 97,357.53 100,528.49 Total 322,740.49 1,051,478.28

6. Asset impairment loss

Item Amount for current period Amount for the same period of the previous year Loss on bad debts 23,190.23 34,279.18 Loss on inventory price falling 29,098.47 651.07 Loss from impairment of construction in progress 5,533.29 Loss from impairment of intangible assets 466.43 Loss from impairment of fixed assets 7,456.99 Total 58,288.42 42,387.24

7. Gain on change in fair value

Amount for Amount for the same Item current period period of the previous year Trading financial assets -75,823.32 38,744.49 Of which: gains on change in fair value of derivative financial instruments -75,823.32 38,744.49 Total -75,823.32 38,744.49

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8. Investment income (1) Breakdown

Amount for Amount for the same Source of investment income Current Period period of the previous year Long-term equity investment income measured using equity method 72,256.04 84,902.41 Long-term equity investment income measured using cost method 341.81 55.00 Investment income obtained from disposal of long-term equity investment 300,401.56 Investment income obtained from disposal of trading financial assets 275,497.85 347,452.28 Total 348,095.70 732,811.25

(2) Income from long-term equity investments accounted for using the cost method

Amount for the Amount for the same Reason for changes Name of invested party current period period of the previous year from the previous period Bank Of Jiangsu Co.,Ltd. 246.81 Cash dividend Hengtai Insurance Brokers Co., Ltd 55.00 25.00 Cash dividend Suzhou Renmin Shopping Mall 40.00 30.00 Cash dividend Subtotal 341.81 55.00

(3) Income from long-term equity investments accounted for using the equity method

Amount for Amount for the same Name of investee company current period period of the previous year Golden Eagle Asset Management Co., Ltd -1,112.67 230.97 Midea Group Finance Co., Ltd. 50,437.90 29,711.92 Malaysia Joint Venture(SEE) -1,331.69 430.83 Midea Do Brasil AR Condicionado S.A.(Brazil) 33,421.07 PT.MIDEA PLANET INDONESIA -4,518.99 -4,521.43 MIDEA ELECTRIC TRADING THAILAND CO., LTD. 1,443.98 -611.46 Misr Refrigeration And Air Conditioning Manufacturing Co. 27,480.51 26,539.44 Attend Logistics Co., Ltd. -143.00 -298.93 Subtotal 72,256.04 84,902.41

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9. Non-operating income (1) Breakdown

Amount for Amount for the same Amount included in current Item current period period of the previous year extraordinary profit and loss Total gain from disposal of non-current assets 23,763.19 41,685.77 23,763.19 Of which: gain from disposal of fixed assets 23,763.19 41,281.52 23,763.19 Gain from disposal of intangible assets 404.25 Income from claim reimbursement 24,572.99 31,382.63 24,572.99 Income from penalties and fines 33,442.43 13,710.02 33,442.43 Government subsidies 307,730.46 533,344.84 136,220.46 Gain from debt restructuring 9,544.77 9,544.77 Other revenues 31,264.57 56,219.14 31,264.57 Total 430,318.41 676,342.40 258,808.41

(2) Breakdown of government grants

Amount for Amount for the same Item Remark current period period of the previous year Mainly comprising government subsidies obtained pursuant to Notice Financial subsidy 171,510.00 402,760.00 on the Implementation of Energy-saving Products Huimin Project (Cai Jian) [2009] No.213 issued by the Ministry of Finance and NDRC Others 136,220.46 130,584.84 Subtotal 307,730.46 533,344.84

10. Non-operating expenses

Amount for Amount for the same Amount included in current Item current period period of the previous year extraordinary profit and loss Total loss from disposal of non-current assets 23,421.86 46,405.36 23,421.86 Of which: loss from disposal of fixed assets 23,330.69 46,405.36 23,330.69 Loss from disposal of intangible assets 91.17 91.17 Donations 45,434.28 43,711.91 45,434.28 Penalties and fines expenditures 931.01 2,700.89 931.01 Other expenditures 27,909.43 45,601.55 24,127.31 Total 97,696.58 138,419.71 93,914.46

11. Income tax expenses

Amount for Amount for the same Item current period period of the previous year Current income tax calculated as per the tax law and relevant provisions 1,063,755.34 1,134,877.84 Reconciliation of deferred income tax -116,254.12 -115,318.95 Total 947,501.22 1,019,558.89

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12. Calculation of basic earnings per share and diluted earnings per share (1) Calculation of basic earnings per share

Item No. 2012 Net profit attributable to the Company's ordinary shareholders A 3,477,331.87 extraordinary profits and losses B 62,128.52 Net profit attributable to the Company's ordinary shareholders after deducting extraordinary profits and losses C=A-B 3,415,203.35 Total number of shares at the beginning of the period D 3,384,347.65 Number of shares increased due to the transfer of capital reserve into share capital or distribution of share dividends E Number of shares increased from new share issue or debt-to-equity swap F Cumulative number of months from the next month after net assets increase to the end of reporting period G Number of shares decreased due to buy-back H Cumulative number of months from the next month after net assets decrease to the end of reporting period I Number of reverse split shares for the reporting period J Number of months within the reporting period K 12 Weighted average number of outstanding ordinary shares L=D+E+F×G/K-H×I/K-J 3,384,347.65 Basic EPS M=A/L 1.03 Basic EPS after deducting extraordinary profits and losses N=C/L 1.01

(2) The calculation of diluted earnings per share is the same as the calculation of basic earnings per share.

13. Other comprehensive income

Amount for Amount for the same Item current period period of the previous year Gain (loss) arising from financial assets available for sales 2.35 -28.22 Less: Effects of income tax arising from financial assets available for sales 0.35 -4.23 Net amount carried forward from other comprehensive income in the previous period to the profit and loss of the current period Subtotal 2.00 -23.99 Shares of other comprehensive income of invested company calculated on equity basis Less: Effects of income tax arising from the shares of other comprehensive income of the invested company calculated on equity basis Net amount carried forward from other comprehensive income in the previous period to the profit and loss of the current period Subtotal Gain (loss) arising from cash flow hedging instruments 26,209.70 -16,748.78 Less: Effects of income tax arising from the cash flow hedging instruments 6,552.43 -4,186.09 Net amount carried forward from other comprehensive income in the previous period to the profit and loss of the current period Adjusted amount carried forward to initial amount recognized for hedged items

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(Continued)

Amount for Amount for the same Item current period period of the previous year Subtotal 19,657.27 -12,562.69 Conversion difference arising from foreign currency financial statements -268,209.45 19,185.47 Less: Disposal of net amount of overseas operations carried forward in the current period Subtotal -268,209.45 19,185.47 Other items Less: Effects of income tax arising from including the other items in other comprehensive income Net amount carried forward from other comprehensive income in the previous period to the profit and loss of the current period Subtotal Total -248,550.18 6,598.79

(III) Notes to Consolidated Cash Flow Statement

1. Cash received relating to other operating activities

Item Amount for current period Trademark licensing fee received 51,782.21 Property rental received 94,919.58 Government subsidies received 299,566.81 Interest income 367,582.15 Net increase/decrease of margin deposit 652,012.68 Income from claim reimbursement and penalties and fines 58,015.42 Current accounts 535,331.49 Other revenues 443,720.10 Total 2,502,930.44

2. Cash paid relating to other operating activities

Item Amount for current period Cash paid for management expenses 1,714,598.15 Cash paid for sales expenses 6,426,852.95 Current accounts 396,195.15 Other expenditures 217,696.40 Total 8,755,342.65

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3. Supplementary information on cash flow statements (1) Supplementary information on cash flow statements

Amount of Amount of the same period Supplementary Information current period of the previous year 1) Reconciliation of net profit to cash flow from operating activities: Net profit 4,128,845.23 4,551,458.79 Plus: Provision for asset impairment 58,288.42 42,387.24 Depreciation of fixed assets and investment real estate 1,369,342.33 1,177,235.37 Amortized intangible assets 67,920.16 43,183.10 Amortized long-term deferred expenses 318,420.72 205,280.42 Losses from disposal of fixed assets, intangible assets and other long-term assets -341.33 4,719.59 Losses from scrapping of fixed assets Losses from changes in fair value 75,823.32 -38,744.49 Financial expenses 289,060.14 101,668.44 Investment loss -348,095.70 -732,811.25 Decrease in deferred income tax assets -79,175.68 369,189.16 Increase in deferred income tax liabilities -6,438.12 -25,442.30 Inventory decrease 2,431,019.69 -631,522.01 Decrease in operating receivable items -2,790,378.43 -4,935,774.06 Increase in operating payable items -2,555,294.53 2,271,757.33 Others 1,347,549.06 556,331.05 Net cash flow from operating activities 4,306,545.28 2,958,916.38 2) Significant investing and financing activities that do not involve cash receipts and payments: Debts converted into capital Convertible corporate bonds due within one year Fixed assets acquired under finance lease 3) Changes in cash and cash equivalent: Cash balance at the end of the year 10,803,765.81 9,434,438.45 Less: cash balance at the beginning of the year 9,434,438.45 4,670,133.74 Plus: cash equivalent balance at the end of the year Less: cash equivalent balance at the beginning of the year Net increase in cash and cash equivalents 1,369,327.36 4,764,304.71

(2) Cash and cash equivalents composition

Items Amount at the end of the period Amount at the beginning of the period 1) Cash 10,803,765.81 9,434,438.45 Of which: Cash in treasury 4,222.18 1,467.71 Bank deposits readily available for payment 10,434,174.26 8,947,495.02 Other monetary funds readily available for payment 365,369.37 485,475.72 Deposit in the central bank available for payment Amount due from banks Call loans to banks 2) Cash equivalents Of which: Bond investment maturing within 3 months 3) Balance of cash and cash equivalents at the end of the period 10,803,765.81 9,434,438.45

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(IV) Segment reporting

1. Factors taken into consideration by the Company to determine the reporting segments and types of product and labour service under the reporting segments The Company’s reporting segments are business units offering different products and labour services. The segments are managed individually as their need for technologies and market strategies varies among each other. The Company has 4 reporting segments: air-conditioner and component segment, refrigerator and component segment, washing machine and component segment, and others segment. The air-conditioner and component segment mainly comprises production and sale of residential air-conditioners, commercial air-conditioners and their components. The refrigerator and component segment mainly comprises production and sale of refrigerator products and their components. The washing machine and component segment mainly comprises production and sale of washing machine products and their components. The others segment mainly comprises ancillary businesses such as supply of materials. 2. Information regarding profits (losses) and assets and liabilities of the respective reporting segments are listed as below:

Amount for current period Item Air-conditioner and Refrigerator and Washing machine and components components component I. Operating revenue 55,222,025.81 6,523,746.10 6,950,865.44 Of which: external trading revenue 54,910,144.85 5,913,478.14 6,924,961.46 Inter-segment trading revenue 311,880.96 610,267.96 25,903.98 II. Operating expenses 51,492,209.41 6,579,260.66 6,539,205.44 III. Operating profit (loss) 3,729,816.40 -55,514.56 411,660.00 IV. Total assets 40,338,210.27 6,877,224.01 8,529,185.86 V. Total liabilities 24,573,586.42 3,962,549.50 4,231,535.57

(Continued)

Amount for current period Item Others Offset Total I. Operating revenue 6,121,457.67 6,746,894.38 68,071,200.64 Of which: external trading revenue 322,616.19 68,071,200.64 Inter-segment trading revenue 5,798,841.48 6,746,894.38 II. Operating expenses 5,783,954.68 6,794,881.79 63,599,748.40 III. Operating profit (loss) 337,502.99 -47,987.41 4,471,452.24 IV. Total assets 22,366,438.46 17,211,459.77 60,899,598.83 V. Total liabilities 7,700,218.75 6,962,776.68 33,505,113.56

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(Continued)

Amount for the same period of the previous year Item Air-conditioner and Refrigerator and Washing machine and components components component I. Operating revenue 69,988,620.93 12,325,899.44 11,142,331.39 Of which: external trading revenue 69,645,007.87 11,809,929.22 11,098,923.09 Inter-segment trading revenue 343,613.06 515,970.22 43,408.30 II. Operating expenses 67,730,552.17 11,362,143.41 10,601,785.60 III. Operating profit (loss) 2,258,068.76 963,756.03 540,545.79 IV. Total assets 40,143,992.65 8,039,116.78 9,292,399.61 V. Total liabilities 26,161,904.04 4,348,129.79 5,278,514.59

(Continued)

Amount for the same period of the previous year Item Others Offset Total I. Operating revenue 9,734,267.55 10,083,061.05 93,108,058.26 Of which: external trading revenue 554,198.08 93,108,058.26 Inter-segment trading revenue 9,180,069.47 10,083,061.05 II. Operating expenses 9,270,515.71 10,118,477.88 88,846,519.01 III. Operating profit (loss) 463,751.84 -35,416.83 4,261,539.25 IV. Total assets 22,658,153.85 18,623,297.11 61,510,365.78 V. Total liabilities 8,393,608.19 7,861,144.77 36,321,011.84

Accounting policy for the Company’s respective operating segments is the same as the accounting policy as described in “Principal accounting policies and accounting estimates”.

3. Regional information

Amount for current period Amount for the same period of the previous year Region External trading revenue Non-current assets External trading revenue Non-current assets China 40,493,992.37 18,095,638.67 67,176,759.16 17,655,488.55 Other countries 27,577,208.27 2,191,002.07 25,931,299.10 2,052,837.40 Total 68,071,200.64 20,286,640.74 93,108,058.26 19,708,325.95

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VI. Related Party Relationship and Their Transactions

(I) Related party relationship

1. Parent company of the Company

Name of Parent Company Relationship Corporation type Place of registration Legal representative Business nature Midea Group Co., Ltd Controlling shareholder Private Foshan Shunde Fang Hongbo Investment

(Continued)

Percentage of Voting right of Ultimate Registered Organization Name of Parent Company Parent Company's the Parent Company controlling party capital code Shareholding (%) on the Company (%) of the Company Midea Group Co., Ltd 1,000,000.00 41.17 41.17 He Xiangjian 19033709-2

2. Further details on the subsidiaries are contained in Business Combination and Consolidated Financial Statements set out in the note to the financial statements.

3. Information on the joint ventures and associates of the Company

Type of Place of Legal Business Registered Percentage of Percentage of Connected Organization Name of invested party enterprise registration representative nature capital shareholding (%) voting rights(%) relationship code Midea Group Company RMB Foshan Yuan Liqun Financial 40.00 40.00 Joint venture 55912326-3 Finance Co., Ltd. Limited 1,500,000.00 Golden Engle Asset Company RMB Zhuhai Zhan Songmao Financial 20.00 20.00 Joint venture 74448348-X Management Co., Ltd Limited 100,000.00 Golden Engle Asset Chinese-foreign Sales of home Malaysia MYR12.00 51.00 51.00 Joint venture Management Co., Ltd Joint Ventures appliances Guangzhou Attend Company RMB Guangzhou Ye Weilong Logistics 20.00 20.00 Joint venture 72993557-2 Logistics Co., Ltd. Limited 10,000.00 PT.MIDEA PLANET Chinese-foreign Sales of home IDR Indonesia 51.00 51.00 Joint venture INDONESIA Joint Ventures appliances 5,508,360.00 MIDEA ELECTRIC Chinese-foreign Sales of home THB TRADING Thailand 49.00 49.00 Joint venture Joint Ventures appliances 25,050.00 THAILAND CO., LTD. Misr Refrigeration Stock Sales of home EGP And Air Conditioning Cairo 32.50 32.50 Joint venture corporation appliances 75,000.00 Manufacturing Co.

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4. Other related parties of the Company

Name of other related parties Relationship of other related parties with the Company Organization code Controlled by immediate family of ultimate controlling Guangdong Weiji Electric Material Co., Ltd. 73310489-4 shareholder of the Company Foshan Shunde Century Tongchuang Plastic Industry Co., Ltd. Controlled by controlling shareholder of the Company 79462671-7 Wuhu Century Science & Technology Development Co., Ltd Controlled by controlling shareholder of the Company 75096265-5 Foshan Shunde Century Science and Technology Development Co., Ltd. Controlled by controlling shareholder of the Company 70807868-X Guangdong Midea Environment Appliances Manufacturing Co., Ltd Controlled by controlling shareholder of the Company 75561454-5 Guangdong Midea Microwave Oven Manufacturing Co., Ltd. Controlled by controlling shareholder of the Company 72119558-1 Foshan Midea Kitchen-Bath Appliances Manufacturing Co., Ltd. Controlled by controlling shareholder of the Company 72878213-X Controlled by immediate family of ultimate controlling Hefei Century Plastic Mold Science and Technology Co., Ltd. 66293360-0 shareholder of the Company Significantly influenced by the controlling Foshan Midea Domestic Electric Co., Ltd. 19034176-1 shareholder of the Company Significantly influenced by the controlling Foshan Weishang Technology Industry Development Group Co., Ltd. 70785538-7 shareholder of the Company Guangdong Welling Motor Manufacturing Co., Ltd. Controlled by controlling shareholder of the Company 61762395-3 Welling (Wuhu) Motor Manufacturing Co., Ltd. Controlled by controlling shareholder of the Company 71396943-6 Foshan Welling Electronic and Electric Appliances Co., Ltd. Controlled by controlling shareholder of the Company 72875518-2 Foshan Weishang Technology Industry Development Group Co., Ltd. Controlled by controlling shareholder of the Company 70787084-3 Foshan Midea Daily Household Electric Appliance Group Co., Ltd. Controlled by controlling shareholder of the Company 70807992-2 Annto Logistics Company Limited Controlled by controlling shareholder of the Company 71992943-5 Midea Group Finance Co., Ltd. Controlled by controlling shareholder of the Company 55912326-3 Huaian Welling Motor Manufacturing Co., Ltd. Controlled by controlling shareholder of the Company 75968160-6 Ningbo Midea Material Supply Co., Ltd. Controlled by controlling shareholder of the Company 56128872-9 Zhongshan Midea Environmental Electrical Controlled by controlling shareholder of the Company 72383929-9 Engineering Installation Services Co. Ltd. Controlled by immediate family of ultimate controlling Infore Holding 74083083-5 shareholder of the Company Controlled by immediate family of ultimate controlling Foshan Shunde Yuanrong New Materials Co., Ltd. 69643002-4 shareholder of the Company Controlled by immediate family of ultimate controlling Hefei Huitong New Materials Co., Ltd 67759766-2 shareholder of the Company A company controlled by the controlling shareholder Guangdong Shunde Meidelong Wine Co., Ltd. 59580188-5 of the Company's Parent company controlled by the actual controller of Ningbo Kailian Industrial Development Co., Ltd. 70807909-2 the Company Controlling shareholder of the Parent company Midea Holding Co., Ltd. 74299897-3 of the Company Significantly influenced by the controlling shareholder Shanxi Huaxing Group Co., Ltd. 68380693-6 of the Company Significantly influenced by the controlling shareholder Shanxi Huaxiang Tongchuang Casting Co., Ltd. 72592614-2 of the Company Jiangsu Midea Chunhua Electric Co., Ltd. Controlled by controlling shareholder of the Company 13479435-2 Guangdong Ganey Precision Machinery Co., Ltd. Controlled by controlling shareholder of the Company 72111191-5 Foshan Shunde Rural Commercial Bank Co., Ltd. Associate of the Parent of the Company

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(II) Related party transactions

1. Related party transactions in relation to sales of goods, provision and receipt of labour service (1) Breakdown 1) Related party transactions in relation to purchase of goods and receipt of labour service

Pricing Amount for the current period Amount for the previous period policy and Percentage as the Percentage as the Related Party Transaction decision Amount amount of similar Amount amount of similar procedures transactions(%) transactions(%) Foshan Midea Domestic Electric Co., Ltd. Purchases Market price 501.23 0.00 17,412.80 0.02 Guangdong Welling Motor Manufacturing Co., Ltd. Purchases Market price 347,602.44 0.64 2,073,054.09 2.48 Welling (Wuhu) Motor Manufacturing Co., Ltd. Purchases Market price 345,356.32 0.64 1,428,424.00 1.71 Foshan Welling Electronic and Electric Appliances Co., Ltd Purchases Market price 41,923.84 0.08 82,571.38 0.10 Guangdong Weiji Electric Material Co., Ltd. Purchases Market price 484,540.54 0.90 788,634.76 0.94 Foshan Shunde Century Tongchuang Plastic Industry Co., Ltd. Purchases Market price 362,948.73 0.67 597,723.56 0.72 Wuhu Century Science & Technology Development Co., Ltd. Purchases Market price 99,113.36 0.18 281,740.69 0.34 Foshan Shunde Century Technology Co., Ltd. Purchases Market price 92,333.77 0.17 130,119.32 0.16 Ningbo Midea Material Supply Co., Ltd. Purchases Market price 21,706.73 0.04 4,412.76 0.01 Hefei Huitong New Materials Co., Ltd. Purchases Market price 122,391.05 0.23 139,640.50 0.17 Huaian Welling Motor Manufacturing Co., Ltd. Purchases Market price 363,677.04 0.67 668,615.30 0.80 Guangdong Midea Environment Appliances Manufacturing Co., Ltd. Purchases Market price 2,995.14 Hefei Century Plastic Mold Science and Technology Co., Ltd. Purchases Market price 101,548.98 0.19 201,273.37 0.23 Zhongshan Midea Environmental Electrical Engineering Acceptance Market price 5,894.62 0.01 Installation Services Co., Ltd. of services Guangdong Midea Microwave Electric Manufacturing Co., Ltd. Purchases Market price 8,218.36 0.02

(Continued)

150 Financial Report

2) Related party transactions in relation to sales of goods and provision of labour service

Amount for the current period Amount for the previous period Pricing policy Tran- Percentage as the Percentage as the Related party and decision saction Amount amount of similar Amount amount of similar procedures transactions(%) transactions(%) Foshan Midea Domestic Electric Co., Ltd. sale Market price 5,106.10 0.01 Foshan Shunde Century Tongchuang Plastic Industry Co., Ltd. sale Market price 98,827.95 0.15 222,063.16 0.24 Wuhu Century Science & Technology Development Co., Ltd. sale Market price 8,702.10 0.01 Guangdong Midea Environment Appliances Manufacturing Co., Ltd. sale Market price 2,255.40 3,257.60 Guangdong Midea Microwave Oven Manufacturing Co., Ltd. sale Market price 5,293.26 0.01 GD Midea Kitchen Electric Manufacturing Co., Ltd. sale Market price 1,383.37 Foshan Welling Electronic and Electric Appliances Co., Ltd. sale Market price 293.73 723.23 Hefei Century Plastic Mold Science and Technology Co., Ltd. sale Market price 70,082.66 0.10 142,807.30 0.15 Guangdong Welling Motor Co., Ltd. sale Market price 2,389.63 2,247.91 Huai’an Welling Motor Manufacturing Co. Ltd. sale Market price 5.43 Ningbo Midea Material Supply Co. Ltd. sale Market price 43,168.36 0.06 43,845.93 0.05 Hefei Huitong New Materials Co., Ltd. sale Market price 23,123.51 0.03 71,124.80 0.08 Wuhu Midea Kitchen and Electric Manufacturing Co., Ltd. sale Market price 1,679.70 Foshan Midea Kitchen Appliances Manufacturing Co., Ltd. sale Market price 105.35 378.57 Guangdong Midea Microwave Electric Manufacturing Co., Ltd. sale Market price 8,284.87 0.01 5,293.26 0.01 Foshan Shunde Midea Drinking Manufacturing Co., Ltd. sale Market price 34.94 120.43 Wuhu Midea Material Supply Co., Ltd. sale Market price 523.85 Total 257,792.35 0.36 505,330.05 0.55

2. Related party guarantee

Party being Amounts under Starting date of Expiry date of Whether performance of Guarantor guaranteed the guarantee the guarantee the guarantee guarantee is completed Midea Group Co., Ltd. The Company 157,188.00 2010-07-06 2013-06-14 No Midea Group Co., Ltd. The Company 167,700.00 2012-05-21 2013-06-29 No Midea Group Co., Ltd. The Company 289,540.00 2012-07-18 2013-06-14 No Midea Group Co., Ltd. The Company 486,050.00 2010-07-04 2013-07-01 No Guangdong Midea Domestic Electric The Company 96,800.00 2012-09-28 2013-03-28 No Appliances Manufacturing Co., Ltd. Midea Group Co., Ltd. The Company 1,040,110.00 2012-07-13 2013-06-14 No Midea Group Co., Ltd. The Company 147,000.00 2012-07-18 2013-01-18 No

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3. Fund placed with related party

Amount for the Amount for the Item name Related party current period previous period Deposit of monetary funds Midea Group Finance Co., Ltd. 129,841,472.12 134,736,320.55

Deposit of monetary funds Foshan Shunde Rural Commercial Bank Co., Ltd. 5,573,910.85 7,846,525.77

4. Other related party transactions

Pricing policy Amount incurred Amount incurred Name of related party Transaction and decision during the current year during the previous year procedure Midea Group Co., Ltd. and other subsidiaries of the subordinate Trademark license fee 40,284.31 54,671.80 Agreement price Midea Group Co., Ltd. and other subsidiaries of the subordinate Transportation services 494,349.77 589,627.19 Market price Midea Group Co., Ltd. and other subsidiaries of the subordinate Rental fee and other 105,135.39 104,931.90 Agreement price Foshan Midea Real Estate Development Co., Ltd. Rental fee and other 7,004.58 Agreement price Foshan Shunde District Yuanrong New Materials Co., Ltd. Rental fee and other 14,186.08 2,467.74 Agreement price Guangdong Shunde Meilongbao Wine Co., Ltd. Rental fee and other 408.41 Agreement price Ningbo Kailian Industrial Development Co., Ltd. Rental fee and other 900.77 Agreement price Midea Holding Co., Ltd. Rental fee and other 761.35 Agreement price Foshan Shunde Midea Small Credit Loan Co. Ltd. Rental fee and other 309.91 Agreement price Ifirst Investments Holding Group Rental fee and other 3,635.69 4,289.31 Agreement price

(III) Related party accounts receivables and accounts payables

1.Accounts receivables due from the related party

Amount at the Amount at the end of the period beginning of the period Item Related party Book Provision Book Provision balance for bad debts balance for bad debts Guangdong Welling Motor Manufacturing Co., Ltd. 780.74 39.04 Guangdong Midea Microwave Electric Manufacturing Co., Ltd. 1,239.81 61.99 GD Midea Environment Appliances Manufacturing Co., Ltd. 185.27 9.26

Accounts Foshan Welling Washer Motor Manufacturing Co., Ltd. 270.93 13.55 receivable Foshan Welling Electronic Appliance Co., Ltd. 99.64 4.98 Foshan Shunde Midea Drinking Machine Manufacturing Co., Ltd. 37.07 1.85 Foshan Shunde Midea Electric Appliance Manufacturing Co., Ltd. 55.47 2.77 Foshan Shunde Century Tongchuang Plastic Industry Co., Ltd. 2,832.40 141.62

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(Continued)

Amount at the Amount at the end of the period beginning of the period Item Related party Book Provision Book Provision balance for bad debts balance for bad debts Foshan Midea Kitchen Appliances Manufacturing Co., Ltd. 7.48 0.37 Jiangsu Midea Chunhua Electric Co., Ltd. 100.00 5.00 Accounts Wuhu Midea Household Appliance Sales Co., Ltd. 9,557.08 477.85 34,818.41 1,740.92 receivable Foshan Midea Clear Lake Water purification equipment 5,028.20 251.41 Manufacturing Co., Ltd Sub-total 20,094.09 1,004.69 34,918.41 1,745.92

2.Accounts receivables due to the related party

Item Related party Closing balance Opening balance Zhongshan Midea Environment Electrical Engineering 1,572.97 1,350.47 Installation Services Co. Ltd. Foshan Midea Domestic Electric Co., Ltd. 4,591.26 Wuhu Welling Motor Sales Co., Ltd. 312,195.10 Wuhu Midea Material Supply Co., Ltd. 1,351.66 Wuhu Century Science & Technology Development Co., Ltd. 11,581.97 15,975.80 Welling (Wuhu) Motor Manufacturing Co., Ltd. 659.71 89,000.66 Huaian Welling Motor Manufacturing Co., Ltd. 40,022.97 66,518.90 Guangdong Ganey Precision Machinery Co., Ltd. 1,186.69 358.88 Guangdong Welling Motor Manufacturing Co., Ltd. 1.58 251,153.97 Guangdong Midea Environment Appliances Manufacturing Co., Ltd. 474.53 273.00 Foshan Welling Electronic and Electric Appliances Co., Ltd 417.83 8,837.66 Guangdong Midea Microwave Electric Manufacturing Co., Ltd. 1,033.54 Accounts payable Foshan Shunde Century Tongchuang Plastic Industry Co., Ltd. 50,686.08 8,821.05 Foshan Shunde Century Technology Co., Ltd. 17,688.97 3,286.16 Foshan Jimei Detection Technology Co., Ltd. 9.39 Annto Logistics Company Limited 784.91 681.60 GD Midea Kitchen Electric Manufacturing Co., Ltd. 6,129.96 Ningbo Ande Logistics Co., Ltd 331.94 - Guangdong Weiqi Electric Material Co., Ltd 54,602.10 4,695.81 Hefei Huitong New Materials Co., Ltd. 6,884.50 2,061.10 Hefei Century Plastic Mold Science and Technology Co., Ltd. 17,208.29 23,474.77 Shanxi Huaxiang Group Co., Ltd. 8,259.30 Shanxi Huaxiang Tongchuang Casting Co., Ltd. 28,284.98 Foshan Shunde Yuanrong New Materials Co., Ltd. 1,710.82 Sub-total 556,949.83 487,211.05

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(Continued)

Item Related party Closing balance Opening balance WuhanMidea Life Electric Manufacturing Co., Ltd. 360.00 Other payables Sub-total 360.00

VII Share-based Payment

(1) General Situation of Share-based Payment

Total amount of the equity instrument granted by the Company for the period 287,000.00

On 22 November 2012, Midea Group Co., Ltd. (“Midea Group”) implemented a stock ownership plan for the core management of Midea Group and its subsidiary, through which Midea Holding CO.,Ltd. in Shunde District, Foshun City, the controlling shareholder of Midea Group (“Midea Holding”), will transfer its entire property in the 99.90% equity interest in Ningbo Meisheng equity investment partnership enterprise (“Ningbo Meisheng”) to the management team who participates in the plan. Ningbo Meisheng is interested in 3% total share equity in Midea Group. The core management members of the Company participate in this stock ownership plan and the Company accured the related expense of RMB 287,000,000 in total.

(II) Equity-settled share-based payments

Determination of fair values on the date of grant for equity instruments Adjusted based on market prices Determination on the best estimate of quantity of exercisable equity instruments Reasons for significant discrepancies between estimate of current and previous period Accumulated amount of equity settled share-based payments in capital reserve 287,000.00 Total expense recognized for equity settled share-based payments 287,000.00

(III)Share-based payments

Total amount of labour services as a result of the share-based payments 287,000.00 Total amount of other services as a result of the share-based payments

(IV) Remuneration of key management members The remuneration of key management members in 2011 and 2012 amounted to RMB 10,470,000 and RMB 12,600,000.

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VIII Contingencies The total amount of the tax dispute litigations that Midea Carrier Co. Ltd., a company owned as to 51% of the Compnay, involved was BRL 670 million (some of them has been continued for more than 10 years and the above amount included the principal and accrual interests). As of 31 December 2012, such related litigations were still under process. Brazilian counsel is of the view that the Company has strong chance to success in substantially all litigations. Besides, the shareholders of Midea Carrier Co., Ltd. has committed to compensate the Company depending on the judgement of the abover tax dispute litigations, the upper limit of which is approximately BRL 220 million. Saved as the contingency disclosed above, as of 31 December 2012, there was no other disclosable material contingency.

IX. Post Balance Sheet Events Profit distribuition after balance sheet date

Profit or dividend proposed to be distributed 2,030,608.59 Profit or dividend announced to be distributed upon approval 2,030,608.59

Save for the abovementioned post balance sheet events, up to 28 March 2013, the Company had no other significant post balance sheet events that should be disclosed but were not disclosed.

X. Other Material Matters

1. Material asset restructuring On 27 August 2012, the Company made “Suspension Announcement due to Proposal for Material Planning” as Midea Group Co., Ltd. was planning a material matter relating to the Company and applied for suspension. On 27 September 2012, the Company made an announcement and as such material matter represented material asset restructuring without precedent, trading in the shares of the Company will remain suspended. On 28 March 2013, the seventh session of the Board of the Company passed a series of resolutions at the 25th meeting, including “The Resolution of the Proposal of Absorption and Merger of GD Midea Holding Co., Ltd. by Midea Group Co., Ltd. through Share Swap” and “The Resolution of Entering into ‘Absorption and Merger Agreement’ with Midea Group”. Midea Group was proposed to absorb and merge Midea Electric Appliance via issuing its shares to all other shareholders of GD Midea Holding Co., Ltd. participating in share swap, other than Midea Group, as well as cash alternative providers to convert the shares of GD Midea Holding Co., Ltd. held by them, of which Midea Group would neither participate in share swap nor exercise cash alternative. Such shares will be cancelled upon the completion of this absorption and merger by share swap. Upon the completion of this absorption and merger by share swap, the legal personality of GD Midea Holding Co., Ltd. will be canceled and Midea Group will act as surviving company to take over all assets, liabilities, business, staff, contracts and other rights and obligation of GD Midea Holding Co., Ltd.

2. Compensation for the merger and acquisition of the air-conditionor business of Pursuant to rule 16 of Corporate Accounting Standard 20, Business Combination: “Where business combination occurred at the end of current period and where the fair value of identifiable assets, liabilities or contingent liabilities or the cost of business combination can only be provisionally determined, the acquirer shall make reorganization and measurement for such business combination based on the provisionally determined value. Adjustment to the provisionally recognized value within 12 months after the date of acquisition is deemed to be reorganization and measurement made on the acquisition date.”

155 Financial Report

(1) Compensation The Company commenced to acquire the air-conditionor business of Carrier in August 2011. Pursuant to the agreement, the Company finished the adjustment to the compensation for combination of air-conditionor business of Carrier in July and August 2012. In accordance with the requirements under the above accounting standard, such adjustment is deemed to be finished at the time of acquisition in 2011. Therefore, the ending balance of the year 2011 was revised.

(2) Adjusted items

Items on statements After adjustment Before adjustment Difference Goodwill 2,510,893.93 2,368,184.83 142,709.10 Other payable 711,143.96 599,639.85 111,504.11 Capital reserve 6,123,282.16 6,117,132.20 6,149.96 Foreign currency translation differences 26,772.81 27,195.94 -423.13 Minority interests 5,174,998.46 5,160,019.22 14,979.24 Investment gain 732,811.25 722,312.33 10,498.92 Undistributed profit 9,638,294.50 9,627,795.58 10,498.92

XI. Notes to Major Items on the Financial Statements of Parent Company

(I) Notes to Major Items on the Financial Statements of Parent Company

1. Accounts receivable (1) Breakdown 1) By type

Amount at the end of the period Type Book Percentage Provision Percentage balance (%) for bad debts (%) Accounts receivable with significant single amounts and provision made for bad debts for each single account receivable Accounts receivable with provision made for bad debts for combination of accounts receivable Aging combination 14,585.28 12.26 729.26 5.00 Accounts receivable within the scope of consolidated statements 104,405.24 87.74 Subtotal 118,990.52 100.00 729.26 0.61 Accounts receivable with insignificant single amounts but provision made for bad debts for each single account receivable Total 118,990.52 100.00 729.26 0.61

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(Continued)

Amount at the beginning of the period Type Book Percentage Provision Percentage balance (%) for bad debts (%) Accounts receivable with significant single amounts Accounts receivable with provision made for bad debts for combination of accounts receivable Aging combination 34,818.41 7.11 1,740.92 5.00 Accounts receivable within the scope of consolidated statements 455,168.01 92.89 Subtotal 489,986.42 100.00 1,740.92 0.36 Accounts receivable with insignificant single amounts but provision made for bad debts for each single account receivable Total 489,986.42 100.00 1,740.92 0.36

2) Accounts receivable for which provision for bad debts was made by aging analysis method

Amount at the end of the period Amount at the beginning of the period

Aging structure Book Balance Provision for Book Balanc Provision for Amount Percentage(%) bad debts Amount Percentage(%) bad debts Within 1 year 14,585.28 100.00 729.26 34,818.41 100.00 1,740.92

(2) Significant accounts receivable

Relationship with Amount at the As a percentage of the total Name of Customer Aging the Company end of the year accounts receivable (%) Hefei Midea Material Supply Co., Ltd. Related party 104,405.24 Within 1 year 87.74 Wuhu Midea Household Appliances Sales Co., Ltd. Related party 9,557.08 Within 1 year 8.03 Foshan Midea Chungho Water Purification Equipment Co.,Ltd Related party 5,028.20 Within 1 year 4.23 Subtotal 118,990.52 100.00

(3) Particulars of accounts receivables of the related parties

Relationship Book As a percentage of the balance Name of Customer with the Company balance of the accounts receivable(%) Hefei Midea Material Supply Co., Ltd. Related party 104,405.24 87.74 Wuhu Midea Household Appliances Sales Co., Ltd. Related party 9,557.08 8.03 Foshan Midea Chungho Water Purification Equipment Co.,Ltd Related party 5,028.20 4.23 Subtotal 118,990.52 100.00

157 Financial Report

2. Other receivables (1) Breakdown 1) By type

Amount at the end of the period Type Book Ratio Provisions carrying Balance (%) for bad debts value Other receivables that have significant single amount and provision for bad debts is made for a single item Other receivables for which provision of bad debts is made by combination Age combination 13,354.64 14.80 737.34 5.52 Other receivables within the scope of consolidated statements 76,894.91 85.20 Combination sub-total 90,249.55 100.00 737.34 0.82 Other receivables with insignificant single amounts for which provision is made for bad debt separately Total 90,249.55 100.00 737.34 0.82

(Continued)

Amount at the beginning of the period Type Book Ratio Provisions for carrying Balance (%) bad debts value Other receivables that have significant single amount and provision for bad debts is made for a single item Other receivables for which provision of bad debts is made by combination Age combination 6,107.26 0.41 465.99 7.63 Other receivables within the scope of consolidated statements 1,496,119.82 99.59 Combination sub-total 1,502,227.08 100.00 465.99 0.03 Other receivables with insignificant single amounts for which provision is made for bad debt separately Total 1,502,227.08 100.00 465.99 0.03

2) Other receivable for which provision for bad debts was made by aging analysis method

Amount at the end of the period Amount at the beginning of the period Ageing structure Book Balance Provisions for Book Balance Provisions for Aomunt Ratio(%) bad debts Aomunt Ratio(%) bad debts Within one year 11,994.64 89.82 599.74 4,471.42 73.21 223.56 1-2 years 1,354.00 10.14 135.40 847.45 13.88 84.75 2-3 years 4.00 0.03 1.20 788.39 12.91 157.68 3-5 years 2.00 0.01 1.00 Sub-total 13,354.64 100.00 737.34 6,107.26 100.00 465.99

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(2) Top five companies with the largest other receivables

Relationship Book As a percentage of the Nature and content Entity name Aging with the Company balance balance other receivable (%) of the amont Foshan Midea Air Conditioning Industry Holding subsidiaries 43,826.21 Within 1 year 48.56 Current accounts Investment Co., Ltd Guangdong Midea Group Wuhu Property A subsidiary of the 33,044.89 Within 1 year 36.62 Current accounts and Construction Management Co., Ltd. holding subsidiaries Zhang Guoquan Non-related parties 1,234.57 Within 1 year 1.37 Loan Zheng Minzhi Non-related parties 1,203.38 Within 1 year 1.33 Loan Shunde Xinde Fan Equipment Co., Ltd. Non-related parties 786.39 Within 1 year 0.87 Deposit Subtotal 80,095.44 88.75

(3) Particulars of other receivables of the related parties

Relationship with Book As a percentage of the Entity name the Company balance balance other receivable (%) Foshan Midea Air Conditioning Industry Investment Co., Ltd. Controlling subsidiary 43,826.21 48.56 Guangdong Midea Group Wuhu Property and Subsidiary of 33,044.89 36.62 Construction Management Co., Ltd. controlling subsidiary Midea Electric Appliances (BVI) Co., Ltd. Controlling subsidiary 23.80 0.03 Sub-total 76,894.90 85.21

3. Long-term equity investment (1) Breakdown

Amount at Increase/ Amount at Accounting investment Invested companies the beginning decrease the end method cost of the period for the year of the period Guangdong Midea Refrigeration Equipment Co., Ltd. Cost method 641,920.00 641,920.00 641,920.00 Guangdong Midea Group Wuhu Refrigeration Equipment Co, Ltd. Cost method 339,074.28 339,074.28 339,074.28 Midea Group Wuhan Refrigeration Equipment Co, Ltd. Cost method 60,508.23 60,508.23 60,508.23 Guangdong Midea Commercial Air-Conditioning Equipment Co., Ltd. Cost method 569,430.35 569,430.35 569,430.35 Guangdong Midea Heating & Ventilation Equipment Co., Ltd. Cost method 90,000.00 90,000.00 90,000.00 Guangdong Meizhi Refrigeration Equipment Co., Ltd. Cost method 89,787.77 89,787.77 89,787.77 Guangdong Meizhi Precise Manufacture Co., Ltd. Cost method 38,437.80 38,437.80 38,437.80 Hefei Royalstar Refrigerator Co., Ltd Cost method 414,685.93 414,685.93 414,685.93 Hefei Royalstar and Midea Electric Appliance Marketing Co., Ltd. Cost method 14,468.53 14,468.53 14,468.53 Hefei Royalstar Washing Machine Manufacture Co., Ltd. Cost method 68,454.80 68,454.80 68,454.80 Foshan Midea Material Supply Co., Ltd. Cost method 54,000.00 54,000.00 54,000.00

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(Continued)

Amount at Increase/ Amount at Accounting investment Invested companies the beginning decrease the end method cost of the period for the year of the period Midea Electric Investment (BVI) Limited Cost method 236,542.62 236,542.62 236,542.62 Foshan Midea Air-conditioning Industrial Investment Co., Ltd. Cost method 36,061.94 36,061.94 36,061.94 Midea Wuhu Property Construction and Management Co., Ltd. Cost method 16,000.00 16,000.00 16,000.00 Guangdong Midea Building Control Technology Co., Ltd. Cost method 16,200.00 16,200.00 16,200.00 Foshan Shunde Bowen Investment Co., Ltd. Cost method 10,000.00 10,000.00 10,000.00

Foshan Midea Carrier Refrigeration Equipment Co., Ltd. Cost method 120,000.00 120,000.00 120,000.00

Chongqing Midea General Refrigeration Equipment Co., Ltd. Cost method 31,420.56 31,420.56 31,420.56 Midea Group (Hefei) Refrigerator Co., Ltd. Cost method 16,500.00 16,500.00 16,500.00 Anhui Meizhi Refrigeration Equipment Co., Ltd Cost method 308,750.00 308,750.00 308,750.00 Hefei Hualing Co., Ltd. Cost method 88,646.33 88,646.33 88,646.33 Guangzhou Hualing Air-conditioning Equipment Co., Ltd. Cost method 136,745.27 136,745.27 136,745.27 Wuxi Little Swan Company Limited Cost method 2,469,774.73 2,440,887.05 28,887.68 2,469,774.73 Little Swan (Jingzhou) Electric Appliance Co., Ltd. Cost method 830,239.03 830,239.03 830,239.03 Hefei Midea Material Supply Co., Ltd. Cost method 117,000.00 117,000.00 117,000.00 Guangzhou Midea Hualing Refrigerator Co., Ltd. Cost method 420,000.00 420,000.00 420,000.00 Anhui Meizhi Compressor Co., Ltd. Cost method 47,500.00 47,500.00 47,500.00 Anhui Meizhi Precise Manufacture Co., Ltd. Cost method 800,000.00 800,000.00 800,000.00 Hefei Midea Heating & Ventilation Equipment Co., Ltd. Cost method 1,045,000.00 1,045,000.00 1,045,000.00 Golden Eagle Asset Management Co. Ltd. Equity method 50,000.00 37,473.04 -1,112.67 36,360.37 Midea Group Finance Co., Ltd. Equity method 600,000.00 631,092.55 35,934.48 667,027.03 Wuhu Meizhi Air-conditioning Equipment Co., Ltd. Cost method 710,000.00 710,000.00 710,000.00 Guangzhou Midea Hualing Refrigerator Co., Ltd. Cost method 330,000.00 330,000.00 149,408.58 479,408.58 Ningbo Midea Joint Material Supply Co. Ltd. Cost method 50,000.00 50,000.00 50,000.00 Anhui Meizhi Compressor Sales Co., Ltd. Cost method 95,000.00 95,000.00 95,000.00 Wuhu Little Swan Refrigeration Equipment Co., Ltd. Cost method 47,500.00 47,500.00 47,500.00 Chongqing Midea Refrigeration Equipment Co., Ltd. Cost method 47,500.00 47,500.00 47,500.00 Foshan Shunde Midea Electronic Science and Technology Co., Ltd. Cost method 9,000.00 9,000.00 9,000.00 Total 11,066,148.17 11,055,826.08 213,118.07 11,268,944.15

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(Continued)

Shareholding Voting rights Explanation of the Provision Provision for Cash Invested companies percentage percentage inconsistency of share- for impairment for dividend (%) (%) holding and voting right impairment the current year for the year Guangdong Midea Refrigeration Equipment Co., Ltd. 73.00 73.00 255,847.30 Guangdong Midea Group Wuhu Refrigeration Equipment Co., Ltd 73.00 73.00 221,066.65 Midea Group Wuhan Refrigeration Equipment Co., Ltd. 73.00 73.00 149,554.45 Guangdong Midea Commercial Air-Conditioning Equipment Co., Ltd. 73.00 73.00 11,572.08 Guangdong Midea Heating & Ventilation Equipment Co., Ltd. 90.00 90.00 440,932.22 Guangdong Meizhi Refrigeration Equipment Co., Ltd 60.00 60.00 58,610.15 Guangdong Meizhi Precise Manufacture Co., Ltd. 60.00 60.00 34,397.33 Hefei Royalstar Refrigerator Co., Ltd. 75.00 75.00 511,889.46 Hefei Royalstar and Midea Electric Appliance Marketing Co., Ltd. 75.00 75.00 Hefei Royalstar Washing Machine Manufacture Co., Ltd. 5.53 5.53 Foshan Midea Material Supply Co., Ltd. 90.00 90.00 3,891.58 Midea Electric Investment (BVI) Limited 100.00 100.00 Foshan Midea Air-conditioning Industrial Investment Co., Ltd. 100.00 100.00 Midea Wuhu Property Construction and Management Co., Ltd. 80.00 80.00 1,683.51 Guangdong Midea Building Control Technology Co., Ltd. 90.00 90.00 Foshan Shunde Bowen Investment Co., Ltd. 100.00 100.00 Foshan Midea Carrier Refrigeration Equipment Co., Ltd. 60.00 60.00 31,952.34 Chongqing Midea General Refrigeration Equipment Co., Ltd. 30.00 30.00 Midea Group (Hefei) Refrigerator Co., Ltd. 55.00 55.00 Anhui Meizhi Refrigeration Equipment Co., Ltd. 95.00 95.00 Hefei Hualing Co., Ltd. 75.00 75.00 Guangzhou Hualing Air-conditioning Equipment Co., Ltd. 90.00 90.00 Wuxi Little Swan Company Limited 35.20 35.20 44,532.31 Little Swan (Jingzhou) Electric Appliance Co., Ltd. 97.12 97.12 125,699.37 Hefei Midea Material Supply Co., Ltd 90.00 90.00 33,488.76 Guangzhou Midea Hualing Refrigerator Co., Ltd. 75.00 75.00 Anhui Meizhi Compressor Co., Ltd. 95.00 95.00 Anhui Meizhi Precise Manufacture Co., Ltd. 95.00 95.00 Hefei Midea Heating & Ventilation Equipment Co., Ltd. 98.58 98.58 Golden Eagle Asset Management Co., Ltd. 20.00 20.00 Midea Group Finance Co., Ltd 40.00 40.00 16,603.42 Wuhu Meizhi Air-conditioning Equipment Co., Ltd. 87.65 87.65 Guangzhou Midea Hualing Refrigeration Equipment Co., Ltd. 75.00 75.00

161 Financial Report

(Continued)

(II) Notes to Major Items on the Income Statements of Parent Company

1. Revenue and operating costs (1) Breakdown

Item Amount for the period Amount for the previous period Operating revenue from main business 77,764.42 2,980,024.24 Operating revenue from other business 557,689.05 725,676.75 Operating cost 169,285.74 3,025,535.61

(2) Revenue and operating costs (by industry)

Amount for the current period Amount for the previous period Item Revenue Cost Revenue Cost Other 77,764.42 74,198.42 2,980,024.24 2,878,766.65 Subtotal 77,764.42 74,198.42 2,980,024.24 2,878,766.65

(3) Revenue and operating costs(by product)

Amount for the current period Amount for the previous period Item Revenue Cost Revenue Cost Materials 77,764.42 74,198.42 2,980,024.24 2,878,766.65 Subtotal 77,764.42 74,198.42 2,980,024.24 2,878,766.65

(4) Revenue and operating costs(by geographical area)

Amounts during the period Amounts during the prior period Region Operating revenue Operating costs Operating revenue Operating costs Mainland China 77,764.42 74,198.42 2,980,024.24 2,878,766.65 Subtotal 77,764.42 74,198.42 2,980,024.24 2,878,766.65

162 Financial Report

(5) Revenue from top 5 customers of the Company

Revenue from Proportion of the main business Company name main business income of the company(%) Guangdong Midea Heating & Ventilation Equipment Co., Ltd. 26,681.57 34.31 Ningbo Midea Joint Material Supply Co., Ltd. 26,054.82 33.50 GD Midea Heating & Ventilation Equipment Co., Ltd. 12,130.72 15.60 Meizhi Refrigeration Equipment Co., Ltd., Guangdong Province 6,348.88 8.16 Hefei Midea Material Supply Co., Ltd. 2,140.53 2.75 Subtotal 73,356.52 94.32

2. Investment income (1) Breakdown

Amount for Amount for the same Item current period period of the previous year Long-term equity investment income measured using cost method: 2,134,187.27 1,734,176.50 Long-term equity investment income measured using equity method: 49,325.23 29,942.89 Total 2,183,512.50 1,764,119.39

(2) Long-term equity investment income measured using cost method

Amount for Amount for the same Reason for Name of invested party current period period of the previous year change Guangdong Meizhi Refrigeration Equipment Co., Ltd. 58,610.15 48,780.46 Cash dividend Guangdong Meizhi Precise Manufacture Co., Ltd. 34,397.33 30,679.32 Cash dividend Midea Group Wuhan Refrigeration Equipment Co., Ltd. 149,554.45 108,618.47 Cash dividend Guangdong Midea Commercial Air-conditioning Equipment Co., Ltd. 11,572.08 197,547.53 Cash dividend Guangdong Midea Refrigeration Equipment Co., Ltd. 255,847.30 236,264.76 Cash dividend Guangdong Midea Group Wuhu Refrigeration Equipment Co., Ltd. 221,066.65 180,551.21 Cash dividend Hefei Midea Material Supply Co., Ltd. 33,488.76 53,120.99 Cash dividend Hefei Royalstar Refrigerator Co., Ltd. 511,889.46 479,766.10 Cash dividend Anhui Meizhi Compressor Sales Co., Ltd 117,879.20 Cash dividend Midea Wuhu Property Construction and Management Co., Ltd. 1,683.51 1,578.99 Cash dividend Foshan Midea Material Supply Co., Ltd. 3,891.58 725.42 Cash dividend Ningbo Midea Joint Supply Co., Ltd. 91,190.56 Cash dividend Little Swan (Jingzhou) Electric Appliance Co., Ltd. 125,699.37 29,981.97 Cash dividend Wuxi Little Swan Company Limited 44,532.31 21,634.20 Cash dividend Guangdong Midea Heating & Ventilation Equipment Co., Ltd. 440,932.22 321,115.36 Cash dividend Foshan Midea Carrier Refrigeration Equipment Co., Ltd. 31,952.34 23,811.72 Cash dividend Total 2,134,187.27 1,734,176.50

163 Financial Report

(3) Long-term equity investment income measured using equity method

Amount for Amount for the same Name of invested party Reason for change current period period of the previous year Golden Eagle Asset Management Co., Ltd. -1,112.67 230.97 Equity adjustment Midea Group Finance Co., Ltd. 50,437.90 29,711.92 Equity adjustment Total 49,325.23 29,942.89

(III) Supplementary information for the cash flow statement of the parent company

Amount for Amount for the same Supplemental Information current period period of the previous year 1.Reconciliation of net profit to cash flow from operating activities Net profit 2,319,529.15 2,046,279.17 Plus: Provision for asset impairment -740.32 1,395.07 Depreciation of fixed assets and investment real estates 183,594.23 207,693.33 Amortization of intangible assets 23,146.76 5,149.26 Amortization of long-term deferred expenses 39,597.52 29,945.91 Losses arising from disposal of fixed assets, intangible assets and other long-term assets -3,297.62 Losses arising from retirement of fixed assets Losses arising from changes in fair value Financial expenses 18,245.31 Loss on investment -2,183,512.50 -1,764,119.39 Decrease in deferred income tax assets 516.17 -950.59 Increase in deferred income tax liabilities Decrease in inventories 69,382.19 785,054.83 Decrease in operating receivables -712,979.55 -3,235,270.70 Increase in operating payables 735,884.82 4,312,053.52 Others 2,013.94 317.52 Net cash flow from operating activities 476,432.42 2,402,495.62 2.Significant investment and financing activities not involving cash receipts or payments Capitalization of debts Convertible corporate bonds due within one year Fixed assets acquired under finance lease 3.Net changes in cash and cash equivalents Cash balance at the end of the period 6,172,033.00 5,722,460.10 Less: Cash balance at the beginning of the period 5,722,460.10 2,160,563.74 Plus: Balance of cash equivalents at the end of the period Less: Balance of cash equivalents at the beginning of the period Net increase in cash and cash equivalents 449,572.90 3,561,896.36

164 Financial Report

XII. Supplementary Information

(I) Extraordinary profits and losses

1. List of extraordinary profits and losses

Item Amount Profits and losses arising from disposal of non-current assets, including the portion written-off for which provision for 341.33 asset impairment loss has been made Incidental tax rebate, deduction or exemption with approval exceeding the authority or without official approval Government subsidies recognized in the current profits and losses (except those which have close relations with the Company’s 136,220.46 business and granted continuously at a certain standard amount and quantities as specified under the State’s policies) Capital appropriation fee charged from non-financial enterprises included in the current profits and losses Income arising from investment cost for acquiring subsidiaries, associated companies and joint ventures which is less than the gains arising from the fair value of the investee party’s identifiable net assets attributable to the Company when acquiring the investment Profit or loss from exchange of non-monetary assets Profits or losses from entrusted investment or assets management 71,891.66 Various provisions for asset impairment loss made by virtue of force majeure such as natural disasters Profit and loss from debt restructuring 9,544.77 Corporate restructuring expenses, such as employee relocation expenditure and merger costs -4,085.03 Profit and loss in excess of the fair value resulted from the transactions of which the transaction price is obviously unfair Current net profit of the subsidiary from the beginning of the period to the merger date arising from merger of the enterprises under the same control Profit or loss arising from the contingencies not related to the Company’s normal business operations Profits or losses from changes in fair value arising from the trading financial assets and trading financial liabilities held and investment income obtained from disposal of trading financial assets, trading financial liabilities and financial assets available 199,674.53 for sale except the effective hedging business related to the Company’s normal business operations Reversal of impairment provision for accounts receivable for which separate impairment test has been made Profits or losses obtained from external entrusted loans Profits or losses arising from changes in fair value of investment real estate for which the fair value model has been adopted for subsequent measurement Impacts on current profits and losses resulted from one-off adjustment made to current profits and losses in accordance with the requirements under taxation and accounting laws and regulations Trustee fee revenue from fiduciary operations Non-operating incomes and expenditures other than the above-mentioned items 18,787.39 Other profit or loss items that comply with the definition of extraordinary profits and losses -287,000.00 Subtotal 145,375.11 Less: Effect of corporate income tax(“-” denotes decrease) 69,440.67 Minority shareholders’ profits and losses affected (after tax) 13,805.92 Net extraordinary profits and losses attributable to owners of the parent company 62,128.52

165 Financial Report

(II) Return on assets and earnings per share

1. Breakdown

Weighted Earnings per share Profit for the reporting period average ROE Basic EPS Diluted EPS Net profit attributable to the Company's ordinary shareholders 16.73% 1.03 1.03 Net profit attributable to the Company's ordinary shareholders 16.43% 1.01 1.01 after deducting extraordinary profits and losses

2. Calculation of weighted average return on net assets

Amount for the Item No. current period Net profit attributable to the Company's ordinary shareholders A 3,477,331.87 Extraordinary profits and losses B 62,128.52 Net profit attributable to the Company's ordinary shareholders after deducting extraordinary profits and losses C=A-B 3,415,203.35 Opening net assets attributable to the Company's ordinary shareholders D 20,014,355.48 Net assets attributable to ordinary shareholders of the Company increase upon issue of new shares or debt to equity swap E Cumulative number of months from the next month after net assets increase to the end of reporting period F Net assets attributable to ordinary shareholders of the Company decrease throughRepurchase or cash dividend G 1,522,956.45 Cumulative number of months from the next month after net assets decrease to the end of reporting period H 8 Weighted average number of changes of the net assets attributable to ordinary shareholders of the parent company I 96,666.71 Cumulative number of months since the next month after net assets increase/decrease to the end of reporting period J 6 Number of months within the reporting period K 12 Weighted average net assets L= D+A/2+ E×F/J-G×H/J+I×J/K 20,786,050.47 Weighted average ROE M=A/L 16.73% Weighted average ROE after deducting extraordinary profits and losses N=C/L 16.43%

166 Financial Report

(III) Abnormality of major items on financial statements of the Company and the reasons

Amount at the Amount at the Extent of Balance sheet items Reasons for the change end of the period beginning of the period change(%) Trading financial assets 117,335.89 181,817.29 -35.46 Some forward foreign exchange contracts expired and closed Notes receivable 9,716,022.54 7,359,470.33 32.02 Due to more use of notes for settlement and less notes discounted. Due to the decrease in procurement and the delcine in the Prepayments 820,610.91 1,968,420.27 -58.31 prepayments for fixed assets Other receivables 399,695.90 607,743.60 -34.23 Due to collection of current accounts Due to the Company's operation transformation and the Inventories 9,916,653.21 12,363,439.23 -19.79 acceleration in inventories turnover Due to the conversion to fixed assets from the construction in Construction in progress 810,077.55 2,073,583.06 -60.93 progress Account received in Due to the Company's operation transformation, the decline in the 2,476,908.69 4,760,174.91 -47.97 advance scale of sales and the decrease in the account received in advance

Amount for Amount for the same Extent of Profit and loss statement items Reasons for the change current period period of the previous year change(%) Total operating revenue 68,071,200.64 93,108,058.26 -26.89 Due to the Company's operation transformation Total operating costs 63,599,748.40 88,846,519.01 -28.42 Due to the Company's operation transformation Revenue from other businesses 4,442,216.84 8,151,474.56 -45.5 Due to the Company's operation transformation Other businesses cost 3,882,114.06 7,669,624.45 -49.38 Due to the Company's operation transformation The decrease in notes discounted interest and the delcine in the Financial expenses 322,740.49 1,051,478.28 -69.31 exchange loss Asset impairment losses 58,288.42 42,387.24 37.51 Due to the increase in the provision for inventories prices falling Due to the closing of some of the expired forward foreign exchange Income from change -75,823.32 38,744.49 -295.7 contracts in the previous year and the conversion of the profit and of fair value loss from the change in fair value to the investnment income Due to the sales of some of the long-term equity investment in the Investment income 348,095.70 732,811.25 -52.5 previous year Due to the subsidies of the Huimin Project and the change in Non-operating income 430,318.41 676,342.40 -36.38 accounting method.

167 Chapter 10 List of Documents Available for Inspection

(I)The original of the Annual Report 2012 of GD Midea Holding Co., Ltd. bearing the personal signature of the legal representative of the Company;

(II)The financial statements bearing the signature of the legal representative, person in charge of finance, accounting officer of the Company and sealed;

(III)The original of the audit report bearing the seal of the accountant firm and the personal signatures of the certified public accountants;

(IV)The originals of all the documents of the Company publicly disclosed in the designated newspapers for information disclosure and originals of the announcements of the Company during the Reporting Period;

(V)The electronic version of the Annual Report 2012 of the Company released on http://www.cninfo.com.cn.

GD Midea Holding Co., Ltd. Legal representative: Fang Hongbo 28 March 2013

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