CHINA VANKE CO., LTD.* (a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock code: 2202) ANNUAL REPORT 2018 *For identification purpose only Important Notice: 1. The Board, the Supervisory Committee and the Directors, members of the Supervisory Committee and senior management of the Company warrant that in respect of the information contained in 2018 Annual Report (the “Report”, or “Annual Report”), there are no misrepresentations, misleading statements or material omission, and individually and collectively accept full responsibility for the authenticity, accuracy and completeness of the information contained in the Report. 2. The Report has been approved by the 18th meeting of the 18th session of the Board (the “Meeting”) convened on 25 March 2019. Mr. LIN Maode, vice chairman of the Board and a non-executive director, did not attend the Meeting due to business engagement, and had authorized Mr. CHEN Xianjun, a non-executive director, to attend the Meeting and execute voting rights on his behalf. All other directors attended the Meeting in person. 3. The Company’s proposal on dividend distribution for the year of 2018: The total amount of cash dividends proposed for distribution for 2018 will be RMB11,811,892,641.07 (inclusive of tax), accounting for 34.97% of the net profit for the year attributable to equity shareholders of the Company for 2018, without any bonus shares or transfer of equity reserve to the share capital. Based on the Company’s total number of 11,039,152,001 shares at the end of 2018, a cash dividend of RMB10.7 (inclusive of tax) will be distributed for each 10 shares. If any circumstances, such as issuance of new shares, share repurchase or conversion of any convertible bonds into share capital before the record date for dividend distribution, results in the changes in our total number of shares on record date for dividend distribution, dividend per share shall be adjusted accordingly on the premise that the total dividends amount remains unchanged. The abovementioned proposed dividend will be paid to shareholders of the Company on or around 30 August 2019 after such dividend proposal being considered and approved at the annual general meeting of 2018 of the Company. 4. The financial report of the Report has been audited by KPMG, which has issued an auditor’s report with unqualified audit opinion. 5. Mr. YU Liang, Chairman of the Board, Mr. ZHU Jiusheng, President and Chief Executive Officer, and Mr. SUN Jia, Executive Vice President, Chief Financial Officer and Finance Principal declare that the financial report contained in the Report is warranted to be true, accurate and complete. 6. The Report contains forward-looking statements in relation to matters such as future plans, which do not constitute any specific undertakings to investors by the Group. Investors are advised to pay attention to investment risks. 7. The Report details principal risks faced by the Company and countermeasures thereof. Investors are advised to refer to “Section 8 Corporate Governance Report”. 8. Unless otherwise specified, the currency referred to in the Report is Renminbi. The Report has been prepared in Chinese and English respectively. In case of discrepancy, the Chinese version shall prevail, except for the financial report prepared in accordance with International Financial Reporting Standards, of which the English version shall prevail. Contents Section 1 To Shareholders 4 Section 2 Corporate Information 7 Section 3 Accounting and Financial Highlights 9 Section 4 Directors’ Report 11 Section 5 Significant Events 88 Section 6 Change in Share Capital and Information on Shareholders 101 Section 7 Directors, Members of Supervisory Committee, 111 Senior Management and Employees Section 8 Corporate Governance Report 123 Section 9 Report of Supervisory Committee 150 Section 10 Information on Corporate Bonds 154 Section 11 Financial Report 158 Section 12 Contents of Documents Available for Inspection 284 2 China Vanke Co., Ltd. Definition Term Meaning The Company China Vanke Co., Ltd. Vanke, the Group China Vanke Co., Ltd. and its subsidiaries The Board The board of directors of the Company Supervisory Committee The Supervisory Committee of the Company Vanke Service Vanke Service Development Co., Ltd. SCPG SCPG Holdings Co., Limited CSRC China Securities Regulatory Commission SZSE Shenzhen Stock Exchange SEHK The Stock Exchange of Hong Kong Limited SZMC Shenzhen Metro Group Co., Ltd. Jushenghua Shenzhen Jushenghua Co., Ltd. Foresea Life Insurance Foresea Life Insurance Co., Ltd. Company Law Company Law of the People’s Republic of China Securities Law Securities Law of the People’s Republic of China SZSE Listing Rules Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange Guidelines for Standardized Guidelines of the Shenzhen Stock Operation Exchange for Standardized Operation SEHK Listing Rules Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited Corporate Governance Code Corporate Governance Code set out in Appendix 14 of SEHK Listing Rules Articles of Association Articles of Association of China Vanke Co., Ltd. Reporting Period 1 January 2018 to 31 December 2018 RMB Renminbi, unless otherwise specified Annual Report 2018 3 Section 1 To Shareholders If we only look at the statistics, China’s property market in 2018 seems to be perfect. Indicators such as sales area, sales amount, investments, and new constructions almost hit record high. Is this really the silver age? Our answer is unambiguous: yes, this is the silver age. When we compare silver to gold, we should bear in mind that silver is also a kind of precious metal. China’s urbanisation process is still in progress, and cities’ demand for space remains enormous, whether in terms of quantity or quality. However, the era of a rapid single direction growth in the market is over, and the era of rapid expansion of the industry as a whole has come to an end. As early as over a decade ago, we were among the first to suggest the theory of “property market’s long term development is associated with demographic changes” -almost all of the long-term issues of the property market have to be understood through demographic study. From the perspective of total population, China’s “declining infant population” and “population aging” trends are indisputable. The population of post-90s is 31 million less than that of the post-80s, while post-2000s population is 41 million lower than that of post-90s. This, to a large extent, would offset the new demand arisen from the continued acceleration of urbanisation. The change in total population not only affects the demand for properties. In 2018, the growth rate of the total retail sales of consumer goods dropped to a record low. Passenger cars and certain home appliances also experienced a sharp decline in sales. The aforementioned phenomena, to some extent, corroborated the impact of demographic trends on the economy. Under this giant background, the structural spread of population could be more important than total number. With the help of new developed analytic tools, our research on the characteristic of population must achieve more precise graininess, more plump dimension and more timely track. 4 China Vanke Co., Ltd. Section 1 To Shareholders With the post-90s and even the post-2000s generations gradually becoming the mainstream in housing purchase and housing leasing, the characteristics of the diversity and variability in customer demand become more obvious. Our understanding of customer needs also needs to be more refined and agile than ever. Our organisation and team members need stronger learning ability, flexibility and efficiency. Judging from the situation of the suppliers, the acceleration in industry concentration is no longer a trend, but a fact. In 2018, the top three property developers in China, including Vanke, dominated a market share of 12.6%, more than one-eighth of the market; the top 10 developers’ market share was 26.9%, more than one-fourth of the market; the top 20, top 30, top 50 and top 100 developers’ market shares were 37.5%, 45.2%, 55.1% and 66.7% respectively. The top 100 developers dominated two-thirds of the market share, indicated the increasingly intensified competition, and the competition was mainly among the heavy-weighed players. The key to secure customers in the market is the overall abilities in all aspects of a developer. Yes, the silver age is an era of changes, a more sophisticated era, and an era of intensified competition requiring higher technical skills. This is an era presenting both risks and opportunities, and it depends on our decision and action. As for us, to deviate from the mainstream presents a risk, while riding on the tide of the era brings us opportunities; ignoring our customers presents a risk, while persisting with our commitment to quality products and quality services brings us opportunities; being speculative and opportunistic presents a risk, while dedication and earnestness brings us opportunities; conspicuousness and exaggeration presents a risk, while being honest and humble brings us opportunities; and negative and indifferent attitudes presents a risk, while progressive approach brings us opportunities. In order to support the continued growth of Vanke, transformation is inevitable. In 2018, we elevated the Company’s strategic positioning to “city and town development and service provider”. Transforming from an ancillary service provider to a daily-life service provider means that we not only need to provide hardware but also software; and not only to provide space but also content. We must place our attention on a broader horizon and extend our services addressing different aspects of our customers’ daily needs, extend and enhance capabilities based on people’s needs for a better life, and produce good products and services meet the budget and needs of customers, only that would enable us to accurately identify the “second curve” in our business for Vanke’s future.