Central China Securities AR2018 Cover 29.2mm_output.pdf 1 8/4/2019 下午7:33 C e n t r a l C 中州証 中州証券 h i n a S e Central China Securities Co., Ltd. c u r (a joint stock company incorporated in 2002 in Henan Province, the People's Republic of China with limited liability i t i under the Chinese corporate name “ 中原證券股份有限公司 ” and carrying on business in Hong Kong as “ 中州證券 ”) e s 券 （2002 年於中華人民共和國河南省成立的股份有限公司，中文公司名稱為「中原證券股份有限公司」， C 在香港以「中州證券」名義開展業務） o . Stock Code 股份代號 : 01375 , L t d . C M Y CM MY CY CMY K Annual Report 2018 年報 中州証券 年報 2018 Central China Securities Co., Ltd. Annual Report IMPORTANT NOTICE The Board and the Supervisory Committee and the Directors, Supervisors and senior management of the Company warrant the truthfulness, accuracy and completeness of contents of this report and that there is no false representation, misleading statement contained herein or material omission from this report, for which they will assume joint and several liabilities. This report has been considered and approved at the Sixth Meeting of the Sixth Session of the Board and the Fifth Meeting of the Sixth Session of the Supervisory Committee where all Directors and Supervisors attended the respective meeting. The annual financial statements for 2018 prepared by the Company in accordance with the International Financial Reporting Standards and China’s Accounting Standard for Business Enterprises have been audited by PricewaterhouseCoopers and ShineWing Certified Public Accountants (Special General Partnership), respectively with respective standard unqualified audit report issued to the Company. Mr. Jian Mingjun, head of the Company, Mr. Chang Junsheng, the person in change of accounting affairs, Mr. Li Zhaoxin, the Chief Accountant and Mr. Guo Liangyong, head of the accounting department (head of financial division) warrant that the financial statements set out in this report are true, accurate and complete. The Company’s proposed profit distribution plan for the second half of 2018 as considered and approved by the Board is not to distribute a cash dividend, nor capitalize capital reserve into share capital, which is subject to the approval of the shareholders’ general meeting of the Company. The Company has distributed an interim dividend of RMB0.10 for every 10 shares (tax inclusive) for the first half of 2018 in October 2018. The forward-looking statements in this report including future plans and development strategies do not constitute a substantive commitment to investors by the Company. Investors and related persons should understand the difference between plans, forecasts and commitments and be aware of investment risks. There was no appropriation of funds of the Company by controlling Shareholder(s) or its/their related/connected parties for non-operating purposes during the Reporting Period. The Company had made no guarantee to external parties against the stipulated decision-making process during the Reporting Period. This report has been prepared by the Company in both Chinese and English languages. In the event of any discrepancies between the English version and the Chinese version, the Chinese version shall prevail. Central China Securities Co., Ltd. Annual Report 2018 1 MATERIAL RISK ALERT The Company’s business is largely dependent on the Chinese economy and market condition as most assets of the Company are located in China and the income is mainly derived from domestic security market. The operating results of the Company and the performance of the security market are strongly correlated. The security market is relatively cyclical and volatile as it may be affected by a number of factors, including macroeconomic performance and policies, the level of market development, fluctuations in financial market and investors’ actions. In the face of intense competition in China’s securities industry, the Company’s business may be materially and adversely affected if it fails to compete effectively. The challenges from internet finance in recent years have already led to a declining commission rate of the Company’s brokerage business. The commission rates of securities brokerage business may continue to go downward, the trading volume in and the activity of the market can hardly remain at a high level continuously, and the spreads of capital-based intermediary business may further narrow down, all of which may adversely affect the Company’s profit growth. As the capital market reform continues to develop, the Company’s investment banking business will be challenging in terms of customer base expansion, pricing and ability in distribution, which may cause adverse impact on the income of the Company’s investment banking business. Besides, along with the intensified competitions in the asset management industry and deleveraging of the financial sector, the asset under management of the Company may be reduced, which may result in a negative impact on the asset management fees or performance rewards charged by the Company. Since the performance of the Company’s investment and trading business and that of domestic security market are closely related, it may be difficult for the Company to effectively defend itself from market risks in the event of extreme security market condition and inadequate hedging strategies. Against the backdrop of continuous industry innovation, the Company has been committed to providing its customers with new products and services in order to strengthen its competitive position in the industry. However, business innovation leads to new risk exposures to the Company. Moreover, the Company’s operation relies on the management and professionals. Due to keen market competition for this kind of talents, failure in attracting or retaining these talents may have adverse impact on the Company’s business. The Company manages risks according to internal risk management framework and procedures, but certain risk management measures are based on historical market data or past experience which may fail to predict future risks accurately, especially those on extreme market events lacking effectiveness. The Company has further exposure to various risks, such as failure of information technologies, which would result in adverse impact on business operation. Any force majeure may have material adverse impact on the Company’s business, financial conditions and operating results. For the risks in the Company’s operation, investors are advised to carefully read the relevant parts in Section 4 IV. “(IV) Potential risks” in this report. 2 Central China Securities Co., Ltd. Annual Report 2018 CONTENT Section 1 Definitions 4 Section 2 Company Profile and Key Financial Indicators 7 Section 3 Summary of the Company’s Business 36 Section 4 Report of the Board of Directors 39 Section 5 Significant Events 86 Section 6 Changes in Ordinary Shares and Information on Shareholders 96 Section 7 Directors, Supervisors, Senior Management and Employees 106 Section 8 Corporate Governance Report 123 Section 9 Corporate Bonds 152 Section 10 Financial Report 155 Section 11 Documents Available for Inspection 156 Section 12 Information Disclosure of Securities Company 157 Central China Securities Co., Ltd. Annual Report 2018 3 SECTION 1 DEFINITIONS In this report, unless the context otherwise requires, the following terms and expressions have the meaning set forth below: A shares domestic listed ordinary shares with a nominal value of RMB1.00 each in the share capital of the Company, which are listed and traded on the SSE Anyang Economic Development Anyang Economic Development Group Co., Ltd. (安陽經濟開發集團有限 公司) Anyang Iron & Steel Group Anyang Iron & Steel Group Co., Ltd. (安陽鋼鐵集團有限責任公司) Articles of Association the prevailing valid Articles of Association of the Company Board the board of Directors of the Company Central China Blue Ocean or CCBO Central China Blue Ocean Investment Management Company Limited (中 州藍海投資管理有限公司) Central China Futures Central China Futures Co., Ltd. (中原期貨股份有限公司) Central China International Central China International Financial Holdings Company Limited (中州國 際金融控股有限公司) Central China Micro-lending Henan Central China Micro-lending Company Limited (河南省中原小額 貸款有限公司) China Bond Insurance China Bond Insurance Co., Ltd. (中債信用增進投資股份有限公司) Company Law the Company Law of the PRC (中華人民共和國公司法) Company, Parent Company or Central Central China Securities Co., Ltd. China Securities Corporate Governance Code Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 to the Hong Kong Listing Rules CPCHPC Henan Provincial Committee of the Communist Party of China (中國共產 黨河南省委員會) CSF China Securities Finance Corporation Limited (中國證券金融股份有限公 司) CSRC the China Securities Regulatory Commission (中國證券監督管理委員會) Director(s) director(s) of the Company Domestic shares ordinary shares in issue of the Company, with a nominal value of RMB1.00 each, which are subscribed for or credited as fully paid in Renminbi 4 Central China Securities Co., Ltd. Annual Report 2018 SECTION 1 DEFINITIONS end of the Reporting Period/end of 31 December 2018 the Period Equity Exchange Co. Central China Equity Exchange Co., Ltd. (中原股權交易中心股份有限公 司) Group the Company and its subsidiaries H shares overseas listed foreign ordinary shares with a nominal value of RMB1.00 each in the share capital of the Company, which are listed and traded on the Main Board of the Hong Kong Stock Exchange Hebi Construction and Investment Hebi Construction & Investment Group Co., Ltd. (鶴壁市經濟建設投資集 團有限公司) Henan Branch of the CSRC Henan Branch of the China Securities Regulatory Commission