東風汽車集團股份有限公司 DONGFENG MOTOR GROUP COMPANY LIMITED Stock Code: 489 2016 Annual Report * For identification purposes only Contents Corporate Profile 2 Chairman’s Statement 3 Report of Directors 7 Management Discussion and Analysis 42 Profiles of Directors, Supervisors and Senior Management 51 Report of the Supervisory Committee 59 Corporate Governance Report 61 Independent Auditor’s Report 84 Consolidated Income Statement 91 Consolidated Statement of Comprehensive Income 92 Consolidated Statement of Financial Position 93 Consolidated Statement of Changes in Equity 95 Consolidated Statement of Cash Flows 97 Notes to the Financial Statements 100 Five Year Financial Summary 189 Corporate Information 191 Notice of Annual General Meeting and Relating Information 192 Definitions 208 Corporate Profile Dongfeng Peugeot Citroën Sales Co., Ltd. Dongfeng Peugeot Citroën Auto Finance Co., Ltd. Dongfeng (Wuhan) Engineering Consulting Co., Ltd. Dongfeng Motor Investment (Shanghai) Co., Ltd. Dongfeng Off-road Vehicle Co., Ltd. Dongfeng Motor Co., Ltd. Dongfeng Nissan Auto Finance Co., Ltd. China Dongfeng Motor Industry Import & Export Co., Ltd. Limited Dongfeng Motor Finance Co.,Ltd. Dongfeng Getrag Automobile Transmission Co., Ltd. Dongfeng Renault Automobile Co., Ltd. Dongfeng Liu Zhou Motor Co., Ltd. Dongvo (Hangzhou) Truck Co., Ltd. Honda Motor (China ) Investment Co.,Ltd. Motor Group Company Dongfeng Honda Auto Parts Co., Ltd. ), the predecessor of Dongfeng Motor Corporation and the parent of the the parent of Corporation and of Dongfeng Motor the predecessor ), Dongfeng Honda Engine Co., Ltd. Dongfeng Honda Automobile Co., Ltd. Dongfeng Dongfeng Peugeot Citroën Automobile Co., Ltd. Dongfeng Commercial Vehicle Co., Ltd. Dongfeng Electrical Vehicle Co., Ltd. 第二汽車製造廠 Dongfeng Special Purpose Commercial Vehicle Co., Ltd. Dongfeng Passenger Vehicle Company (Branch) Dongfeng Research & Development Centre (Branch) In 2016, the Dongfeng Motor Group commanded a market share of approximately 11.3% in terms of the total In 2016, the Dongfeng Motor Group commanded a market share of approximately 11.3% in terms of the total sales volume of domestic commercial and passenger vehicle manufacturers in the PRC, according to the statistics published by the China Association of Automobile Manufacturers. As at 31 December 2016, the Company has 21 subsidiaries, joint ventures and other companies in which the As at 31 December 2016, the Company has 21 subsidiaries, joint ventures and other companies in which the Company has direct equity interests and 2 branches. Dongfeng Motor Group is primarily engaged in the manufacture and sale of commercial vehicles, passenger vehicles and auto engines and parts, vehicle manufacturing equipment business, finance businesses as well as other automotive related businesses. The Company initially issued H shares overseas on 6 December 2005 and completed an over-allotment on 13 13 on over-allotment an completed and 2005 6 December on overseas H shares issued initially Company The December 2005. As a result, the aggregate share capital of the Company was enlarged to RMB8,616,120,000, which comprised domestic shares and H shares of RMB5,760,388,000 (approximately 66.86%) and RMB2,855,732,000 (approximately 33.14%) respectively. In 2004, the Company was transformed into a joint stock limited company after repurchasing all equity interests held by shareholders other than Dongfeng Motor Corporation. In 2000, Dongfeng Motor Corporation underwent a debt restructuring arrangement, with China Huarong Asset In 2000, Dongfeng Motor Corporation underwent a debt restructuring arrangement, with China Huarong Asset Asset Management China Orient Asset Management Corporation, Corporation, China Cinda Management Corporation, China Great Wall Asset Management Corporation and China Development Bank to jointly form the Company. The Company was incorporated on 18 May 2001. Second Automotive Works ( Second Company, was established in September 1969. Dongfeng Motor Group Company Limited 2 Chairman’s Statement Dear Shareholders, On behalf of the Board of Directors, I hereby present the annual report of the Company for 2016 for your review. In 2016, the transform and upgrade of Chinese economy, the changes in government policies and regulations on automobile industry and the high-profile cross boundary entry by intelligent network alliance have imposed significant impact on the industry. In particular, the development in new policies and regulations, new technologies, new ideas, new commercial activities and new business models, including the change in the policy of 50% reduction on purchase tax for passenger vehicles with displacement of 1.6L and below, the strict enforcement of GB1589 on commercial vehicles, the details of credits policies on CAFC and NEV becoming clear, the change in subsidies policies on new energy vehicles, and the emerging of electric vehicles, intelligent networked vehicles, networked sharing vehicles and crossover vehicles have brought about far-reaching impact on the current and future development of the automobile industry. In 2016, amidst the new economic situation and the implementation of new rules and regulations, the Chinese automobile market witnessed a record-high growth in sales volume of vehicles at 28,028,200 units, representing an increase of 13.7% as compared with the corresponding period last year. The increase rate was higher than expected at the beginning of 2016. In 2016, the Chinese automobile market had the following characteristics: 1. Market concentration rate continued to decline. The top 10 players accounted for 88.3% of the sales volume in China, 1.2% lower than the corresponding period last year. The market concentration rate followed the downtrend since 2015. 2. The commercial vehicle market was recovering, while the market share of passenger vehicles in the whole market reached a new high. The sales volume of commercial vehicles for the year was 3,651,300 units, representing an increase of 5.8% as compared with the corresponding period last year, which indicated a recovery from weakness scene in recent years; and the sales volume of passenger vehicles reached 24,376,900 units, representing an increase of 14.9% as compared with the corresponding period last year, with the market share at an all-time high of 87.0%. 3. SUVs, MPVs and small-displacement vehicles became the drivers behind the rapid growth in the passenger vehicle market. Driven by the automobile consumption policies and consumer preferences, each sub-sector of SUVs, MPVs and small-displacement vehicles experienced a high sales volume growth, with growth rate at 44.6%, 18.4% and 19.9% respectively. 4. Self-owned brands rose sharply, and the market share of joint-venture brands continued to decline. The sales volume of passenger vehicles under self-owned brands was 10,528,600 units, registering a record-high market share of 43.2%. 2016 Annual Report 3 Chairman’s Statement (Continued) 5. The new energy vehicle sector was on a more sustainable track. With the modification by Chinese authorities in subsidies policies on new energy vehicles, the growth in the sales of new energy vehicles slowed down. However, the sales volume of new energy vehicles throughout the year still reached 507 thousand units, representing an increase of 53.0% as compared with the corresponding period last year. The modification of policies is expected to set the sector on a more regulated and sustainable path. 6. The automobile market was facing an ever-changing competitive landscape. With the development of pilotless automobile and smart internet, the entry into the industry by dot-com companies and emerging commercial activities, the automobile industry was and will continue to be facing an ever-changing competitive landscape. In 2016, the sales volume of vehicles of Dongfeng Motor Group exceeded 3 million units due to our efforts on market research, focusing on customer values, targeted marketing and enhancing sales network, which marked a good start for the 13th Five-Year Period. In 2016, Dongfeng Motor Group witnessed a sales volume of approximately 3,156,800 units vehicles, representing an increase of 10.1% as compared with the corresponding period last year, with a market share of 11.3%; among which, the sales volume of passenger vehicles was approximately 2,787,700 units, representing an increase of approximately 10.6% as compared with the corresponding period last year; and the sales volume of commercial vehicles reached approximately 369,100 units, representing an increase of approximately 6.9% as compared with the corresponding period last year. In 2016, the Group recorded sales revenue of approximately RMB122,422 million, representing a decrease of approximately 3.3% as compared with the corresponding period last year. The profit attributable to shareholders was approximately RMB13,355 million, representing an increase of approximately 15.6% compared with the corresponding period last year. In 2016, the operation of Dongfeng Motor Group had the following characteristics: 1. The production and sales of vehicle rose to a new high of 3 million units. The passenger vehicles and commercial vehicles maintained rapid growth momentum throughout the year, jointly pushing the sales volume of the Company to the new high of 3 million units for the first time, making the sales volume of the Company elevate to a new level. 2. The operation quality was further promoted. Retail volume was higher than wholesale volume, inventory quantity and structure were optimized