CONTENTS OVERVIEW OF THE COMPANY 2 FINANCIAL HIGHLIGHTS 4 CHAIRMAN’S STATEMENT 7 MANAGEMENT DISCUSSION AND ANALYSIS 9 DIRECTORS, SUPERVISORS AND SENIOR 17 MANAGEMENT REPORT OF THE DIRECTORS 23 REPORT OF THE BOARD OF SUPERVISORS 39 CORPORATE GOVERNANCE REPORT 41 INDEPENDENT AUDITORS’ REPORT 51 CONSOLIDATION BALANCE SHEET 57 BALANCE SHEET 62 CONSOLIDATION INCOME STATEMENTS 67 INCOME STATEMENTS 70 CONSOLIDATION CASH FLOW STATEMENT 73 CASH FLOW STATEMENT 76 CONSOLIDATION STATEMENTS OF CHANGES 79 IN EQUITY STATEMENTS OF CHANGES IN EQUITY 81 NOTES TO 2019 FINANCIAL STATEMENTS 83 DISCLOSURE OF SIGNIFICANT EVENTS 284 INFORMATION ON THE COMPANY 286 DOCUMENTS AVAILABLE FOR INSPECTION 288 OVERVIEW OF THE COMPANY Harbin Electric Company Limited (the “Company”), was formed through the restructuring of relevant entitles including former Harbin Electrical Machinery Works, Harbin Boiler Workers and Harbin Turbine Works (the “three major power factories”). Located in Harbin, China, the Company was incorporated on 6 October 1994 and listed on the Stock Exchange of Hong Kong Limited on 16 December 1994 with its stock code of “01133”. As at 31 December 2019, the total share capital of the Company comprised of 1,706,523,000 shares of which 675,571,000 were H shares traded on the HKSE. The Company and its subsidiaries are one of the largest manufacturers of power plant equipment in China, with a workforce of more than 15,000 current employees and power plant equipment of production capacity of 30,000 MW per annum. The Group’s principal activities and products include: • thermal power main equipment: boilers, steam turbines and steam turbine generators with single unit capacity up to 1,000 MW class, accounting for over 30% of the installed capacity of thermal power in China; • Hydro power main equipment: hydro power generators units with single unit capacity up to 1,000 MW, accounting for 50% of the installed capacity of hydro power in China; • Nuclear power main equipment: nuclear island and conventional islands equipment for nuclear power plants with single unit capacity up to 1,400 MW class; • Complete set of steam power equipment: 9F/9H class gas turbine and combined gas and steam cycle set; • Clean energy: R&D and production of products such as solar energy, tidal power and desalination; • Other products: ancillary equipment for power stations, industry boilers, industrial steam turbines, control devices, AC/ DC motors, valves for power stations, pressure vessels and axial compressor, etc.; 2 HARBIN ELECTRIC COMPANY LIMITED OVERVIEW OF THE COMPANY (CONTINUED) • Turnkey construction of power station projects; • Service for complete sets of thermal and hydro power equipment; • Import and export of equipment for power stations; • After-sales service for power station equipment products; • R&D of engineering technology for complete sets of power equipment; • R&D of power equipment and its ancillary products. • Environmental protection engineering services, such as desulfurization, denitrification and dust removal. Based on the domestic market, the Company actively adopts an “outbound” strategy, exporting its main equipment and ancillary equipment products for thermal power, hydro power and nuclear power etc. to more than 40 countries and regions such as India and Brazil. At the same time, it is engaged in the turnkey construction of thermal power stations, wind farms, hydro power station equipment and power transportation and transformation projects both in China and overseas, as well as BOT and BOO businesses. The Company brings together a pool of top talents in scientific research, technology and management, as well as a comprehensive system for quality assurance and quality control with a range of advanced production and research facilities. Its capabilities in research and development, production and manufacturing and power station construction rank the top in the power equipment manufacturing industry in China. Annual Report 2019 3 FINANCIAL HIGHLIGHTS OPERATING INCOME Year ended 31 December 2015 2016 2017 2018 2019 RMB’000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 TOTAL PROFITS Year ended 31 December 2015 2016 2017 2018 2019 RMB’000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 4 HARBIN ELECTRIC COMPANY LIMITED FINANCIAL HIGHLIGHTS (CONTINUED) SUMMARY OF RESULTS, ASSETS AND LIABILITIES OF THE PAST FIVE YEARS Year ended 31 December Unit 2019 2018 2017 2016 2015 Operating Income RMB’000 22,515,591 25,879,461 31,540,324 30,929,421 25,097,225 Total Profits RMB’000 217,143 156,854 343,366 657,169 307,860 Net profits attributable to owners of parent company RMB’000 106,173 71,317 194,227 413,283 196,212 Total assets RMB’000 55,082,667 56,541,983 64,838,093 65,867,508 64,163,245 Total Liabilities RMB’000 39,226,502 40,232,952 48,695,941 51,225,093 50,246,364 Interests of minority shareholders RMB’000 276,526 1,282,749 1,271,401 1,209,321 1,209,491 Interests attributable to owners of parent company RMB’000 15,579,639 15,026,282 14,870,751 13,433,093 12,707,391 Net assets per share RMB 9.129 8.805 8.714 9.757 9.230 Earnings per share RMB 0.062 0.042 0.141 0.300 0.143 Annual Report 2019 5 FINANCIAL HIGHLIGHTS (CONTINUED) Year ended 31 December 2019 Year ended 31 December 2018 Contribution to Contribution to Income operating income Income operating income RMB’000 RMB’000 RMB’000 RMB’000 Main thermal power equipment 8,348,147 1,480,651 11,877,253 1,670,214 Main hydro power equipment 2,682,222 413,668 1,704,635 151,307 Nuclear power 1,289,081 305,283 1,338,543 279,758 Engineering services for power stations 5,453,118 94,917 7,411,068 253,427 Ancillary equipment and supplementary products for power stations 1,188,633 162,399 899,959 90,245 AC/DC motors and other products and services 3,554,390 867,361 2,648,002 746,979 Total 22,515,591 3,324,279 25,879,461 3,191,930 Expenses not allocated to major products -3,107,137 -3,035,076 Total Profits 217,143 156,854 6 HARBIN ELECTRIC COMPANY LIMITED CHAIRMAN’S STATEMENT Dear shareholders, On behalf of the Board, I hereby present the 2019 annual result report of Harbin Electric Company Limited. In 2019 the Company overcame difficulties and faced the bitter winter of decisive battles; in this year, the Company emancipated the mind and promoted reform and innovation. In the face of the grave situation, the Company, taking the reform and innovation as its driving force, further implemented the Company's development strategy, spared no effort to push forward all key tasks and solidly advance the business development, with an aim to build a world-class equipment manufacturer with global competitiveness. The Company achieved an overall stable operation and proved results. During the Reporting Period, the Company maintained a momentum of steady growth, with profit steadily increased and product image generally improved. Turnover for the year was RMB22.516 billion; total profit was RMB217 million, representing a year-on-year increase of 38.44%. During the Reporting Period, the Company fought hard to win the three critical battles of "survival and defense, transformation and breakthrough, and reform and development” and made every effort to achieve high-quality development. We actively boosted the market development and constantly improved product quality, having ensured stable orders against unfavorable market trend; we continued our efforts in cutting costs and improving efficiency, mitigating the pressure caused by “receivable” and “inventory” and revitalize inventory assets. We improved the scientific research system and give full play to the role of science and technology in supporting our research work in various fields and in an orderly manner, and accelerated the pace of innovation-driven development. We further optimized the top-level design and built a "strategy + operation" management and control model for our corporate headquarters, the reform of institutions and personnel has been completed, and the management and control model and positioning of the Company's headquarters have been made clearer. The construction of the informatization has been carried out in an overall way, with the coverage of the system continuously expanded and the development of the informatization service enterprises continuously strengthened. We enhanced the capital operation, optimized the layout of industrial development and actively promoted energy cooperation with Russia, achieving breakthroughs in investment business. The year 2020 is a critical year for the Company to deepen reform, transform and upgrade and push forward the high-quality development. Focusing on the high-quality development and the transformation and upgrading, the Company will be committed to build itself into a world-class equipment manufacturer with global competitiveness. It will continue to fight the "Three Major Battles”, and spare no effort to pursue sustainable development so as to return shareholders with better performance. Annual Report 2019 7 CHAIRMAN’S STATEMENT (CONTINUED) 2020 is a year full of opportunities and challenges. Affected by the sudden outbreak of the COVID-19 epidemic, the downside risks to the world economy intensified and destabilizing factors and uncertainties increased significantly. Our Company is actively facing the difficulties and challenges brought about by the epidemic and maintaining an overall stable and progressive economic development, and strives to keep its production and operation in the first quarter in good condition through further optimizing its industrial structure and consolidating its key position in the equipment manufacturing industry. Currently, China's economy is recovering, and the coal power market is expected to have a small recovery growth under the strong economic stimulus. Some suspended projects may restart; small and medium-sized units may have a market; positive and steady development of hydropower will bring new development potential to pumped storage; the gas turbine market is expected to grow steadily; distributed energy is expected to grow rapidly; and new nuclear power units are expected to be approved as the country develops advanced nuclear power safely.