(a joint stock limited company incorporated in the People's Republic of China with limited liability)

Stock Code: 02722

INTERIM REPORT

2020

CONTENTS

Corporate Information

2

Results Highlights

4

Chairman's Statement

5

Management's Discussion and Analysis

14

Other Information

25

Review Report

29

Consolidated Statement of Financial Position

30

Statement of Financial Position of the Company

33

Consolidated Income Statement

35

Income Statement of the Company

38

Consolidated Statement of Cash Flows

40

Cash Flows Statement of the Company

43

Consolidated Statement of Changes in Equity

45

Statement of Changes in Equity of the Company

49

Notes to the Consolidated Financial Statements

53

Supplementary Information to

  Consolidated Financial Statements

311

Corporate Information

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

DIRECTORS

Executive Directors

Mr. Zhang Fulun

  • (appointed on 26 August 2020) Ms. Chen Ping
    Mr. Yang Quan

Non-executive Directors

Mr. Huang Yong

Mr. Zhang Yongchao

Mr. Dou Bo

Mr. Wang Pengcheng

Independent Non-executive Directors

Mr. Lo Wah Wai

Mr. Ren Xiaochang

Mr. Jin Jingyu

Mr. Liu Wei

SUPERVISORS

Mr. Sun Wenguang (Chairman)

Ms. Wu Yi

Mr. Wang Haibing

Mr. Xia Hua

Mr. Li Fangzhong

COMMITTEES UNDER BOARD OF DIRECTORS

Members of the Audit and Risk Management Committee

Mr. Lo Wah Wai (Chairman)

Mr. Jin Jingyu

Mr. Liu Wei

Mr. Dou Bo

Members of the Remuneration Committee

Mr. Ren Xiaochang (Chairman)

Mr. Lo Wah Wai

Mr. Jin Jingyu

Mr. Huang Yong

Members of the Nomination Committee

Mr. Zhang Fulun (Chairman)

  • (appointed on 26 August 2020) Mr. Ren Xiaochang
    Mr. Jin Jingyu Mr. Liu Wei

Members of the Strategic Committee

Mr. Zhang Fulun (Chairman)

  • (appointed on 26 August 2020) Ms. Chen Ping
    Mr. Yang Quan Mr. Huang Yong Mr. Ren Xiaochang Mr. Jin Jingyu Mr. Liu Wei

2

Corporate Information (Continued)

Report Interim

LEGAL REPRESENTATIVE

Mr. Zhang Fulun

  • (appointed on 26 August 2020)

COMPANY SECRETARY

Ms. Chiu Hoi Shan (Practicing Solicitor)

AUDITOR

ShineWing Certified Public Accountants (Special General Partnership)

9th Floor, Block A, Fuhua Mansion, No. 8 Chaoyangmen Beidajie, Dongcheng District, Beijing, the PRC

2020

QUALIFIED ACCOUNTANT

Mr. Kam Chun Ying, Francis (Certified Public

Accountant)

AUTHORIZED REPRESENTATIVES AND CONTACT INFORMATION

Mr. Yang Quan

No. 60 Middle Section of Huangshan Avenue, Liangjiang New District, Chongqing City, the PRC

Postal code: 401123

Tel.: (86) 023-63075687

Ms. Chiu Hoi Shan

Room 1204-06, 12th Floor,

The Chinese Bank Building,

61 Des Voeux Road Central,

Central, Hong Kong

Tel.: 852-2155 4820

ALTERNATE AUTHORIZED REPRESENTATIVE AND CONTACT INFORMATION

Mr. Lo Wah Wai

33rd Floor, Shui On Centre,

No. 6-8 Harbour Road, Wanchai,

Hong Kong

Tel.: 852-2802 2191

REGISTERED OFFICE

No. 60 Middle Section of Huangshan

Avenue, Liangjiang New District,

Chongqing City, the PRC

HONG KONG SHARE

REGISTRAR

Computershare Hong Kong Investor

Services Limited

Shops 1712-1716, 17th Floor

Hopewell Centre

183 Queen's Road East

Wanchai

Hong Kong

LEGAL ADVISORS

Chiu & Co. (趙凱珊律師行) (As to Hong Kong Laws)

Beijing Zhong Lun (Chongqing) Law Firm (As to Chinese Law)

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Room 1202, 1204-06,

The Chinese Bank Building,

61 Des Voeux Road Central,

Central, Hong Kong

WEBSITE OF THE COMPANY

www.chinacqme.com

PRINCIPAL BANKER

China Merchants Bank

Chongqing Shangqingsi Sub-branch

1st Floor, Zhong-an International Building No.162 Zhongshan Third Road Yuzhong District

Chongqing City, the PRC

SHARE INFORMATION

Listing Place

The Stock Exchange of Hong Kong Limited (the "Stock Exchange")

Stock Code

02722

FINANCIAL YEAR END

31 December

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Results Highlights

Chongqing Machinery & Electric Co., Ltd. (the "Company" or "Chongqing Machinery & Electric") and its subsidiaries (hereinafter collectively the "Group") announce the highlights of the consolidated results as set out below.

•

Revenue of the Group for the six months ended 30 June 2020 amounted to

approximately RMB2,758.3 million, representing an increase of approximately 13.2%

from the corresponding period of last year.

•

Gross profit of the Group for the six months ended 30 June 2020 amounted to

approximately RMB553.2 million, representing an increase of approximately 13.6%

from the corresponding period of last year.

•

Profit attributable to the shareholders of the Company for the six months ended 30

June 2020 amounted to approximately RMB108.4 million, representing a decrease of

approximately 33.7% from the corresponding period of last year.

•

Basic earnings per share for the six months ended 30 June 2020 amounted to

approximately RMB0.03.

4

Chairman's Statement

Dear shareholders,

The board of directors (the "Board") of the Company announces the interim results of the Group for the six months ended 30 June 2020 (the "Period"). The Group's interim results have not been audited but have been reviewed by the audit and risk management committee and the Company's auditor, ShineWing Certified Public Accountants (Special General Partnership).

RESULTS

Total turnover of the Group for the six months ended 30 June 2020 amounted to approximately RMB2,758.3 million, representing an increase of approximately 13.2% from approximately RMB2,437.4 million for the corresponding period of last year, mainly because the Group's wind power blades business achieved rapid growth driven by national policies, which resulted in a significant increase in operating income of wind power blades.

Profit attributable to the shareholders of the Company for the six months ended 30 June 2020 amounted to approximately RMB108.4 million, representing a decrease of approximately 33.7% from approximately RMB163.6 million for the corresponding period of last year.

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Chairman's Statement (Continued)

For the six months ended 30 June 2020, earnings per share amounted to approximately RMB0.03 (for the first half of 2019: RMB0.04). Total assets of the Group as at 30 June 2020 amounted to approximately RMB16,777.7 million (as at 31 December 2019: approximately RMB16,517.8 million), while total liabilities amounted to approximately RMB9,394.9 million (as at 31 December 2019: approximately RMB9,228.7 million); total equity was approximately RMB7,382.8 million (as at 31 December 2019: approximately RMB7,289.1 million); net asset value per share was approximately RMB2.00 (as at 31 December 2019: approximately RMB1.98).

In the first half of 2020, the global spread of the new coronavirus COVID-19 (the "COVID-19") had a severe impact on the world economy. The world economic order and international economic relations have been significantly affected, and the process of globalization may show a fragmented development trend. Countries have successively adopted strict virus prevention and control measures, and global trade demand has rapidly shrunk. During the worst of the epidemic, various industries have stagnated to varying degrees, facing unprecedented operating pressure. In the first half of the year, all of the world's major economies showed negative growth. In the face of the epidemic, the Chinese government has taken decisive measures to prevent the spread of the epidemic. Since March 2020, as the domestic epidemic has been effectively controlled, Chinese enterprises have gradually resumed work and production, and the economic gravity has shifted to the "six stabilities" and "six guarantees". Production and demand continue to improve, and the recovery trend of consumer demand continues. The economic data in the second quarter improved significantly, and the growth turned from negative to positive, exceeding market expectation. Chinese economy is gradually recovering from the impact of the epidemic. In the first quarter of the year, the raging epidemic, coupled with the Spring Festival holiday, had a certain impact on the Group's production and sales, including delays in orders, blocked production, blocked supply of raw materials and key components as well as suspension of domestic and foreign logistics. Since the full resumption of work and production at the end of February, the Group has been sincerely united. On the one hand, the Group actively participated in the prevention and control of the epidemic. On the other hand, the Group made efforts to seize the market, resume production, and strive for preferential policies under the epidemic. Benefiting from investment opportunities in the national clean energy, smart grid, environmental protection, urban rail transit and smart manufacturing, the Group accelerated product technology research and development, optimized production capacity upgrading, and promoted the Group to achieve high-quality development. Centering on the main work task of "one focus, three guarantees, three reductions and four enhancements (一 抓三保三降四增強)" and by virtue of "one corporation with one policy", the Group strived to ensure its objectives and tasks, strengthened its confidence, comprehensively implemented

6

Chairman's Statement (Continued)

its work measures, sized up the situation, paid close attention to domestic and international markets, continuously improved the quality and profitability of its operations, promoted technological innovation, efficient management and talent cultivation and stepping to lay the foundation for the Group's healthy development. Although the Group was affected by the global epidemic, each business segment calmly responded to severe tests and impacts, struggled to break through. In the first half of the year, the overall business performance of the Group was better than expected.

BUSINESS REVIEW AND OUTLOOK

Clean energy equipment (hydroelectric generation equipment, electrical wires and cables, materials, wind power blades, industrial blowers, industrial pumps, gas compressors and other businesses)

In the first half of 2020, the COVID-19 has spread at home and abroad since January. In order to control the epidemic, enterprises have suspended work and production, which has seriously affected the normal production and sales of the Group. In addition, due to the restrictions on movement of personnel, sales activities and technical exchanges with users have been blocked. Businesses in this segment are differentiated to varying degrees. Hydroelectric generation equipment was affected by the epidemic. The projects in the international market have been completely stagnated, and projects in the domestic market have been generally postponed, so the business performance has declined significantly. However, affected by increased domestic investment, the industrial pumps, industrial blowers and gas compressors business achieved a steady growth. In particular, the wind power blades business achieved rapid growth driven by policies, which drove the operating income of this segment to approximately RMB1,981.0 million, showing an increase of approximately 16.4% over the same period.

In the first half of the year, driven by policies, the orders of wind power blades business reached approximately RMB1,160.0 million, representing a rapid growth of approximately 36.0% from the same period of last year. The industrial pump business won the bid for the nuclear pump project of Xudabao and Tianwan Nuclear Power Station achieving nuclear power orders of nearly RMB100.0 million. The cumulative orders in the first half of the year was about RMB501.0 million, showing an increase of approximately 4.0% over the same period of last year. The industry blowers business won the bid for Xiapu water chiller with the largest cooling capacity in the nuclear power sector in recent years with a value of nearly RMB70.0 million. The gas compressor business won the bid for Sinopec Nanchuan and Fuling shale gas compressor of approximately RMB41.0 million.

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Chairman's Statement (Continued)

It is expected that if the epidemic is effectively controlled in the second half of the year, economic recovery at home and abroad accelerates, coupled with the promotion of certain businesses by national policies, the electrical wires and cables and hydroelectric generation equipment business of the segment will achieve a restorative growth, and the wind power blades, industrial pumps and gas compressors and other businesses will grow stably, which will drive the segment to achieve a steady growth throughout the year.

In addition, Chongqing Cummins Engine Company Limited ("Chongqing Cummins"), a joint venture of the Company, is mainly engaged in the production of high horsepower diesel engines. In the first half of 2020, Chongqing Cummins actively responded and optimized marketing strategies. Production volume of sales of engines above 500 horsepower still maintained market leading position. However, affected by the epidemic, operating performance declined slightly. The high-power engine technology R&D center of Chongqing Cummins has been put into use. The new high-power engine plant project has commenced construction and is expected to achieve trial operation in 2020. Nevertheless, due to the increase in R&D investment and fixed asset depreciation, it is expected that the operating performance of this business will decline moderately throughout 2020. The annual results of Chongqing Cummins in 2020 are set out in Note VIII. 3 to the consolidated financial statements.

High-end smart equipment (smart manufacturing, smart machine tools and other businesses)

In the first half of 2020, the smart machine tool business recovered from the bottom as affected by market recovery of automobile, engineering machinery, petrol machinery and other industries to which is closely related. The smart manufacturing business achieved a breakthrough, the electronic communication business actively expanded new customers and increased product price. The intelligent integration business recorded revenue growth, and the screw machine tools business recorded moderate growth in the first half of the year. Accordingly, the segment recorded overall turnover of approximately RMB739.5 million, representing an increase of approximately 9.6% from the same period of last year.

In the first half of the year, as to the smart machine tool business, the orders for gear grinding machines achieved nearly RMB60.0 million, and sales of mask machines recorded nearly RMB12.0 million. As to the smart manufacturing business, the "research and development and application of communication module IoT production line" project was selected as one of the IoT pilot projects of Chongqing in 2020. Smart manufacturing business actively broadened new customers, and has realized orders of approximately RMB220.0 million, an increase of approximately 31.0% over the same period of last year.

8

Chairman's Statement (Continued)

In the second half of the year, it is expected that the domestic and overseas economy will resume growth provided that the epidemic is effectively controlled. The Group will take advantage of the opportunities of the rapid development of smart manufacturing to accelerate the development of high-quality development of smart gear machine tools, smart screw machine tools and smart electronics, and will continue to promote the construction of smart technology and applied research centers, 3D printing centers, smart manufacturing displays and experience centers. The smart machine tool business further achieved a recovery, and the smart manufacturing business grew steadily, driving the stable growth of the segment for the year.

Industrial service business (industrial empowerment, financing, trading and other businesses)

In the first half of 2020, the scale of trading business significantly reduced; the interest rate of the financial business reduced with response to the national epidemic prevention policies; the turnover of the segment reached approximately RMB37.2 million, representing a decrease of approximately 37.6% from the same period of last year.

It is expected that in the second half of the year, the domestic and overseas economy will resume and accelerate the growth provided that the epidemic is effectively controlled. As to the industrial empowerment business, the Group will continue to accelerate the implementation of digital upgrade demonstration projects for hydropower equipment and the construction of digital projects such as e-procurement platform. The Group will promote the research on the long-distance operation and maintenance service application of intelligentized industrial pump big data and the construction of intelligent warning and diagnosis system for ultrahigh-headimpact-type hydroelectric turbine generators and life cycle project system of industrial fan products.

It is expected that the overall turnover of the segment for the year will continuously decrease as affected by the further shrinking of the trade scale and interest cut in the second half of the year.

DEVELOPMENT STRATEGIES

2020 is the planning year of "Fourteenth Five-Year" Plan. Along with the deep reform of "acceleration period of domestic manufacturing industry transformation and upgrading", "pilot transformation period of deepening the reform of state-owned capital investment corporations" and "critical stage of comprehensively promoting from stepping into benign cycle to high quality as a whole", the Group will adhere to adopt the new "321" development strategy as the overall strategy, the supply side structural reform as the

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Chairman's Statement (Continued)

main line, the reform and efficiency as the focus, and the "1334" work as the starting point, continuously improve the operation quality and profitability of the Group and comprehensively implement the work priorities of the second half of the year.

Work priorities of the second half of the year

(1) Seize the opportunity and expand the market

First, foster growth drivers. As to the wind power blades business, we will strengthen the cooperation with Haizhuang Windpower, Goldwind Science & Technology and Guodian United Power so as to realize the mass production of offshore wind power blades; as to the wire and cable business, we will proactively deepen the cable market; as to the industrial pump business, we will further put great effort in tracking of the nuclear power market; as to the gas compressor business, we will seize the opportunity of the shale gas market; as to the smart electronics business, we will strengthen the expansion of new clientele such as Chengdu Vantron and China Internet of Things; and as to the smart machine tool business, we will actively expand the gear grinding machine market to ensure that the annual orders meet expectations.

Second, strengthen industrial operation and maintenance services. As to the hydropower equipment business, we will vigorously promote the power station operation and maintenance services, and develop supporting and coordination services with leading enterprises such as Voith and Dongfang Electrical Machinery; and as to the industrial pump business, smart machine tool business, gas compressor business and wind power blades business, we will actively carry out the industrial operation and maintenance service.

(2) Carry out the "three guarantees" and improve quality

First, guarantee the quality: continue to conduct the construction of quality culture of the Company, deeply carry out QC improvement practice activities, pay attention to the operating effectiveness of the Company's quality system, and ensure that the quality loss reduction for the year shall meet the expected goal.

Second, guarantee the delivery: closely follow up customers' demand for delivery, optimize organizational and supporting and coordination modes of production, improve output efficiency, and make sure that the overall average delivery rate of the Group for the year reaches the expected goal.

10

Chairman's Statement (Continued)

Third, guarantee the service: continue to perfect the marketing system and constantly improve the stability of product quality. The Group will enhance the tracking of customer satisfaction and after-sales opinions to ensure that the overall customer satisfaction for the year reaches the expected goal.

(3) Strictly control the "three reduction" and improve operational efficiency

First, reduce costs: strengthen cost and period expense control, in-depth advance the establishment of the electronic centralized procurement platform, take advantage of national policies of epidemic prevention and resumption in operation and production, so as to reduce financial costs, labor costs and tax expenditures, improve labor productivity, and ensure that gross profit margin reaches the expected goal.

Second, reduce the "two funds": strengthen the management of accounts receivable and reduce the risks of accounts receivable; improve the technical level, strictly control the delivery nodes, reduce inventory, and ensure that the "two funds" reach the expected goals.

Third, reduce debt: ensure that the annual income and "two funds" meet expectations, strictly control the scale of financing and guarantees, optimize the financing structure, ease the pressure of debt repayment, mitigate financial risks, reduce financial costs, and ensure that the debt ratio is under control within the expected range.

(4) Innovate independently and drive development

First, prepare the Group's "Fourteenth Five-Year Plan" with high standards, plan major projects of subsidiaries, highlight the directions of industrial Internet, big data and intelligence, and seek for important supports for future development.

Second, increase investment in technology research and development in high quality, focus on promoting the nuclear-grade vertical high and low pressure backwash pumps of the industrial pump business, the Hualong One nuclear power centrifugal chiller of the wind power business, the vertical shaft volute centrifugal pump set of the hydropower equipment business, and the research and development and application of automatic assembly robot production equipment of the smart electronics business, accelerate the progress of industrialization and realize the market benefits.

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Chairman's Statement (Continued)

Third, promote the construction of major projects with high efficiency, and focus on the completion of the target progress of the construction of phase II of the new base of high-powered engine project of Chongqing Cummins at the end of the year and the completion of the relocation for the gas compressor business; the completion of the acceptance of the digital workshop construction project for the hydropower equipment business; the acceleration of construction of the large-scale reciprocating diaphragm pump R&D and testing capacity project for the industrial pump business; and the completion of the small batch production of some products of the railway special- purpose cable project for the wire and cable business.

(5) Reform and improve vitality

First, create conditions for mixed reform, accelerate the reform and restructuring, and focus on promoting the pilot of employee option incentive in scientific and innovative type affiliated companies. Second, steadily promote the disposal of inefficient and invalid assets, and advance the land transfer of two parcels of lands of old factories in an actively and orderly manner. Third, optimize the structure of human resources, establish incentive and restraint mechanisms, and accelerate the introduction and cultivation of various talents.

(6) Consolidate the foundation and prevent risks

First, focus on the risk prevention and control of trade business, the disposal of inefficient and invalid assets, and overseas EPC projects. Second, execute risk control and appraisal, carry out risk control linkage, risk control self-evaluation, and procure the risk investigation and rectification. Third, focus on the special self-examination and inspection of corporate governance, strengthen the publicity of the laws, and carry out the activities of "governing the corporate according to laws and studying laws".

12

Chairman's Statement (Continued)

SUMMARY

Looking forward to the second half of 2020, the global spread of the COVID-19 will bring extreme uncertainty to the global economy. Currently, the industrial chain and supply chain in the world are exposed to the severe situation of looseness and separation, and may have the risk of tear or separation to a certain extent in the future.

The economic rebound in China in the first half of the year will lay a solid foundation for the comprehensive economic recovery in the second half of the year. China's economy is likely to resume to the economic growth level before the epidemic in general as at the end of the year. In the face of the epidemic, the Chinese government has resolutely adopted the stable fiscal policies and monetary policies. The economic focus has been adjusted to "six guarantees" and "six stabilities" as the main lines, the expansion of fiscal expenditure and stabilization of national economy as the main means, with an aim to achieve building a well- off society in an all-round way. It is expected that the GDP of China throughout the year will show a slight decrease from last year, but it will still maintain the leading level in the world in terms of GDP growth.

Leveraging on Chongqing's promotion of the transformation and upgrade of the manufacturing industry, development of an entire industry chain of the chip, LCD panel, smart terminal, core component, loT and building of the Chengdu-Chongqing economic circle, the Group will accelerate the manufacturing and market development of wind power, hydropower, nuclear power, power generation, transmission, distribution and high-end smart equipment, and actively promote the overall entry into a benign cycle of development. In the face of extremely complex and severe internal and external situations, the Group will strengthen its confidence, unswervingly grasp the "1334" work measures, lay the foundation for the successful completion of the "Thirteenth Five-Year Plan" and the start of the "Fourteenth Five-Year Plan" with collective practical actions.

On behalf of the Board, I would like to extend my heartfelt gratitude to our shareholders for their support and trust. My sincere appreciation also goes to our Directors, supervisors and all of our staff members for their efforts in contributing to the Group.

Executive Director, Chairman

Zhang Fulun

Chongqing, the PRC

26 August 2020

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Management's Discussion and Analysis

RESULTS OVERVIEW

Sales

For the six months ended 30 June 2020, the Group's total revenue amounted to approximately RMB2,758.3 million, an increase of approximately 13.2% as compared with approximately RMB2,437.4 million for the same period of last year.

Overall, revenue of the clean energy equipment segment was approximately RMB1,981.0 million (accounting for approximately 71.8% of the total revenue), representing an increase of approximately 16.4%; revenue of the high-end smart manufacturing segment was approximately RMB739.5 million (accounting for approximately 26.8% of the total revenue), representing an increase of approximately 9.6%; revenue of the industrial service segment was approximately RMB37.2 million (accounting for approximately 1.4% of the total revenue), representing a decrease of approximately 37.6%.

During the Period, the growth in sales revenue of the clean energy equipment segment was mainly due to the increase in domestic investment and the impact driven by policy, which led to a rapid growth in this segment. The growth in sales revenue of the high-end smart manufacturing segment was mainly due to the recovery of the market industry, the active expansion in clientele and increase of product price in the electronic communication business in this segment, as well as the growth of revenue from the intelligent integration business and screw machine tools business, which led to the achievement of an obvious growth in this segment. The decline in revenue in the industrial services segment was mainly due to the change of business model in the trading business, scale reduction and interest rate cuts in the financial business, leading to a decline in the operating performance of the segment in the first half of the year. It is expected that the overall operating performance of the Group for the whole year of 2020 can achieve a steady growth.

There has been no significant change in the possible future development of the Group's business and the Group's outlook for the financial year of 2020 since the publication of the Group's annual report for the year ended 31 December 2019.

Gross Profit

The gross profit for the six months ended 30 June 2020 was approximately RMB553.2 million, showing an increase of approximately RMB66.2 million or approximately 13.6% as compared with approximately RMB487.0 million for the same period of last year, which was mainly due to the substantial increase in revenue from the general machinery business in

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Management's Discussion and Analysis (Continued)

the clean energy equipment segment and the smart manufacturing product business in the high-end smart manufacturing segment. The Group's gross profit is expected to remain stable in the second half of 2020.

Gain on Disposal of Assets

Gain on disposal of assets for the six months ended 30 June 2020 was approximately RMB10.5 million, showing a significant decrease of approximately RMB123.9 million or 92.2% as compared with approximately RMB134.4 million for the same period of last year, which was mainly attributable to the year-on-year decrease in gain on disposal of lands during the current period. Details are set out in Note VI.58 to the consolidated financial statements.

Other Income

Other income for the six months ended 30 June 2020 was approximately RMB38.7 million, showing a decrease of approximately RMB18.9 million or approximately 32.8% as compared with approximately RMB57.6 million for the same period of last year, which was mainly attributable to the decrease in post-government subsidy income for innovative development projects income during the current period.

Selling and Administrative Expenses

The selling and administrative expenses for the six months ended 30 June 2020 were approximately RMB399.6 million, showing an increase of approximately RMB6.9 million or approximately 1.8% as compared with approximately RMB392.7 million for the same period of last year. The ratio of selling and administrative expenses to sales decreased from approximately 16.1% in the same period last year to approximately 14.5%, in particular the selling expenses decreased by approximately RMB25.9 million compared to the same period last year, mainly due to the reduction of transportation expenses, "3-Aspect-Warranty" fees and after-sales service fees. On the contrary, the administrative expenses increased by approximately RMB32.7 million compared to the same period last year, due to the increase of approximately RMB12.3 million in restructuring costs and an increase of RMB12.8 million in amortization of intangible assets.

Operating Profit

The operating profit for the six months ended 30 June 2020 was approximately RMB141.3 million, showing a decrease of approximately RMB82.1 million or approximately 36.8% as compared with approximately RMB223.4 million for the same period of last year.

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Management's Discussion and Analysis (Continued)

Net Finance Costs

The net interest expenses for the six months ended 30 June 2020 was approximately RMB53.8 million, representing a significant decrease of approximately RMB24.8 million or approximately 31.6% as compared to approximately RMB78.6 million for the same period of last year, which was mainly due to the interest reduction in finance costs during the current period.

Investment Income

For the six months ended 30 June 2020, the Group's investment income was approximately RMB168.2 million, representing an increase of approximately RMB9.2 million or 5.8% as compared with approximately RMB159.0 million for the same period of last year. This is due to the increase of approximately RMB14.5 million in performance of transformer business which turned loss to profit and the increase of approximately RMB6.6 million in the performance of the brake system business. On the contrary, the high-horsepower diesel engine business was affected by the epidemic, and its operating performance declined slightly by approximately RMB14.0 million. Details are set out in Note VI.54 to the consolidated financial statements.

Income Tax Expenses

The income tax expenses for the six months ended 30 June 2020 were approximately RMB19.6 million, representing a decrease of approximately RMB27.9 million or approximately 58.7% as compared with approximately RMB47.5 million for the same period of last year, which was mainly due to the decrease in current accrued income tax and the decrease in changes in deferred income tax expenses. Details are set out in Note VI.61 to the consolidated financial statements.

Profit Attributable to Shareholders

Profit attributable to shareholders for the Period was approximately RMB108.4 million, representing a decrease of approximately RMB55.2 million or approximately 33.7% as compared with approximately RMB163.6 million for the same period of last year. Earnings per share decreased from approximately RMB0.04 in the same period last year to approximately RMB0.03 in the current Period.

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Management's Discussion and Analysis (Continued)

BUSINESS PERFORMANCE

The table below sets forth the revenue, gross profit and segment results attributable to our major business segments for the periods indicated:

Revenue

Gross Profit

Segment Results

Period ended

Period ended

Period ended

30 June

30 June

30 June

2020

2019

2020

2019

2020

2019

(RMB in millions, except for percentage)

Clean energy

equipment business

Hydropower equipment

105.4

289.8

11.4

63.5

(28.8)

11.7

Electrical wires and

cables

545.2

710.4

90.3

104.1

42.4

78.4

General machinery

911.6

331.9

145.2

47.5

(9.8)

(80.8)

Other products

418.8

370.5

152.1

134.9

49.9

122.4

Total

1,981.0

1,702.6

399.0

350.0

53.7

131.7

% of total

71.8%

69.9%

72.1%

71.9%

38.0%

58.9%

High-end smart

manufacturing

business

CNC machine tools

345.3

305.4

59.9

48.7

(85.6)

(76.3)

Steering systems

215.7

237.2

40.7

40.5

12.8

10.4

Other products

178.5

132.0

32.9

15.6

9.1

17.1

Total

739.5

674.6

133.5

104.8

(63.7)

(48.8)

% of total

26.8%

27.7%

24.1%

21.5%

(45.1)%

(21.8)%

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

17

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Management's Discussion and Analysis (Continued)

Revenue

Gross Profit

Segment Results

Period ended

Period ended

Period ended

30 June

30 June

30 June

2020

2019

2020

2019

2020

2019

(RMB in millions, except for percentage)

Industrial services

business

Domestic Trade

13.6

25.0

0.5

3.3

(6.2)

0.5

Financial

23.6

34.4

19.6

28.1

18.1

26.8

Other services

-

0.2

-

0.2

(3.1)

(2.5)

Total

37.2

59.6

20.1

31.6

8.8

24.8

% of total

1.4%

2.4%

3.7%

6.5%

6.3%

11.1%

Headquarters

Total

0.6

0.6

0.6

0.6

142.5

115.7

% of total

-%

-%

0.1%

0.1%

100.8%

51.8%

Total

2,758.3

2,437.4

553.2

487.0

141.3

223.4

CLEAN ENERGY EQUIPMENT

Revenue from the clean energy equipment segment for the six months ended 30 June 2020 was approximately RMB1,981.0 million, showing an increase of approximately RMB278.4 million or approximately 16.4% as compared with approximately RMB1,702.6 million for the six months ended 30 June 2019, which was primarily due to the sales revenue of wind power blades business achieving a rapid growth driven by national policies.

During the Period, the gross profit for the clean energy equipment segment was approximately RMB399.0 million, showing an increase of approximately RMB49.0 million or approximately 14.0% as compared with approximately RMB350.0 million for the six months ended 30 June 2019, which was primarily due to the increase in sales revenue of wind power blades.

18

Management's Discussion and Analysis (Continued)

The results for the clean energy equipment segment for the six months ended 30 June 2020 were approximately RMB53.7 million, showing a significant decrease of approximately RMB78.0 million or approximately 59.2% as compared with the results of profit of approximately RMB131.7 million for the six months ended 30 June 2019, which were primarily because of the year-on-year decrease in land disposal income of this operating segment.

HIGH-END SMART MANUFACTURING

Revenue from the high-end smart manufacturing segment for the six months ended 30 June 2020 was approximately RMB739.5 million, showing an increase of approximately RMB64.9 million or approximately 9.6% as compared with approximately RMB674.6 million for the six months ended 30 June 2019, which was mainly due to the active expansion in the clientele and increase of product price in the electronic communication business in smart manufacturing business, recording an increase in revenue of approximately RMB46.4 million year-on-year, coupled with the growth of revenue from the intelligent integration business and screw machine tools business, the segment achieved a better growth in the first half of the year.

During the Period, gross profit for the high-end smart manufacturing segment was approximately RMB133.5 million, showing an increase of approximately RMB28.7 million or 27.4% as compared with approximately RMB104.8 million for the six months ended 30 June 2019, primarily due to increased revenue in screw machine tools business and smart manufacturing business.

For the six months ended 30 June 2020, the loss for the high-end smart manufacturing segment was approximately RMB63.7 million, showing an increase in loss of approximately RMB14.9 million or 30.5% as compared with a loss of approximately RMB48.8 million for the six months ended 30 June 2019, primarily due to the increase in losses in the CNC machine tool business.

INDUSTRIAL SERVICE

Revenue from the industrial service segment for the six months ended 30 June 2020 was approximately RMB37.2 million, showing a decrease of approximately RMB22.4 million or approximately 37.6% as compared with approximately RMB59.6 million for the six months ended 30 June 2019, mainly due to the significant decrease in the trading business of the Company and the interest rate cut in the financial business.

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

19

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Management's Discussion and Analysis (Continued)

During the Period, gross profit for the industrial service segment was approximately RMB20.1 million, showing a decrease of approximately RMB11.5 million or approximately 36.4% as compared with approximately RMB31.6 million for the six months ended 30 June 2019, mainly due to the interest reduction in the financial business in response to the national epidemic policy.

For the six months ended 30 June 2020, the results for the industrial service segment amounted to approximately RMB8.8 million, showing a decrease of approximately RMB16.0 million or approximately 64.5% as compared with approximately RMB24.8 million for the six months ended 30 June 2019.

CASH FLOW

As at 30 June 2020, the cash and bank deposits (including restricted cash) of the Group amounted to approximately RMB2,129.2 million (31 December 2019: approximately RMB2,094.6 million), representing an increase of approximately RMB34.6 million or approximately 1.7%.

During the Period, the Group had a net cash flow generated from operating activities of approximately RMB-154.4 million (for the six months ended 30 June 2019: net cash flow generated from operating activities of approximately RMB-131.2 million), a net cash flow generated from investing activities of approximately RMB-413.7 million (for the six months ended 30 June 2019: a net cash flow generated from investing activities of approximately RMB-423.9 million), and a net cash flow generated from financing activities of approximately RMB401.2 million (for the six months ended 30 June 2019: a net cash flow generated from investment activities of approximately RMB584.1 million).

TRADE RECEIVABLES AND OTHER RECEIVABLES

As at 30 June 2020, the total trade receivables and other receivables of the Group amounted to approximately RMB3,980.9 million, showing an increase of approximately RMB89.2 million as compared with approximately RMB3,891.7 million as at 31 December 2019, which was mainly due to an increase of approximately RMB75.9 million in industrial pump business in correspondence to sales turnover increase. Details of aging analysis of trade receivables are set out in Note VI. 4 and VI. 7 to the consolidated financial statements.

20

Management's Discussion and Analysis (Continued)

TRADE PAYABLES AND OTHER PAYABLES

As at 30 June 2020, the total trade payables and other payables of the Group amounted to approximately RMB2,219.9 million, showing an increase of approximately RMB76.8 million as compared with approximately RMB2,143.1 million as at 31 December 2019, which was mainly due to an increase of approximately RMB22.3 million in the wire and cable business, an increase of approximately RMB31.6 million in the industrial pumps business and an increase of approximately RMB42.2 million in the steering system business while the general machinery business decreased by approximately RMB57.4 million. Details of aging analysis of trade payables are set out in Note VI. 29 and VI. 34 to the consolidated financial statements.

ASSETS AND LIABILITIES

As at 30 June 2020, the total assets of the Group amounted to approximately RMB16,777.7 million, showing an increase of approximately RMB259.9 million as compared with approximately RMB16,517.8 million as at 31 December 2019. The total current assets amounted to approximately RMB10,636.2 million, showing an increase of approximately RMB285.5 million as compared with approximately RMB10,350.7 million as at 31 December 2019, accounting for approximately 63.4% of the total assets (31 December 2019: approximately 62.7%). However, the total non-current assets amounted to approximately RMB6,141.5 million, showing a decrease of approximately RMB25.6 million as compared with approximately RMB6,167.1 million as at 31 December 2019, accounting for approximately 36.6% of the total assets (31 December 2019: approximately 37.3%).

As at 30 June 2020, the total liabilities of the Group amounted to approximately RMB9,394.9 million, showing an increase of approximately RMB166.2 million as compared with approximately RMB9,228.7 million as at 31 December 2019. The total current liabilities amounted to approximately RMB6,962.1 million, showing a decrease of approximately RMB52.7 million as compared with approximately RMB7,014.8 million as at 31 December 2019, accounting for approximately 74.1% of the total liabilities (31 December 2019: approximately 76.0%). However, the total non-current liabilities amounted to approximately RMB2,432.8 million, showing an increase of approximately RMB218.8 million as compared with approximately RMB2,214.0 million as at 31 December 2019, accounting for approximately 25.9% of the total liabilities (31 December 2019: approximately 24.0%).

As at 30 June 2020, the net current assets of the Group amounted to approximately RMB3,674.2 million, showing an increase of approximately RMB338.3 million as compared with approximately RMB3,335.9 million as at 31 December 2019.

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

21

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Management's Discussion and Analysis (Continued)

CURRENT RATIO

As at 30 June 2020, the current ratio (the ratio of current assets divided by current liabilities) of the Group was 1.53:1 (31 December 2019: 1.48:1).

GEARING RATIO

As at 30 June 2020, by dividing borrowings by total capital, the gearing ratio of the Group was 50.1% (31 December 2019: 41.2%).

INDEBTEDNESS

As at 30 June 2020, the Group had an aggregate bank and other borrowings of approximately RMB3,696.4 million, representing an increase of approximately RMB690.9 million as compared with approximately RMB3,005.5 million as at 31 December 2019.

Borrowings repayable by the Group within one year amounted to approximately RMB1,755.2 million, representing an increase of approximately RMB392.3 million as compared with approximately RMB1,362.9 million as at 31 December 2019. Borrowings repayable after one year amounted to approximately RMB1,941.2 million, representing an increase of approximately RMB298.6 million as compared with approximately RMB1,642.6 million as at 31 December 2019.

SIGNIFICANT EVENTS

Events in the Period

(I) Due to work arrangements, Mr. Wang Yuxiang ("Mr. Wang") has resigned from the positions as the chairman of the fifth session of the Board, an executive director, chairman of the strategy committee and chairman of the nomination committee of the Company. The resignation of Mr. Wang has not resulted in the number of members of the fifth session of the Board of the Company falling below the required minimum quorum. For details, please refer to the announcement of the Board published on the website of the Hong Kong Stock Exchange and the website of the Company on 7 July 2020.

22

Management's Discussion and Analysis (Continued)

(II) The Extraordinary General Meeting of the Company held on 26 August 2020 has considered and approved the following matters:

1) The appointment of Mr. Zhang Fulun as the chairman and an executive Director, for a term commencing from the date of the meeting until the expiration of the fifth session of the Board. The Board was authorized to fix the remuneration of such Director pursuant to the remuneration standard for Directors passed at the 2018 annual general meeting and to enter into a service agreement with such Director on and subject to such terms and conditions as the Board shall think fit and to do all such acts and things to give effect to such matters.

2) Amendments to the articles.

For details of the above matters, please refer to the circular of the Board published on the website of the Hong Kong Stock Exchange and the website of the Company on 10 July 2020.

Save as disclosed above, the Company did not have any other material events that were subject to disclosure during the Period.

SUBSEQUENT EVENTS

The Group had no significant subsequent event.

CONTINGENT LIABILITIES

As at 30 June 2020, the Group had no significant contingent liabilities.

CAPITAL EXPENDITURE

During the Period, the total capital expenditure of the Group was approximately RMB33.2 million, which was principally used for plant expansion, production technology improvement and upgrade of production equipment and enhancement of productivity (for the six months ended 30 June 2019: approximately RMB87.5 million).

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

23

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Management's Discussion and Analysis (Continued)

TREASURY POLICIES

The Group has adopted treasury policies, which concentrate the financial resources available to its different subsidiaries to meet the business needs of its different subsidiaries through the subsidiaries involved with financial services qualifications of the Group. For example, the Group has adopted a centralized approach in managing the funds available to subsidiaries involved, including cash, bank deposits, bills and other financial instruments. These assets, such as bills and financial instruments, are managed and arranged as short- term financing amongst subsidiaries with financial services qualifications of the Group through proper endorsements or transfers so that they can be fully utilized to meet payment obligations of the Group's relevant subsidiaries with minimal financing cost. The Group closely monitors the level of use and the financial guarantees given by the Group at the time of financing and the value of each of these transactions only represents an immaterial part of its total assets and undertakings.

RISK OF FOREIGN EXCHANGE

The Group is exposed to foreign exchange risk arising from various currencies, primarily with respect to the HK dollar and US dollar. Foreign exchange risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the Group's functioning currency. Management has set up a management system of foreign exchange hedges, requiring all subsidiaries of the Group to manage the foreign exchange risk against their functional currency and adopt foreign exchange tools recognized by the Group.

EMPLOYEES

As at 30 June 2020, the Group had a total of 7,976 employees (30 June 2019: a total of 8,124 employees). The Group will continue the upgrade of its technical talent base, foster and recruit technical and management personnel possessed with extensive professional experiences, optimize the distribution system that links with the remuneration and performance reviews, improve training supervision on safety so as to ensure employees' safety and maintain good and harmonious employee-employer relations.

24

Other Information

INTERESTS OF SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS IN SHARES AND UNDERLYING SHARES

As at 30 June 2020, so far as the Directors are aware, the following persons (not being a director, chief executive or supervisor of the Company) had interests in the shares of the Company as recorded in the register required to be kept under section 336 of the Securities and Futures Ordinance ("SFO"):

Long positions in domestic shares of the Company with par value of RMB1.00 each

Percentage of

total issued

Percentage of

Percentage of

Number of

domestic

total issued

total issued

Name of shareholders

shares

Stock category

Status

shares

H shares

shares

Note

(%)

(%)

(%)

Chongqing Machinery and

1,924,225,189

Domestic shares

Beneficial owner

(1)

74.46(L)

-

52.22

  Electronic Holding (Group) Co.,

92,670,000

H shares

Beneficial owner

(1)

-

8.42(L)

2.52

Ltd.

Chongqing Yufu Capital Operation

232,132,514

Domestic shares

Beneficial owner

(1)

8.98(L)

-

6.30

Group Co., Ltd.

Chongqing Construction Engineering

232,132,514

Domestic shares

Beneficial owner

(2)

8.98(L)

-

6.30

Group Corporation Limited

China Huarong Asset Management

195,962,467

Domestic shares

Beneficial owner

(3)

7.58(L)

-

5.32

Co., Ltd.

Chongqing State-owned Assets

2,388,490,217

Domestic shares

Controlled

(1)

92.42(L)

-

64.82

Supervision and Administration

corporation

Commission

interest

92,670,000

H shares

Beneficial owner

(1)

-

8.42(L)

2.52

Ministry of Finance of the PRC

195,962,467

Domestic shares

Controlled

(3)

7.58(L)

-

5.32

corporation

interest

(L)

Long Position

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

25

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Other Information (Continued)

H shares of the Company with par value of RMB1.00 each

Percentage of

Percentage of

total issued H

total issued

Name of shareholders

Number of shares

Status

Note

shares

shares

The Bank of New York Mellon (formerly

87,276,000(L)

Custodian

7.93(L)

2.37(L)

known as "The Bank of New York")

0(P)

0(P)

0(P)

The Bank of New York Mellon Corporation

87,276,000(L)

Interest in corporation

(4)

7.93(L)

2.37(L)

87,276,000(P)

controlled by

7.93(P)

2.37(P)

substantial

shareholders

GE Asset Management Incorporated

75,973,334(L)

Investment manager

6.91(L)

2.06(L)

(L)

Long Position

(S)

Short Position

(P)

Lending Pool

Notes:

(1) As Chongqing Machinery and Electronics Holding (Group) Co., Ltd. and Chongqing Yufu Capital Operation Group Co., Ltd. are wholly owned by Chongqing State-owned Assets Supervision and Administration Commission, Chongqing State-owned Assets Supervision and Administration Commission is deemed to be interested in 1,924,225,189 domestic shares and 92,670,000 H shares as well as 232,132,514 domestic shares of the Company held by the two companies respectively.

(2) Chongqing Construction Engineering Group Corporation Limited is held as to 76.53% by Chongqing State-owned Assets Supervision and Administration Commission through its wholly- owned Chongqing Construction Investment Holding Co., Ltd. Therefore, Chongqing State- owned Assets Supervision and Administration Commission is deemed to be interested in 232,132,514 domestic shares of the Company held by Chongqing Construction Engineering Group Corporation Limited.

(3) China Huarong Asset Management Co., Ltd.* (中國華融資產管理股份有限公司) is held as to 63.36% directly by the Ministry of Finance of the People's Republic of China and as to 4.22% indirectly by the Ministry of Finance of the People's Republic of China through China Life Insurance (Group) Company, its wholly-owned subsidiary. Therefore, the Ministry of Finance of the People's Republic of China is deemed to be interested in 195,962,467 domestic shares of the Company held by China Huarong Asset Management Co., Ltd.

26

Other Information (Continued)

(4) The Bank of New York Mellon Corporation holds 100% interest in The Bank of New York Mellon (formerly known as "The Bank of New York"), which holds 87,276,000 H shares of the Company. The interest in 87,276,000 H shares relates to the same block of shares in the Company and includes a lending pool of 87,276,000 H shares of the Company.

Save as disclosed above, the Directors of the Company are not aware of any persons holding any interests or short positions in the shares or underlying shares which were required to be recorded in the register pursuant to Section 336 of the SFO as at 30 June 2020.

COMPLIANCE WITH CORPORATE GOVERNANCE CODE

During the Period, the Company has adopted and complied with the code provisions under the Corporate Governance Code set out in the Appendix 14 of the Listing Rules.

MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has complied with and adopted the Model Code for Securities Transactions by Directors of Listed Companies (the "Model Code") set out in Appendix 10 of the Listing Rules as the code for securities transactions by directors of the Company. The Company has obtained the respective confirmations by all of its directors that they have strictly complied with the provisions set out in the Model Code for the six months ended 30 June 2020.

PURCHASE, SALE OR REDEMPTION OF SECURITIES OF THE COMPANY

During the six months ended 30 June 2020, neither the Group nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities.

INTERIM DIVIDEND

The Board does not recommend the payment of interim dividends.

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

27

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Other Information (Continued)

AUDIT AND RISK MANAGEMENT COMMITTEE

The audit and risk management committee, the management and the Company's auditor ShineWing Certified Public Accountants (Special General Partnership) have jointly reviewed the accounting standards, laws and regulations adopted by the Company and discussed internal control and financial reporting matters (including the review of the interim results) of the Group. The audit and risk management committee considered that the interim results are in compliance with the applicable accounting standards, laws and regulations, and the Company has made appropriate disclosures thereof.

BOARD OF DIRECTORS AND SUPERVISORY COMMITTEE

As at the date of this report, the executive Directors of the Company are Mr. Zhang Fulun, Ms. Chen Ping and Mr. Yang Quan; the non-executive Directors are Mr. Huang Yong, Mr. Zhang Yongchao, Mr. Dou Bo and Mr. Wang Pengcheng; and the independent non- executive Directors are Mr. Lo Wah Wai, Mr. Ren Xiaochang, Mr. Jin Jingyu and Mr. Liu Wei.

As at the date of this report, the members of the Supervisory Committee of the Company are Mr. Sun Wenguang, Ms. Wu Yi, Mr. Wang Haibing, Mr. Xia Hua and Mr. Li Fangzhong.

The interim results announcement has been published on the websites of the Company (http:// www.chinacqme.com) and the Stock Exchange. The interim report will also be available on the websites of the Company and the Stock Exchange on or around 11 September 2020 and will be dispatched to the shareholders of the Company thereafter by the means of receipt of corporate communications they selected.

By Order of the Board

Chongqing Machinery & Electric Co., Ltd.*

Zhang Fulun

Executive Director and Chairman

Chongqing, the PRC

26 August 2020

28

ShineWing

certified public accountants

Review Report

:

+86(010)6554 2288

8

A 9

telephone:

+86(010)6554 2288

9/F, Block A, Fu Hua Mansio n

No. 8, Chaoyangmen Beidajie,

:

+86(010)6554 7190

Dong cheng Dis t r i c t , B e i j i n g ,

100027, P.R. China

facsimile:

+86(010)6554 7190

XYZH/2020CQA10499

2020 Report Interim

To the Shareholders of Chongqing Machinery & Electric Co., Ltd:

We have reviewed the accompanying financial statements of Chongqing Machinery & Electric Co., Ltd (the "Company"), which comprise the consolidated and the Company's statement of financial position as at 30 June 2020, the consolidated and the Company's statement of comprehensive income, the consolidated and the Company's statement of cash flow and the consolidated and the Company's statement of changes in equity for January-June 2020 and notes to financial statements. The management of the Company is responsible for fair presentation of these financial statements. Our responsibility is to issue our review report on these financial statements based on our review.

We conducted our review in accordance with the "Review Standard for Chinese Certified Public Accountants No.2101-Review of Financial Statements". The standard requires us to plan and conduct a review to obtain limited assurance as to whether financial statements are free from material misstatement. A review is primarily limited to inquire of company personnel and performing analytical procedures on financial data. A review provides less assurance than audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the financial statements do not present fairly, in all material respects, the consolidated and the Company's financial position as at 30 June 2020, the consolidated and the Company's results of operations and cash flows for six-month period then ended in accordance with Accounting Standards for Business Enterprises.

ShineWing Certified Public Accountants LLP

CICPA:

CICPA:

China,Beijing

26 August 2020

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

29

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

30

Consolidated Statement of Financial Position

As at 30 June 2020

Prepared by: Chongqing Machinery & Electric Co., Ltd.

Unit: RMB

30 June

31 December

Items

Notes

2020

2019

Current assets

Cash and cash equivalents

VI.1

2,129,168,976.79

2,094,619,648.56

Financial assets held for trade

VI.2

4,249,637.16

269,494.13

Notes receivable

VI.3

238,943,613.97

296,071,386.86

Accounts receivable

VI.4

2,856,179,714.73

2,688,114,256.49

Receivable financing

VI.5

554,330,108.35

470,685,913.42

Prepayments

VI.6

336,498,510.11

266,180,611.67

Other receivables

VI.7

1,124,753,617.09

1,203,555,781.66

Including: Interests receivable

Dividends receivable

VI.7.1

342,791,694.00

436,478,069.56

Loans and advances to customers

VI. 12.1

777,048,573.44

921,848,681.16

Inventories

VI.8

2,077,075,670.58

1,981,484,606.34

Contract assets

VI.9

326,966,077.26

368,454,512.15

Non-current assets due within one year

VI.10

17,400,000.00

17,500,000.00

Other current assets

VI.11

193,632,572.99

41,915,619.38

Total current assets

10,636,247,072.47

10,350,700,511.82

Non-current assets

Loans and advances to customers

VI.12.2

79,950,000.00

117,000,000.00

Long-term receivables

VI.13

87,000,000.00

95,700,000.00

Long-term equity investments

VI.14

1,162,435,058.80

996,391,965.41

Other equity instruments investment

VI.15

52,314,020.88

52,314,020.88

Investment properties

VI.16

76,908,704.36

78,047,637.67

Property, plant and equipment

VI.17

2,766,443,439.77

2,838,969,790.21

Construction in progress

VI.18

216,753,788.17

207,448,578.58

Right-to-use assets

VI.19

311,838,084.80

358,581,230.46

Intangible assets

VI.20

613,860,210.12

656,254,825.20

Development expenditures

VI.21

16,675,817.82

16,610,242.60

Goodwill

VI.22

143,312,435.00

143,312,435.00

Long-term deferred expenses

VI.23

237,341,855.31

232,876,050.24

Deferred tax assets

VI.24

117,433,467.29

121,906,877.97

Other non-current assets

VI.25

259,209,771.74

251,701,138.83

Total non-current assets

6,141,476,654.06

6,167,114,793.05

Total assets

16,777,723,726.53

16,517,815,304.87

Consolidated Statement of Financial Position (Continued)

As at 30 June 2020

30 June

31 December

Items

Notes

2020

2019

Current liabilities

Short-term loans

VI.26

1,206,508,020.00

1,156,886,625.41

Institutions

VI.27

774,194,758.03

1,117,908,116.74

Notes payable

VI.28

908,857,210.25

1,202,637,121.55

Accounts payable

VI.29

1,716,887,365.93

1,686,336,446.82

Contract liabilities

VI.30

985,703,110.93

807,469,495.64

Repurchase agreements

VI.31

-

49,949,000.00

Employee benefits payables

VI.32

67,204,648.27

65,766,577.42

Taxes and levies payables

VI.33

175,047,533.55

186,244,866.97

Other payables

VI.34

503,057,174.85

456,796,531.42

Including: Interests payable

-

-

Dividends payable

VI.34.1

60,670,292.72

28,451,140.35

Non-current liabilities due within one year

VI.35

622,063,164.14

281,511,419.08

Other current liabilities

VI.36

2,541,665.79

3,259,736.35

Total current liabilities

6,962,064,651.74

7,014,765,937.40

Non-current liabilities

Long-term loans

VI.37

1,941,176,399.19

1,642,606,224.02

Lease liabilities

VI.38

71,522,473.40

127,703,443.23

Long-term payables

VI.39

4,080,402.88

4,505,143.84

Long-term employee benefits payable

VI.40

6,753,824.08

6,759,000.00

Provisions

VI.41

19,550,640.57

21,754,527.73

Deferred revenue

VI.42

284,871,460.34

301,172,088.60

Deferred tax liabilities

VI.24

104,879,224.41

109,458,767.32

Total non-current liabilities

2,432,834,424.87

2,213,959,194.74

Total liabilities

9,394,899,076.61

9,228,725,132.14

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

31

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Consolidated Statement of Financial Position (Continued)

As at 30 June 2020

30 June

31 December

Items

Notes

2020

2019

Shareholder's equity

Share capital

VI.43

3,684,640,154.00

3,684,640,154.00

Capital reserves

VI.44

50,311,968.20

50,311,968.20

Other comprehensive income

VI.45

29,844,059.53

21,514,640.55

Surplus reserves

VI.46

364,663,370.96

364,663,370.96

Retained profits

VI.47

2,794,842,854.28

2,723,290,866.87

Total equity attributable to shareholders of the

Company

6,924,302,406.97

6,844,421,000.58

Non-controlling interests

458,522,242.95

444,669,172.15

Total shareholder's equity

7,382,824,649.92

7,289,090,172.73

Total liabilities and shareholder's equity

16,777,723,726.53

16,517,815,304.87

Legal Representative:

Person in charge of

Person in charge of

  accounting function:

  accounting department:

32

Statement of Financial Position of the Company

As at 30 June 2020

Prepared by: Chongqing Machinery & Electric Co., Ltd.

Unit: RMB

Items

Notes

30 June 2020 31 December 2019

Current assets:

Cash and cash equivalents

1,484,973,611.43

1,109,485,020.12

Notes receivable

3,699,342.90

2,800,000.00

Other receivables

XVI.1

1,482,152,636.52

1,455,032,793.77

Including: Interests receivable

-

-

Dividends receivable

XVI.1.1

374,721,694.00

436,478,069.56

Non-current assets due within one year

17,400,000.00

17,500,000.00

Other current assets

156,908,287.35

3,722,935.34

Total current assets

3,145,133,878.20

2,588,540,749.23

Non-current assets:

Long-term receivables

986,900,000.00

838,000,000.00

Long-term equity investments

XVI.2

4,773,170,677.98

4,602,220,235.53

Other equity instruments investment

52,314,020.88

52,314,020.88

Property, plant and equipment

37,769,839.31

35,610,757.03

Construction in progress

-

4,515,158.77

Intangible assets

19,456,587.81

19,998,224.66

Goodwill

293,943.72

293,943.72

Total non-current assets

5,869,905,069.70

5,552,952,340.59

Total assets

9,015,038,947.90

8,141,493,089.82

Current liabilities

Short-term loans

712,000,000.00

696,781,000.00

Employee benefits payables

1,207,208.80

1,780,697.30

Taxes and levies payables

1,355,537.10

251,357.01

Other payables

45,029,952.61

9,262,442.99

Including: Interests payable

-

-

Dividends payable

9,273,194.24

-

Non-current liabilities due within one year

332,000,000.00

22,100,000.00

Total current liabilities

1,091,592,698.51

730,175,497.30

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

33

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Statement of Financial Position of the Company (Continued)

As at 30 June 2020

Items

Notes

30 June 2020

31 December 2019

Non-current liabilities

Long-term loans

1,543,000,000.00

1,194,000,000.00

Deferred tax liabilities

8,367,050.00

8,367,050.00

Total non-current liabilities

1,551,367,050.00

1,202,367,050.00

Total liabilities

2,642,959,748.51

1,932,542,547.30

Shareholder's equity

Share capital

3,684,640,154.00

3,684,640,154.00

Capital reserves

140,716,900.00

140,716,900.00

Other comprehensive income

6,237,599.88

6,237,599.88

Surplus reserves

379,038,746.87

379,038,746.87

Retained profits

2,161,445,798.64

1,998,317,141.77

Total shareholder's equity

6,372,079,199.39

6,208,950,542.52

Total liabilities and shareholder's equity

9,015,038,947.90

8,141,493,089.82

Legal Representative:

Person in charge of

Person in charge of

  accounting function:

  accounting department:

34

Consolidated Income Statement

For the six months ended 30 June 2020

Prepared by: Chongqing Machinery & Electric Co., Ltd.

Unit: RMB

For the six months ended 30 June

Items

Notes

2020

2019

1.Total operating revenue

VI.48

2,758,285,266.75

2,437,375,522.67

Including:

Operating revenue

VI.48

2,734,732,446.36

2,402,962,360.09

Interest income

VI.48

23,392,737.48

34,387,621.46

Transaction fees and commission income

VI.48

160,082.91

25,541.12

2.Total operating cost

2,818,925,671.54

2,597,514,651.01

Including:

Operating cost

VI.48

2,201,166,381.08

1,944,134,954.38

Interest expenses

VI.48

3,857,195.46

6,186,612.31

Transaction cost and commission fees

VI.48

92,678.40

61,983.93

Business taxes and surcharges

22,275,046.55

28,822,102.41

Selling and distribution expenses

VI.49

129,637,962.19

155,458,830.60

Administrative expenses

VI.50

269,919,869.47

237,233,280.11

Research and development expenses

VI.51

138,162,539.50

147,065,236.22

Financial expenses

VI.52

53,813,998.89

78,551,651.05

Including:

Interest expenses

VI.52

68,532,652.99

79,918,608.69

Interest income

VI.52

18,716,139.28

10,061,435.33

Add:

Other income

VI.53

38,682,860.31

57,606,923.79

Investment income (Loss listed with "-")

VI.54

168,218,313.21

158,974,553.62

Including: Income from investments in

          associates and joint ventures

VI.54

167,098,200.47

155,987,807.84

Gain arising from the changes in fair value

(Loss listed with "-")

VI.55

(19,856.97)

4,808,649.57

Impairment loss of credit (Loss is listed by "-")

VI.56

(304,567.97)

22,346,159.52

Impairment loss of assets (Loss is listed by "-")

VI.57

(15,129,662.29)

5,412,239.96

Gain on disposal of assets (Loss listed with "-")

VI.58

10,496,278.63

134,423,031.35

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

35

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Consolidated Income Statement (Continued)

For the six months ended 30 June 2020

For the six months ended 30 June

Items

Notes

2020

2019

3.Operating profit (Loss listed

with "-")

141,302,960.13

223,432,429.47

Add: Non-operating income

VI.59

6,073,169.81

3,218,045.55

Less: Non-operating expenses

VI.60

4,671,622.35

2,944,875.04

4.Total profit (Loss listed

with

"-")

142,704,507.59

223,705,599.98

Less: Income tax expenses

VI.61

19,610,128.84

47,456,037.06

5.Net profit (Net loss listed

with "-")

123,094,378.75

176,249,562.92

(1) Classification by continuing or discontinued

operation

123,094,378.75

176,249,562.92

1.

Net profit attributable to continuing operation (Net

loss listed with "-")

123,094,378.75

176,249,562.92

2.

Net profit attributable to discontinued operation (Net

loss listed with "-")

-

-

(2) Classification by ownership

123,094,378.75

176,249,562.92

1.

Net profit attributable to shareholders of the

controlling company

108,398,388.95

163,618,899.53

2.

Net profit attributable to non-controlling interests

14,695,989.80

12,630,663.39

6.Net other comprehensive income after tax

VI.62

8,329,418.98

(13,500,404.39)

Net other comprehensive income after tax attributable to

shareholders of the Company

VI.45

8,329,418.98

(13,500,404.39)

(1) Other comprehensive incomes that cannot be

reclassified into profit or loss

VI.45

-

(13,497,388.88)

1.

Changes from recalculation of defined benefit plan

VI.45

-

(479,399.50)

2.

Transfer changes of defined benefit plan to retained

earnings

VI.45

-

(13,017,989.38)

3.

Changes in fair value of other equity instrument

investments

VI.45

-

-

36

Consolidated Income Statement (Continued)

For the six months ended 30 June 2020

For the six months ended 30 June

Items

Notes

2020

2019

(2) Other comprehensive income that can be

reclassified into profit or loss

VI.45

8,329,418.98

(3,015.51)

1. Gain or loss from fair value changes of available-

for-sale financial assets

-

-

2. Share of other comprehensive income of investee company under equity method that can be

reclassified as profit or loss

-

-

3. Effective portion of net investment hedging gains

and losses

VI.45

3,220,037.26

79,178.23

4. Translation differences of financial statements in

foreign currencies

VI.45

5,109,381.72

(82,193.74)

Net other comprehensive income after tax attributable to

non-controlling interests

-

-

7.Total comprehensive income

131,423,797.73

162,749,158.53

(1)

Total comprehensive income attributable to

shareholders of the Company

116,727,807.93

150,118,495.14

(2)

Total comprehensive income attributable to non-

controlling interests

14,695,989.80

12,630,663.39

8.Earnings per share

(1)

Basic earnings per share

0.03

0.04

(2)

Diluted earnings per share

0.03

0.04

Legal Representative:

Person in charge of

Person in charge of

  accounting function:

  accounting department:

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

37

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Income Statement of the Company

For the six months ended 30 June 2020

Prepared by: Chongqing Machinery & Electric Co., Ltd.

Unit: RMB

For the six months ended 30 June

Items

Notes

2020

2019

1. Operating revenue

XVI.3

634,675.69

621,573.16

Less: operating cost

-

-

Business taxes and surcharges

170,468.60

289,091.92

Selling and distribution expenses

-

-

Administrative expenses

17,478,126.42

20,205,747.65

Research and development expenses

-

-

Financial expenses

2,574,433.76

8,354,965.90

Including: Interest expenses

49,587,117.30

38,196,212.18

Interest income

43,781,447.54

29,748,999.04

Add: Other income

20,816.23

-

Investment income (Loss listed with "-")

XVI.4

219,015,699.53

161,080,431.17

Including: Income from investments in associates

and joint ventures

XVI.4

167,005,549.53

158,097,362.68

Gain arising from the changes in fair value

(Loss listed with "-")

-

4,914,863.01

Impairment loss of credit (Loss is listed by "-")

1,000,000.00

20,100.00

Impairment loss of assets (Loss is listed by "-")

-

-

Gain on disposal of assets (Loss listed with "-")

37,895.74

601,957.79

2. Operating profit (Loss listed with "-")

200,486,058.41

138,389,119.66

Add: Non-operating income

-

0.21

Less: Non-operating expenses

511,000.00

-

38

Income Statement of the Company (Continued)

For the six months ended 30 June 2020

For the six months ended 30 June

Items

Notes

2020

2019

3.

Total profit (Loss listed

with "-")

199,975,058.41

138,389,119.87

Less: Income tax expenses

-

-

4.

Net profit (Net loss listed

with "-")

199,975,058.41

138,389,119.87

(1)

Net profit attributable to continuing operation

(Net loss listed with "-")

199,975,058.41

138,389,119.87

(2)

Net profit attributable to discontinued operation

(Net loss listed with "-")

-

-

5.

Net other comprehensive income after tax

-

-

(1)

Other comprehensive incomes that cannot be

reclassified into profit or loss

-

-

(2)

Other comprehensive income that can be reclassified

into profit or loss

-

-

6.

Total comprehensive income

199,975,058.41

138,389,119.87

Legal Representative:

Person in charge of

Person in charge of

  accounting function:

  accounting department:

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

39

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Consolidated Statement of Cash Flows

For the six months ended 30 June 2020

Prepared by: Chongqing Machinery & Electric Co., Ltd.

Unit: RMB

For the six months ended 30 June

Items

Notes

2020

2019

1. Cash flows from operating activities

Cash received from sales of goods and rendering of

services

2,596,387,497.52

2,413,333,091.74

Net increase in customer deposits and interbank

deposits

(343,859,464.84)

33,743,115.14

Net increase in central bank payments

-

(10,000,000.00)

Net increase in interbank payments

-

(30,000,000.00)

Cash received from interest, surcharges and

commission fee

24,030,538.97

29,203,140.51

Net increase in repurchase agreements

(49,949,000.00)

22,711,750.00

Cash received from tax refund

17,524,352.65

7,327,158.72

Cash received relating to other operating activities

316,753,712.83

167,634,892.91

Sub-total of cash inflows from

operating activities

2,560,887,637.13

2,633,953,149.02

Cash paid for goods and services

1,996,081,061.83

1,861,030,745.48

Net increase in loans and advances to customers

(186,539,091.44)

45,432,100.11

Net increase in central bank and interbank payments

34,456,457.78

(32,355,953.16)

Cash paid for interest, surcharges and commission fee

3,803,767.73

4,160,405.50

Cash paid to and on behalf of employees

446,349,257.04

474,897,624.56

Payments of taxes and surcharges

129,346,362.00

183,742,405.91

Cash paid relating to other operating activities

291,757,369.13

228,201,526.54

Sub-total of cash outflows from operating activities

2,715,255,184.07

2,765,108,854.94

Net cash flows from operating

activities

(154,367,546.94)

(131,155,705.92)

40

Consolidated Statement of Cash Flows (Continued)

For the six months ended 30 June 2020

For the six months ended 30 June

Items

Notes

2020

2019

2. Cash flows from investment activities

Cash received from return of investments

-

5,280,782.54

Cash received from investments income

100,053,655.97

137,953,615.36

Net cash received from disposal of fixed assets,

intangible assets and other long-term assets

41,566,227.20

1,138,376.00

Cash received relating to other investing activities

9,800,000.00

22,214,899.10

Sub-total of cash inflows from investing

activities

151,419,883.17

166,587,673.00

Cash paid to acquire fixed assets, intangible assets and

other long-term assets

49,891,307.59

133,122,134.27

Cash paid for investments

154,000,000.00

450,000,000.00

Cash paid relating to other investing activities

361,187,463.73

7,351,503.75

Sub-total of cash outflow from investing

activities

565,078,771.32

590,473,638.02

Net cash flows from investing activities

VI.63(2)

(413,658,888.15)

(423,885,965.02)

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

41

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Consolidated Statement of Cash Flows (Continued)

For the six months ended 30 June 2020

For the six months ended 30 June

Items

Notes

2020

2019

3. Cash flows from financing activities

Cash received from investments

371,700.00

-

Including: cash received by subsidiaries from investment

of non-controlling interests

371,700.00

-

Cash received from loans granted

1,274,205,425.00

1,420,409,465.00

Cash received relating to other financing activities

26,801,199.53

259,553,221.50

Sub-total of cash inflows from financing activities

1,301,378,324.53

1,679,962,686.50

Cash paid for repayment of borrowings

571,212,762.78

818,271,007.09

Cash paid for dividends, profits or payments of interests

72,996,667.63

49,724,148.69

Including: dividends and profits paid to non-controlling

interests by subsidiaries

4,752,225.00

-

Cash paid relating to other financing activities

255,927,309.71

227,852,434.21

Sub-total of cash outflows from financing activities

900,136,740.12

1,095,847,589.99

Net cash flows from financing activities

401,241,584.41

584,115,096.51

4. Effects of changes in exchange rate on cash and

cash equivalents

(1,943,967.50)

383,269.04

5. Net increase in cash and cash equivalents

(168,728,818.18)

29,456,694.61

Add: opening balance of cash and cash equivalents

1,537,567,094.59

1,570,343,395.06

6. Balance of cash and cash equivalents at the end of

this period

1,368,838,276.41

1,599,800,089.67

Legal Representative:

Person in charge of

Person in charge of

  accounting function:

  accounting department:

42

Cash Flows Statement of the Company

For the six months ended 30 June 2020

Prepared by: Chongqing Machinery & Electric Co., Ltd.

Unit: RMB

For the six months ended 30 June

Items

Notes

2020

2019

1. Cash flows from operating activities

Cash received from sales of goods and rendering of

services

-

234,316.66

Cash received relating to other operating activities

11,002,797.06

6,191,910.53

Sub-total of cash inflows from operating

activities

11,002,797.06

6,426,227.19

Cash paid for goods and services

-

-

Cash paid to and on behalf of employees

8,824,053.73

10,686,947.74

Payments of taxes and surcharges

243,869.70

322,339.02

Cash paid relating to other operating activities

6,271,484.86

3,078,525.46

Sub-total of cash outflows from operating activities

15,339,408.29

14,087,812.22

Net cash flows from operating activities

(4,336,611.23)

(7,661,585.03)

2. Cash flows from investment activities

Cash received from return of investments

-

-

Cash received from investments income

316,998,318.01

137,953,615.36

Net cash received from disposal of fixed assets,

intangible assets and other long-term assets

59,500.00

894,100.00

Cash received relating to other investing activities

681,037,946.18

941,017,274.10

Sub-total of cash inflows from investing

activities

998,095,764.19

1,079,864,989.46

Cash paid to acquire fixed assets, intangible assets and

other long-term assets

14,009.00

716,000.00

Cash paid for investments

155,000,000.00

450,000,000.00

Cash paid relating to other investing activities

1,325,910,947.58

1,138,000,000.00

Sub-total of cash outflow from investing

activities

1,480,924,956.58

1,588,716,000.00

Net cash flows from investing activities

(482,829,192.39)

(508,851,010.54)

2020 Report Interim

LTD ,.CO ELECTRIC & MACHINERY CHONGQING

43

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Cash Flows Statement of the Company (Continued)

For the six months ended 30 June 2020

For the six months ended 30 June

Items

Notes

2020

2019

3.

Cash flows from financing activities

Cash received from loans granted

882,000,000.00

1,038,000,000.00

Sub-total of cash inflows from financing activities

882,000,000.00

1,038,000,000.00

Cash paid for repayment of borrowings

211,100,000.00

372,400,000.00

Cash paid for dividends, profits or payments of interests

47,131,192.30

20,074,578.17

Cash paid relating to other financing activities

-

-

Sub-total of cash outflows from financing activities

258,231,192.30

392,474,578.17

Net cash flows from financing activities

623,768,807.70

645,525,421.83

4.

Effects of changes in exchange rate on cash and

cash equivalents

430.04

-

5.

Net increase in cash and cash equivalents

136,603,434.12

129,012,826.26

Add: opening balance of cash and cash equivalents

1,019,104,126.44

1,092,582,082.60

6.

Balance of cash and cash equivalents at the end of

this period

1,155,707,560.56

1,221,594,908.86

Legal Representative:

Person in charge of

Person in charge of

  accounting function:

  accounting department:

44

Prepared by: Chongqing Machinery & Electric Co., Ltd.

Unit: RMB

Items

For the six months ended 30 June 2020

Equity attributable to the equity holders of the controlling Company

Other equity instruments

Other

Less: treasury

comprehensive

General risk

Non-controlling

Share capital

Preferred shares

Perpetual bond

Others

Capital reserves

shares

income

Special reserves

Surplus reserves

provision

Retained profits

interests

Total equity

1. Balance at 31 December 2019

3,684,640,154.00

-

-

-

50,311,968.20

-

21,514,640.55

-

364,663,370.96

-

2,723,290,866.87

444,669,172.15

7,289,090,172.73

Add: Changes in accounting policies

-

-

-

-

-

-

-

-

-

-

-

-

-

Correction of prior-period errors

-

-

-

-

-

-

-

-

-

-

-

-

-

Business combination under common control

-

-

-

-

-

-

-

-

-

-

-

-

-

Others

-

-

-

-

-

-

-

-

-

-

-

-

-

2. Balance at 1 January 2020

3,684,640,154.00

-

-

-

50,311,968.20

-

21,514,640.55

-

364,663,370.96

-

2,723,290,866.87

444,669,172.15

7,289,090,172.73

3. Increase/Decrease for the year (Decrease listed with "-")

-

-

-

-

-

-

8,329,418.98

-

-

-

71,551,987.41

13,853,070.80

93,734,477.19

(1) Total comprehensive income

-

-

-

-

-

-

8,329,418.98

-

-

-

108,398,388.95

14,695,989.80

131,423,797.73

(2) Capital contribution and reduction from shareholders

-

-

-

-

-

-

-

-

-

-

-

371,700.00

371,700.00

1.

Common stock capital contribution from shareholders

-

-

-

-

-

-

-

-

-

-

-

371,700.00

371,700.00

2.

Capital contribution from holders of other equity instruments

-

-

-

-

-

-

-

-

-

-

-

-

-

3.

Equity increase from Share-based payments

-

-

-

-

-

-

-

-

-

-

-

-

-

4.

Others

-

-

-

-

-

-

-

-

-

-

-

-

-

(3) Profit appropriations

-

-

-

-

-

-

-

-

-

-

(36,846,401.54)

(1,214,619.00)

(38,061,020.54)

1.

Appropriation to statutory reserve

-

-

-

-

-

-

-

-

-

-

-

-

-

2.

Appropriation to staff bonus and welfare

-

-

-

-

-

-

-

-

-

-

-

-

-

3.

Appropriation to shareholders

-

-

-

-

-

-

-

-

-

-

(36,846,401.54)

(1,214,619.00)

(38,061,020.54)

4.

Others

-

-

-

-

-

-

-

-

-

-

-

-

-

Equity in Changes of Statement Consolidated

2020 June 30 ended months six the For

45

CHONGQINGMACHINERY&ELECTRIC,.COLTD

InterimReport2020

46

InterimReport2020

CHONGQINGMACHINERY&ELECTRIC,.COLTD

Items

For the six months ended 30 June 2020

30endedmonthssixtheFor

Consolidated

Equity attributable to the equity holders of the controlling Company

Other equity instruments

Other

Less: treasury

comprehensive

General risk

Non-controlling

Share capital

Preferred shares

Perpetual bond

Others

Capital reserves

shares

income

Special reserves

Surplus reserves

provision

Retained profits

interests

Total equity

2020June

Statement

(4) Transfer

-

-

-

-

-

-

-

-

-

-

-

-

-

1.

Transfer of capital reserves to share capital

-

-

-

-

-

-

-

-

-

-

-

-

-

2.

Transfer of surplus reserves to share capital

-

-

-

-

-

-

-

-

-

-

-

-

-

3.

Surplus reserves transfer to make up for losses

-

-

-

-

-

-

-

-

-

-

-

-

-

4.

Transfer other comprehensive income to retained earnings

-

-

-

-

-

-

-

-

-

-

-

-

-

of

5.

Others

-

-

-

-

-

-

-

-

-

-

-

-

-

(5) Special reserves

-

-

-

-

-

-

-

-

-

-

-

-

-

Changes

1.

Appropriation

-

-

-

-

-

-

-

-

-

-

-

-

-

2.

Used

-

-

-

-

-

-

-

-

-

-

-

-

-

(6) Others

-

-

-

-

-

-

-

-

-

-

-

-

4. Balance at 30 June 2020

3,684,640,154.00

-

-

-

50,311,968.20

-

29,844,059.53

-

364,663,370.96

-

2,794,842,854.28

458,522,242.95

7,382,824,649.92

Equity in

Legal Representative:

Person in charge of

Person in charge of

(Continued)

accounting function:

accounting department:

Prepared by: Chongqing Machinery & Electric Co., Ltd.

Unit: RMB

Items

For the year 2019

Equity attributable to the equity holders of the controlling Company

Other equity instruments

Other

Less: treasury

comprehensive

General risk

Non-controlling

Share capital

Preferred shares

Perpetual bond

Others

Capital reserves

shares

income

Special reserves

Surplus reserves

provision

Retained profits

interests

Total equity

1. Balance at 31 December 2018

3,684,640,154.00

-

-

-

50,311,968.20

-

31,052,427.09

-

334,373,473.12

-

2,708,521,621.81

420,762,299.14

7,229,661,943.36

Add: Changes in accounting policies

-

-

-

-

-

-

-

-

-

-

(4,927,467.14)

(515,895.43)

(5,443,362.57)

Correction of prior-period errors

-

-

-

-

-

-

-

-

-

-

-

-

-

Business combination under common control

-

-

-

-

-

-

-

-

-

-

-

-

-

Others

-

-

-

-

-

-

-

-

-

-

-

-

-

2. Balance at 1 January 2019

3,684,640,154.00

-

-

-

50,311,968.20

-

31,052,427.09

-

334,373,473.12

-

2,703,594,154.67

420,246,403.71

7,224,218,580.79

3. Increase/Decrease for the year (Decrease listed with "-")

-

-

-

-

-

-

(9,537,786.54)

-

30,289,897.84

-

19,696,712.20

24,422,768.44

64,871,591.94

(1) Total comprehensive income

-

-

-

-

-

-

3,450,550.34

-

-

-

184,834,923.25

19,185,393.90

207,470,867.49

(2) Capital contribution and reduction from shareholders

-

-

-

-

-

-

-

-

-

-

-

36,000,000.00

36,000,000.00

1.

Common stock capital contribution from shareholders

-

-

-

-

-

-

-

-

-

-

-

36,000,000.00

36,000,000.00

2.

Capital contribution from holders of other equity instruments

-

-

-

-

-

-

-

-

-

-

-

-

-

3.

Equity increase from Share-based payments

-

-

-

-

-

-

-

-

-

-

-

-

-

4.

Others

-

-

-

-

-

-

-

-

-

-

-

-

-

(3) Profit appropriations

-

-

-

-

-

-

-

-

30,289,897.84

-

(178,126,274.36)

(24,699,291.70)

(172,535,668.22)

1.

Appropriation to statutory reserve

-

-

-

-

-

-

-

-

30,289,897.84

-

(30,289,897.84)

-

-

2.

Appropriation to staff bonus and welfare

-

-

-

-

-

-

-

-

-

-

(450,770.36)

-

(450,770.36)

3.

Appropriation to shareholders

-

-

-

-

-

-

-

-

-

-

(147,385,606.16)

(24,699,291.70)

(172,084,897.86)

4.

Others

-

-

-

-

-

-

-

-

-

-

-

-

-

(Continued) Equity in Changes of Statement Consolidated

2019 year the For

47

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InterimReport2020

48

InterimReport2020

CHONGQINGMACHINERY&ELECTRIC,.COLTD

Items

For the year 2019

2019yeartheFor

Consolidated

Equity attributable to the equity holders of the controlling Company

Other equity instruments

Other

Less: treasury

comprehensive

General risk

Non-controlling

Share capital

Preferred shares

Perpetual bond

Others

Capital reserves

shares

income

Special reserves

Surplus reserves

provision

Retained profits

interests

Total equity

(4) Transfer

-

-

-

-

-

-

(12,988,336.88)

-

-

-

12,988,336.88

-

-

Statement

1.

Transfer of capital reserves to share capital

-

-

-

-

-

-

-

-

-

-

-

-

-

2.

Transfer of surplus reserves to share capital

-

-

-

-

-

-

-

-

-

-

-

-

-

3.

Surplus reserves transfer to make up for losses

-

-

-

-

-

-

-

-

-

-

-

-

-

4.

Transfer other comprehensive income to retained earnings

-

-

-

-

-

-

(12,988,336.88)

-

-

-

12,988,336.88

-

-

of

5.

Others

-

-

-

-

-

-

-

-

-

-

-

-

-

(5) Special reserves

-

-

-

-

-

-

-

-

-

-

-

-

-

Changes

1.

Appropriation

-

-

-

-

-

-

-

-

-

-

-

-

-

2.

Used

-

-

-

-

-

-

-

-

-

-

-

-

-

(6) Others

-

-

-

-

-

-

-

-

-

-

(273.57)

(6,063,333.76)

(6,063,607.33)

Equity in

4. Balance at 31 December 2019

3,684,640,154.00

-

-

-

50,311,968.20

-

21,514,640.55

-

364,663,370.96

-

2,723,290,866.87

444,669,172.15

7,289,090,172.73

Legal Representative:

Person in charge of

Person in charge of

(Continued)

accounting function:

accounting department:

Prepared by: Chongqing Machinery & Electric Co., Ltd.

Unit: RMB

Items

For the six months ended 30 June 2020

Other equity instruments

Other

Preferred

Less: treasury

comprehensive

Share capital

shares

Perpetual bond

Others

Capital reserves

shares

income

Special reserves

Surplus reserves

Retained profits

Total equity

1. Balance at 31 December 2019

3,684,640,154.00

-

-

-

140,716,900.00

-

6,237,599.88

-

379,038,746.87

1,998,317,141.77

6,208,950,542.52

Add: Changes in accounting policies

-

-

-

-

-

-

-

-

-

-

-

Correction of prior-period errors

-

-

-

-

-

-

-

-

-

-

-

Others

-

-

-

-

-

-

-

-

-

-

-

2. Balance at 1 January 2020

3,684,640,154.00

-

-

-

140,716,900.00

-

6,237,599.88

-

379,038,746.87

1,998,317,141.77

6,208,950,542.52

3. Increase/Decrease for the period (Decrease listed with "-")

-

-

-

-

-

-

-

-

-

163,128,656.87

163,128,656.87

(1) Total comprehensive income

-

-

-

-

-

-

-

-

-

199,975,058.41

199,975,058.41

(2) Capital contribution and reduction from shareholders

-

-

-

-

-

-

-

-

-

-

-

1.

Common stock capital contribution from shareholders

-

-

-

-

-

-

-

-

-

-

-

2.

Capital contribution from holders of other equity

instruments

-

-

-

-

-

-

-

-

-

-

-

3.

Equity increase from Share-based payments

-

-

-

-

-

-

-

-

-

-

-

4.

Others

-

-

-

-

-

-

-

-

-

-

-

(3) Profit appropriations

-

-

-

-

-

-

-

-

-

(36,846,401.54)

(36,846,401.54)

1.

Appropriation to statutory reserve

-

-

-

-

-

-

-

-

-

-

-

2.

Appropriation to shareholders

-

-

-

-

-

-

-

-

-

(36,846,401.54)

(36,846,401.54)

3.

Others

-

-

-

-

-

-

-

-

-

-

-

the For

of Equity in Changes of Statement

2020 June 30 ended months six

Company the

49

CHONGQINGMACHINERY&ELECTRIC,.COLTD

InterimReport2020

50

InterimReport2020

CHONGQINGMACHINERY&ELECTRIC,.COLTD

Items

For the six months ended 30 June 2020

ChangesofStatement 2020June30endedmonthssixtheFor

Other equity instruments

Other

Preferred

Less: treasury

comprehensive

Share capital

shares

Perpetual bond

Others Capital reserves

shares

income

Special reserves

Surplus reserves

Retained profits

Total equity

(4) Transfer

-

-

-

-

-

-

-

-

-

-

-

1.

Transfer of capital reserves to share capital

-

-

-

-

-

-

-

-

-

-

-

2.

Transfer of surplus reserves to share capital

-

-

-

-

-

-

-

-

-

-

-

3.

Surplus reserves transfer to make up for losses

-

-

-

-

-

-

-

-

-

-

-

4.

Transfer changes of defined benefit plan to retained

in

earnings

-

-

-

-

-

-

-

-

-

-

-

Equity

5.

Transfer other comprehensive income to retained

earnings

-

-

-

-

-

-

-

-

-

-

-

6.

Others

-

-

-

-

-

-

-

-

-

-

-

(5) Special reserves

-

-

-

-

-

-

-

-

-

-

-

of

1.

Appropriation

-

-

-

-

-

-

-

-

-

-

-

the

2.

Used

-

-

-

-

-

-

-

-

-

-

-

(6) Others

-

-

-

-

-

-

-

-

-

-

-

Company

4. Balance at 30 June 2020

3,684,640,154.00

-

-

-

140,716,900.00

-

6,237,599.88

-

379,038,746.87

2,161,445,798.64

6,372,079,199.39

(Continued)

Legal Representative:

Person in charge of

Person in charge of

  accounting function:

  accounting department:

Prepared by: Chongqing Machinery & Electric Co., Ltd.

Unit: RMB

Items

For the year 2019

Other equity instruments

Other

Preferred

Less: treasury

comprehensive

Share capital

shares

Perpetual bond

Others

Capital reserves

shares

income

Special reserves

Surplus reserves

Retained profits

Total equity

1. Balance at 31 December 2018

3,684,640,154.00

-

-

-

140,716,900.00

-

616,640.00

-

348,748,849.03

1,873,093,667.34

6,047,816,210.37

Add: Changes in accounting policies

-

-

-

-

-

-

-

-

-

-

-

Correction of prior-period errors

-

-

-

-

-

-

-

-

-

-

-

Others

-

-

-

-

-

-

-

-

-

-

-

2. Balance at 1 January 2019

3,684,640,154.00

-

-

-

140,716,900.00

-

616,640.00

-

348,748,849.03

1,873,093,667.34

6,047,816,210.37

3. Increase/Decrease for the period (Decrease listed with "-")

-

-

-

-

-

-

5,620,959.88

-

30,289,897.84

125,223,474.43

161,134,332.15

(1) Total comprehensive income

-

-

-

-

-

-

5,620,959.88

-

-

302,898,978.43

308,519,938.31

(2) Capital contribution and reduction from shareholders

-

-

-

-

-

-

-

-

-

-

-

1.

Common stock capital contribution from shareholders

-

-

-

-

-

-

-

-

-

-

-

2.

Capital contribution from holders of other equity

instruments

-

-

-

-

-

-

-

-

-

-

-

3.

Equity increase from Share-based payments

-

-

-

-

-

-

-

-

-

-

-

4.

Others

-

-

-

-

-

-

-

-

-

-

-

(3) Profit appropriations

-

-

-

-

-

-

-

-

30,289,897.84

(177,675,504.00)

(147,385,606.16)

1.

Appropriation to statutory reserve

-

-

-

-

-

-

-

-

30,289,897.84

(30,289,897.84)

-

2.

Appropriation to shareholders

-

-

-

-

-

-

-

-

-

(147,385,606.16)

(147,385,606.16)

3.

Others

-

-

-

-

-

-

-

-

-

-

-

(4) Transfer

-

-

-

-

-

-

-

-

-

-

-

1.

Transfer of capital reserves to share capital

-

-

-

-

-

-

-

-

-

-

-

2.

Transfer of surplus reserves to share capital

-

-

-

-

-

-

-

-

-

-

-

(Continued) Company the of Equity in Changes of Statement

2019 year the For

51

CHONGQINGMACHINERY&ELECTRIC,.COLTD

InterimReport2020

52

InterimReport2020

CHONGQINGMACHINERY&ELECTRIC,.COLTD

Items

For the year 2019

Statement 2019yeartheFor

Other equity instruments

Other

Preferred

Less: treasury

comprehensive

Share capital

shares

Perpetual bond

Others

Capital reserves

shares

income

Special reserves

Surplus reserves

Retained profits

Total equity

of

3.

Surplus reserves transfer to make up for losses

-

-

-

-

-

-

-

-

-

-

-

Changes

4.

Transfer changes of defined benefit plan to retained

earnings

-

-

-

-

-

-

-

-

-

-

-

5.

Transfer other comprehensive income to retained

earnings

-

-

-

-

-

-

-

-

-

-

-

in

6.

Others

-

-

-

-

-

-

-

-

-

-

-

(5) Special reserves

-

-

-

-

-

-

-

-

-

-

-

ofEquity

1.

Appropriation

-

-

-

-

-

-

-

-

-

-

-

2.

Used

-

-

-

-

-

-

-

-

-

-

-

(6) Others

-

-

-

-

-

-

-

-

-

-

-

4. Balance at 31 December 2019

3,684,640,154.00

-

-

-

140,716,900.00

-

6,237,599.88

-

379,038,746.87

1,998,317,141.77

6,208,950,542.52

the

Legal Representative:

Person in charge of

Person in charge of

Company

  accounting function:

  accounting department:

(Continued)

Notes to the Consolidated Financial Statements

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

I. GENERAL INFORMATION

Chongqing Machinery & Electric Co., Ltd. (the "Company") was established on 27 July 2007 as a joint share company with limited liability by Chongqing Machinery & Electronics Holding (Group) Co., Ltd. ("CQMEHG"), Chongqing Yufu Capital Operation Group Co., Ltd ("Yufu company",originally called Chongqing Yufu Assets Management Co., Ltd), China Huarong Asset Management Co., Ltd. ("Huarong Company"), and Chongqing Construction Engineering Group Co. Ltd. ("CCEG"). The address of the Company's registered office is No. 60, Middle Section of Huangshan Avenue, New North Zone, Chongqing City, the PRC. The Company's headquarter is located in Chongqing, the PRC. The parent company and the ultimate controlling shareholder is Chongqing Machinery & Electronics Holding (Group) Co. Ltd. The Group was established with a registered capital of RMB2,679.74 Million (RMB1 per share).

On 13 June 2008, the Group publicly issued 1,004.90 million H shares to foreign investors with approval of the Circular "Zhengjian Xuke [2008] No. 285" of the China Securities Regulatory Commission, and the shares were listed on The Stock Exchange of Hong Kong Limited (the "Stock Exchange"). After issuing the shares, the total share capital increased to RMB3,684.64 million.

As of 30 June 2020, the registered capital of the Group was RMB3,684,640,154 yuan. The Group and its Subsidiaries (hereinafter collectively referred to as "the Group") are mainly engaged in the manufacturing, sales and services of clean energy equipment and high-end intelligent equipment.

The consolidated financial statements have been approved for issue by the Board of Directors of the Group on 26 August 2020.

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

53

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

II. SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS

The scope of consolidated financial statements of the Group includes 41 companies such as Chongqing General Industry (Group) Co., Ltd., Chongqing Pigeon Electric Wires & Cables Co., Ltd. ("Pigeon Wires") and Chongqing Water Turbine Works Co., Ltd..

For details, please refer to relevant content as set out in "VII. CHANGES IN CONSOLIDATION SCOPE" and "VIII. INTEREST IN OTHER ENTITIES" of this note.

III. BASIS FOR THE PREPARATION OF FINANCIAL STATEMENTS

(1) Basis of preparation

The financial statements are prepared in accordance with the Accounting Standard for Business Enterprises - Basic Standard, and the specific accounting standards and other relevant regulations issued by the Ministry of Finance on 15 February 2006 and in subsequent periods (hereafter collectively referred to as "the Accounting Standards for Business Enterprises" or "CAS") and the disclosure requirements in the Preparation Convention of Information Disclosure by Companies Offering Securities to the Public No.15-General Rules on Financial Reporting issued by the China Securities Regulatory Commission, Hong Kong's "Companies Ordinance" and based on the accounting policies and accounting estimates set out in "IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES" in this note.

(2) Going concern

The financial statements are prepared on a going concern basis. The Group has a history of recent profitable operations and financial support, so it is reasonable to prepare financial statements on a going concern basis.

54

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

Specific accounting policies and accounting estimates are formulated by the Group based on actual manufacturing and operating characteristics including business cycle, recognition and measurement of provision for bad debts of accounts receivable, inventory cost flow assumptions, measurement of net realizable value of inventory, classification and depreciation method of fixed assets, amortization of intangible assets, capitalization of research and development expenses, recognition and measurement of revenue, etc.

1. Declaration on Compliance with CAS

The Company complied with the requirements of CAS in preparing its financial statements, which give a true and full view of the financial position, financial performance and cash flows of the Group.

2. Accounting Period

The Group's accounting period is from 1 January to 31 December.

3. Business Cycle

The Group treats 12 months as a business cycle and the criteria for classifying current and non-current assets and liabilities.

4. Functional Currency

The Group's functional currency is Renminbi (RMB). The financial statements of the Group are expressed in RMB unless otherwise stated.

The subsidiaries decide their own functional currency according to the main economic environment in which they operate. Their functional currency converts to RMB when the financial statements were prepared.

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

55

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

5. Measurement for Business Combinations under Common Control and Business Combinations not under Common Control

As the merging party, assets acquired and liabilities obtained by the Group through a business combination under common control shall be measured at their carrying amounts of the combined party in the ultimate controlling party's consolidated financial statements at the consolidation date. The differences between the carrying amount of the net assets acquired and the carrying amount of the consideration paid should be adjusted in the capital reserve. If capital reserve is not sufficient for offsetting, the retained earnings shall be adjusted.

The identifiable assets, liabilities and contingent liabilities acquired in the merger of enterprises not under the same control are measured at fair value on the acquisition date. The consolidation cost is the sum of fair value of cash paid or non-cash assets paid to get control of acquiree, liabilities issued or assumed, equity securities issued and all other direct costs during business combination (for those business combination achieved in stages, the consolidation cost equals to the sum of each transaction). The excess of consolidation cost over the fair value of net identifiable assets of the acquiree shall be recognised as goodwill. It should reassess the fair value of all identifiable assets achieved through business consolidation, liabilities or contingent liabilities, non-cash assets or equity securities issued if the consolidation cost is less than the fair value of net identifiable assets. After reassessment, if the consolidation cost is still less than the fair value of net identifiable assets of the acquiree, the excess shall be recognised into non-operating income.

56

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

6. Preparation of Consolidated Financial Statements

The consolidated financial statements included all subsidiaries and special purpose entities that the Company has effective control.

In preparing the consolidated financial statements, where the accounting policies and the accounting periods of the Group and subsidiaries are inconsistent, the financial statements of the subsidiaries are adjusted in accordance with the accounting policies and the accounting period of the Group.

All major internal transactions, current balances and unrealized profits within the scope of the merger shall be offset at the time of preparation of the consolidated statements. The share of the owner's equity of a subsidiary that does not belong to the parent company and the current net profit and loss, other comprehensive income and the share of the total comprehensive income that belongs to the minority shareholders' equity shall be listed as "Minority Interests", "Non- controlling Interest" and "Other Comprehensive Income" attributable to "Non- controlling Interest and total comprehensive income" attributable to non- controlling interest in the consolidated financial statements.

For the subsidiaries consolidated under common control, its operating results and cash flows shall be included in the consolidated financial statements from the beginning of the consolidated period. When preparing comparative consolidated financial statements, Adjust the related items of prior year's financial statements are adjusted. The reporting subject formed after the merger is always present since the time when the ultimate controlling party began to control.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

6. Preparation of Consolidated Financial Statements (continued)

For the subsidiary acquired through the business combination not under common control, operating results and cash flows should be included in the consolidated financial statements from the date on which control is transferred to the Group. When preparing consolidated financial statements, it shall adjust the financial statements of the subsidiary company on the basis of the fair values of the identifiable assets, liabilities and contingent liabilities determined on the acquisition date.

The Group partially disposes of the long-term equity investments in subsidiaries without loss of control. In the consolidated financial statements, the difference between the disposal price and disposal of long-term equity investments shall be subject to the share of net assets that the subsidiaries continue to calculate from the date of purchase or the date of combination shall adjust capital premium or equity premium. If the capital is not sufficient for offsetting, the retained earnings shall be adjusted.

When disposing of part of the equity investment and losing control of the entity, the Group shall re-measure the fair value of the remaining equity investment subsequent to the disposal at the date when the Group lost control. When preparing the consolidated financial statements, The sum of the disposal consideration amount and the fair value of the remaining equity investment less the difference between the share of the net assets that the original subsidiary from the acquisition date or the combination date, the difference is recorded in the loss of control investment income in the current period and write down the goodwill. Other comprehensive income related to the equity investment of the original subsidiaries shall be transferred to investment profit and loss in the current period when the control was lost.

58

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

6. Preparation of Consolidated Financial Statements (continued)

The Group disposes of the equity investment in the subsidiary through multiple transactions until it loses control. When several transactions related to the disposal of equity investment in a subsidiary until the control over the subsidiary is lost belong to transactions in a basket, each of which is accounted for as disposal of a subsidiary with a transaction until the control over a subsidiary is lost; however, the different between the amount of disposal prior to the loss of control and the net assets of a subsidiary attributable to the disposal investment shall be recognized as other comprehensive income in consolidated financial statements and transferred to profit or loss at the time when the control is lost.

All significant intra-group balances, transactions and unrealized profits are eliminated in the consolidated financial statements. The portion of subsidiaries' equity and the portion of subsidiaries' net profits and losses and comprehensive incomes for the period not attributable to the Company are recognized as non-controlling interests and presented separately in the consolidated financial statements under equity, net profits and total comprehensive income respectively. Unrealized profits and losses resulting from the sale of assets by the Company to its subsidiaries are fully eliminated against net profit attributable to shareholders of the Company. Unrealized profits and losses resulting from the sale of assets by a subsidiary to the Company are eliminated and allocated between net profit attributable to shareholders of the Company and minority interests in accordance with the allocation proportion of the parent in the subsidiary. Unrealized profits and losses resulting from the sale of assets by one subsidiary to another are eliminated and allocated between net profit attributable to shareholders of the Company and minority interests in accordance with the allocation proportion of the parent in the subsidiary.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

7. Cash and Cash Equivalents

Cash in the Group's cash flows statement represents cash on hand and deposits that can be readily draw on demand. Cash equivalents in the cash flow statement represent short-term (3 months or less), and highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of change in value.

8. Foreign currency transactions and translation of financial statements denominated in foreign currency

(1) Foreign currency transactions

Foreign currency transactions are translated into RMB at the spot exchange rate of the transaction dates. On balance sheet date, foreign currency monetary items are translated into RMB at the spot exchange rate of balance sheet date. Exchange differences arising from these translations are recognised in profit or loss for the current period, except for those attributable to foreign currency borrowings that have been taken out specifically for the acquisition or construction of qualifying assets, which are capitalised as part of the cost of those assets.

(2) Translation of foreign currency financial statements

Asset and liability items in the balance sheet of foreign operations are translated at the spot exchange rates at the balance sheet date; equity items other than undistributed profits are translated at the spot exchange rates at the date of the transactions. Income and expense items in the income statements are translated at the spot exchange rate at the date of the transactions. The foreign currency statement translation difference arising from the above conversion shall be listed in other comprehensive income item. The impact of the foreign currency translation on the cash is presented in the cash flow statement separately.

60

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities

The Group recognizes a financial asset or liability when it enters a financial instrument contract.

(1) Financial assets

1) Classification, recognition basis and measurement of financial assets

Based on the business mode for management of the Group and cash flow characteristics of contracts, the financial assets are classified into the following categories: (i) financial assets measured at amortized cost; (ii) financial assets at fair value through other comprehensive income; (iii) financial assets at fair value through profit or loss.

The Group classifies the financial assets into financial assets as subsequently measured at amortized cost if all the following conditions are met: a) The objective of the business model within which the asset is held is to hold assets in order to collect contractual cash flows, and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. Such financial asset is measured initially at its fair value, the relating transaction costs shall be recognized into the initial amount of the financial asset, and is subsequently measured at amortized cost. Except for the case that the financial asset is designated for hedging project, gain or loss arising from derecognition, impairment or amortization for the difference between the initial amount and the amount due using the effective interest method are recorded in current profit or loss. These financial assets include cash at bank and on hand, notes receivable, accounts receivable, other receivables, contractual assets, debt investments and long-term receivables. Debt investments and long-term receivables due within 1 year (inclusive) at the balance sheet date are listed as the current portion of non-current assets; at acquiring date, debt investments with maturities within one year (inclusive) are listed as other current assets.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(1) Financial assets (continued)

1) Classification, recognition basis and measurement of financial assets (continued)

The Group classifies the financial assets into financial assets as measured at fair value through other comprehensive income if all the following conditions are met: a) the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Such financial asset is measured initially at its fair value, and the relating transaction costs shall be recognized into the initial amount of the financial asset. Gain or loss incurred by financial assets measured at fair value through other comprehensive income excepting the case that the financial asset is designated for hedging project shall be recognized in other comprehensive income except the impairment loss or gains, foreign exchange profit or loss, and interests calculated by the effective interest rate method of financial assets. When the financial asset is derecognized, accumulated gains or losses previously recognized in other comprehensive income shall be transferred to current profit or loss from other comprehensive income. These financial assets are listed as receivables financing and other equity instrument investments.

The Group lists those debt instruments that do not meet the criteria for amortised cost or fair value through other comprehensive income as financial assets held for trading that are measured at fair value through profit or loss. At the initial recognition, for eliminating or dramatically reducing accounting mismatch, the Group specifies parts of financial assets as those measured at fair value through current profit or loss.

62

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(1) Financial assets (continued)

2) Equity instruments

The Group recognises its equity instruments that have no control, joint control and significant influence on the fair value through profit or loss and list them as financial assets held for trading; the equity instruments that are expected to be held for more than a year from the balance sheet date are listed as other non-current financial assets.

Besides, the Group specifies certain non-tradable equity instrument investments as financial assets that are measured at fair value through other comprehensive income and presented as other equity instrument investments. The relevant dividend income of such financial assets is included in the current profit and loss.

3) Recognition basis and measurement of transferring financial assets

The Group will derecognized the financial asset if one of the following conditions is satisfied: (a) The contractual rights to collect the cash flows from the financial asset terminate; (b) When the financial asset is transferred, and the Group transfers substantially all the risks and rewards of ownership of the financial asset; (c) When the financial asset is transferred, the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset and has not retained control.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(1) Financial assets (continued)

3) Recognition basis and measurement of transferring financial assets (continued)

When a transfer of the financial asset qualifies for derecognition, the difference between the carrying amount of the financial asset transferred and the sum of the consideration received from the transfer and the cumulative amount of changes in fair value that has been previously recorded in other comprehensive income, is recorded in current profit or loss (the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding).

If a transfer of part of a financial asset qualifies for derecognition, the carrying amount of the entire financial asset transferred is allocated between the part that is derecognized and the part that continues to be recognized, based on the respective fair values of those parts. The difference between the sum of consideration received from the transfer and cumulative amount of changes in fair value that shall be allocated to the part derecognized which has been previously recognized in other comprehensive income and the above allocated carrying amount, is recorded in current profit or loss (the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding).

64

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(1) Financial assets (continued)

4) Impairment of financial assets

On the basis of expected credit losses, the Group performs impairment treatment on the financial assets at amortized cost, debt instrument investments, loan commitments and contract assets at fair value through other comprehensive income, and recognize the loss provision.

Based on reasonable information such as past events, current conditions and economic forecasts, the Group calculate the default- risk-weighted present value of the difference between the agreed and expected cash flow to project the default loss of our contracts.

The Group measures loss provisions according to the following circumstances: (i) the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measure the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses; (ii) the credit risk on a financial instrument has increased significantly, the Group measure the loss allowance for that financial instrument at an amount equal to full lifetime expected credit losses; (iii) financial asset is considered credit-impaired at the time of acquisition or at the beginning, the Group measure the loss allowance for that financial instrument at an amount equal to full lifetime expected credit losses. Except for the amounts of which the credit loss rate can be expected with the obvious evidence, the Company calculates the expected credit loss on a group basis.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(1) Financial assets (continued)

4) Impairment of financial assets (continued)

(i) The Group classifies accounts receivable and other receivables into several groups according to the credit risk characteristics and calculates the expected credit losses on a group basis. The basis of determination of groups is as follows:

Classification and basis of notes receivable:

Name of groups

Basis of determination of groups

Bank acceptance notes

Banks with low credit risk

Trade acceptance bill

Notes other than bank acceptance

bills

Accounts receivable division and combination and basis:

Name of groups

Basis of determination of groups

Related company funds

Funds formed from transactions

with related companies

Quality margin portfolio

Quality deposit not in collection

period

Good combination of

Customers who have received

repayment within credit

good payment within the credit

period

period

General customer fund

Other general customers

portfolio

66

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(1) Financial assets (continued)

4) Impairment of financial assets (continued)

(i) (continued)

Classification and basis of other receivables:

Name of groups

Basis of determination of groups

Government funds

Accounts receivable from

government

Related company funds

Accounts receivable from related

companies

Deposit, security deposit

Deposits, security deposit and

and reserve fund

reserve fund receivable

General or other

Accounts receivable from general

payments

customers or others

For the accounts receivable and other receivables classified as accounts receivable from general customers or others, the Group refers to the historical credit loss experience, combined with the forecast of the current and the future economic condition to calculate the expected credit loss according to the accounts receivable aging and other receivables aging and expected credit loss through full life time in reference.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(1) Financial assets (continued)

4) Impairment of financial assets (continued)

(i) (continued)

For the accounts receivable and other receivables classified as accounts receivable from government, accounts receivable from related companies, deposits, security deposit and reserve fund receivable, the Group calculates the expected credit loss according to the default risk exposure and expected credit loss rates over the next 12 months or throughout the lifetime.

(ii) The group divides the contract assets into the following combinations according to the characteristics of credit risk, and calculates the expected credit loss based on the combination. Confirm the combination and its basis as follows:

Name of groups

Basis of determination of groups

Contract assets related

Construction contract

to construction

contracts

Contract assets formed

Contracts other than construction

by general business

contracts

68

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(1) Financial assets (continued)

4) Impairment of financial assets (continued)

(iii) The group divides long-term receivables into the following combinations according to the characteristics of credit risk, and calculates the expected credit loss based on the combination. The combination and basis are as follows:

Name of groups

Basis of determination of groups

Related company funds

Accounts receivable from related

companies

Other payments

Other payments except related

companies

For the contract assets and long-term receivables divided into portfolios, the group, referring to the historical credit loss experience, combined with the current situation and future forecast, prepares the reconciliation table of the contract asset aging and the expected credit loss rate of the duration through the default risk exposure and the expected credit loss rate of the whole duration, and calculates the expected credit loss.

(iv) For loans and advances, the Group classifies loans into normal, concerned, secondary, suspicious and loss combinations according to the credit risk characteristics and the guiding principles of loan risk classification of the people's Bank of China, and calculates the expected credit loss based on the combination.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(2) Financial liabilities

1) Classification recognition basis and measurement of financial liabilities

The group classifies the financial liabilities upon initial recognition as financial liabilities measured at fair value through profit or loss and other financial liabilities.

Financial liabilities measured at fair value through profit or loss, including financial liabilities held for trading and those designated as measured at fair value through profit or loss upon initial recognition, (relevant classification basis is disclosed according to the classification basis of financial assets), are measured subsequently at fair value, and profits or losses resulting from changes in fair value and dividends and interest expense related to financial liabilities are recognized in current profits and losses.

Other financial liabilities, (specific disclosure of financial liabilities according to actual situation), are subsequently measured at amortized cost using effective interest method. The Group classify all financial liabilities as subsequently measured at amortised cost, except for: (a) Financial liabilities measured at fair value through profit or loss, including financial liabilities held for trading (including derivatives that are liabilities) and those designated as measured at fair value through profit or loss upon initial recognition; (b) Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies. (c) financial guarantee contracts that do not satisfied (a) and (b), and commitments to provide a loan at a below- market interest rate that do not satisfied (a).

70

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(2) Financial liabilities (continued)

1) Classification recognition basis and measurement of financial liabilities (continued)

The financial liability constituted by contingent consideration confirmed by the buyer through a business combination not under common control by the Group is measured at fair value through current profit or loss.

2) Derecognition criteria of financial liabilities

When the present obligation or a part of the present obligation of a financial liability is discharged, a financial liability or a part of a financial liability shall be derecognized. A contract is entered into between the Group and the creditor to replace the existing financial liability by a new financial liability. And if the contract terms of new financial liability are substantially different with those in existing financial liability, it shall derecognize the existing financial liability and recognize a new financial liability. When the Group performed substantive changes to all or part of the contract terms of the existing financial liabilities, the existing financial liabilities or part of it shall be derecognized. And financial liabilities after term revision will be recognized as a new financial liability. The difference between the carrying amount of the financial liability derecognized and the consideration paid is recognized in current profit or loss.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(2) Financial liabilities (continued)

(3) Methods for determination of the fair value of financial assets and financial liabilities

The Group measures the fair value of financial assets and financial liabilities at the prices in principal market, or in the absence of a principal market, measures the fair value at the prices in the most advantageous market, and use valuation techniques that are appropriate in the circumstances and for which sufficient data and other information are available to measure fair value. The input value used in fair value measurement is divided into three levels: the first level of input value is the unadjusted quotation of the same assets and liabilities that can be obtained on the measurement day in the active market; the second level of input value is the direct or indirect observable input value of related assets and liabilities in addition to the first level input value; the third level of input value is the unobservable input level of related assets and liabilities. The Group prefers the first level of input values, and uses the third level of input values at last. Investment of other equity instruments uses the first level of input values. The level of fair value measurement results is determined by the lowest level of input values which are of great significance to fair value measurement as a whole.

The Group measures the investment of equity instruments at fair value. But in limited cases, if the short-term information used to determine fair value is insufficient, or if the possible estimated amount of fair value is widely distributed, and the cost represents the best estimate of fair value in the range, the cost can represent its proper estimate of fair value in the range of distribution.

72

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(2) Financial liabilities (continued)

(4) Elimination between financial assets and financial liabilities

The financial assets and liabilities of the Group are shown separately in the balance sheet and are not offset by each other. However, when the following conditions are met at the same time, the net amount offset shall be shown in the balance sheet: a) the Group has a statutory right to set off the recognized amount, and the statutory right is currently enforceable. b) the Group intends to settle its financial assets and liabilities in net amount, or liquidate the financial assets and settle the financial liabilities at the same time.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(2) Financial liabilities (continued)

(5) Difference between financial liabilities and equity instruments and relevant measurement

The Group distinguishes between financial liabilities and equity instruments in accordance with the following principles: (1) If the Group cannot unconditionally avoid fulfilling a contractual obligation by delivering cash or other financial assets, the contractual obligation meets the definition of financial liability. Although some financial instruments do not explicitly contain terms and conditions for the obligation to deliver cash or other financial assets, they may indirectly form contractual obligations through other terms and conditions. (2) If a financial instrument is to be settled with the Group's own equity instruments, it is necessary to consider whether the Group's own equity instruments used to settle the instrument are to be used as a substitute for cash or other financial assets, or to enable the holder of the instrument to take residual equity in the assets after the issuer deducts all liabilities. If the former is the case, the instrument is the issuer's financial liabilities. If the latter is the case, the instrument is the issuer's equity instrument. In some cases, a financial instrument contract sets that the group shall use or use its own equity instruments to settle the financial instrument, in which the amount of contractual rights or obligations is equal to the number of its own equity instruments available or to be delivered multiplied by the fair value at the time of settlement, whether the amount of the contractual rights or obligations is fixed or changes totally or partially based on the division of this set variables other than the market price of the group's own equity instruments (such as interest rates, the price of a commodity or the price of a financial instrument), the contract is classified as financial liabilities.

74

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

9. Financial Assets and Financial Liabilities (continued)

(2) Financial liabilities (continued)

(5) Difference between financial liabilities and equity instruments and relevant measurement (continued)

In classifying financial instruments (or their components) in the consolidated statements, the Group takes into account all terms and conditions reached between the members of the Group and the holders of financial instruments. If the group as a whole assumes the obligation to deliver cash, other financial assets or settle accounts in other ways that result in the instrument becoming a financial liability, the instrument should be classified as a financial liability.

Where financial instruments or their components are financial liabilities, the relevant interest, dividends (or stock bonus), gains or losses, as well as gains or losses arising from redemption or refinancing, shall be included in the profits and losses of the current period.

Where a financial instrument or its components belong to an equity instrument, when it is issued (including refinancing), repurchased, sold or cancelled, the Group shall account as a change of equity, and shall not recognize the change of the fair value of the equity instrument.

10. Inventories

The Group's inventories include but not limited to the raw materials, packaging material, low-value consumption goods, unfinished products, and merchandise inventories.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

10. Inventories (continued)

Perpetual inventory system is adopted by the Group. Inventory is valued at actual cost when acquired. Weighted average method and individual valuation method are used to determine the actual cost of the inventory used or issued. Low-value consumption goods are amortized at one time when they are used.

Net realizable value of merchandise inventory, unfinished products and materials held for sale is the estimated selling price in the ordinary course of business less the applicable variable selling expenses and related taxes. Net realizable value of material inventory held for production is the estimated selling price of the products less estimated costs of completion, applicable variable selling expenses and related taxes.

11. Contractual assets

Contractual assets refer to the Group's right (depends on factors other than passage of time) to collect costs from customers in exchange for goods or services transferred by the Group. If the Group sells two clearly distinguishable goods to its customers, it has the right to collect payment for one of the goods delivered, but the collection depends on the delivery of another commodity, the Group regards the right to collect payment as a contractual asset.

The method for determining the expected credit losses of the group on the contract assets is as shown in Note IV.9.

76

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

12. Contractual costs

(1) Method for determining the amount of assets related to contractual costs

The Group's assets related to contractual costs include contract performance costs and contract acquisition costs.

The cost of contract performance, that is, the cost incurred by the Group for the performance of the contract, does not fall within the scope of other enterprise accounting standards and meets the following conditions at the same time, is recognized as an asset as the cost of contract performance: the cost is directly related to a current or expected contract, including direct labor, direct materials, manufacturing costs (or similar costs), costs and other costs incurred solely as a result of the contract and is clearly undertaken by the customer. The cost increases the Group's resources for future performance obligations; the cost is expected to be recovered.

The acquisition cost of a contract, is the incremental cost expected to be recovered by the Group in order to obtain the contract, and is recognized as an asset as the acquisition cost of the contract; if the amortization period of the asset does not exceed one year, the profits and losses of the current period shall be included in the occurrence of the asset. Incremental cost refers to the cost (such as sales commission) that will not occur if the group does not obtain a contract. Expenditures incurred by the Group for the purpose of obtaining a contract other than the incremental costs expected to be recovered (e.g. travel expenses incurred regardless of whether the contract was acquired) are recorded in the current profits and losses at the time of occurrence, except those clearly undertaken by the customer.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

12. Contractual costs (continued)

(2) Amortization of assets related to contractual costs

The Group's assets related to contract costs shall be amortized on the same basis as the commodity income recognition related to the assets, and shall be included in the current profits and losses.

(3) Impairment of assets related to contractual costs

In determining impairment losses of assets related to contract costs, the Group first determines impairment losses in accordance with other relevant enterprise accounting standards and other assets related to the contract; then determines impairment losses in accordance with their book value higher than the residual consideration expected by the Group for the transfer of commodities related to the asset and estimates the costs to be incurred for the transfer of the related commodities. If the difference between the two items exceeds the allowance for impairment, the provision for impairment shall be calculated and the impairment loss of assets shall be considered.

After the factors of impairment in the previous period have changed, and the above-mentioned balance is higher than the book value of the asset, the provision for asset impairment which was originally calculated shall be transferred back to the current profit and loss, but the book value of the asset after the transfer shall not exceed the book value of the asset on the transfer date assumed that the provision for asset impairment is not included.

78

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

13. Long-term Equity Investment

Long-term equity investments of the Group comprise the investment towards subsidiaries and investments towards associates and joint ventures.

The Group's judgment on joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of parties sharing control.

If the Group holds, directly or indirectly (e.g. through subsidiaries) more than 20% but lower than 50% of the voting power of the investee, it is presumed that the entity has significant influence. If the Group holds, directly or indirectly (e.g. Through subsidiaries) less than 20% of the voting power of the investee, the representation on the board of directors or equivalent governing body of the investee, or participation in financial and operation policy-making process, or the material transaction between the entity and the investee, or expedition of management personnel, or the provision of essential technical information will be considered.

A subsidiary company of the Group is the entity that controls the invested unit. As for long-term equity investment acquired through a business combination under common control, the initial recognition are measured in accordance with the proportion of the book value of the owner's equity of the merged party in ultimately control party's consolidated financial statements. If the book value of the net assets of the merged party is negative on the date of merger, the cost of long-term equity investment shall be fixed at zero.

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

13. Long-term Equity Investment (continued)

If a company acquires the equity of the invested entity under common control step by step through multiple transactions and eventually forms a merger, it shall supplement the method of dealing with the long-term equity investment disclosed in the financial statements of the parent company during the reporting period of acquiring the control right. For example, the investee's equity is acquired step by step under common control through multiple transactions, and eventually the enterprise merges, which belongs to a package transaction. The Group will treat all transactions as a control transaction. If it does not belong to the package transaction, the initial investment cost of the long-term equity investment shall be the share of the net assets of the merged party in the book value of the final controlling party's consolidated financial statements on the date of merger. The capital reserve is adjusted by the difference between the initial investment cost and the book value of the long-term equity investment before the merger, plus the sum of the book value of the new share payment on the merger day, and if the capital reserve is insufficient to be reduced, the retained earnings shall be reduced.

The initial investment cost is the actual acquisition cost if the long-term equity investment is acquired through a business combination not under common control.

80

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

13. Long-term Equity Investment (continued)

If a company acquires the equity of the invested entity not under common control step by step through multiple transactions and eventually forms a merger, it shall supplement the method of dealing with the cost of long-term equity investment disclosed in the financial statements of the parent company during the reporting period of acquiring the control right. For example, the investee's shares are acquired step by step through multiple transactions, and eventually a merger of enterprises is formed, which belongs to a package transaction, the Group will treat all transactions as a control transaction. If the transaction does not belong to the package transaction, the initial investment cost shall be accounted for according to the book value of the original equity investment and the sum of the additional investment cost. If the equity held is accounted for by equity method before the acquisition date, the other comprehensive income accounted by the original equity method will not be adjusted temporarily, and when dealing with the investment, the same basis as the assets or liabilities directly disposed of by the invested entity shall be adopted for accounting treatment. If the equity held prior to the purchase date is accounted for at fair value in the financial assets available for sale, the cumulative changes in fair value originally included in other comprehensive gains are transferred to the current investment gains and losses on the consolidation date.

In addition to the above-mentionedlong-term equity investments obtained through enterprise mergers, long-term equity investments obtained by paying cash shall be regarded as investment costs according to the purchase price actually paid; long-term equity investments obtained by issuing equity securities shall be regarded as investment costs according to the fair value of issuing equity securities; long-term equity investments invested by investors shall be regarded as investment costs in accordance with investment contracts or agreements.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

13. Long-term Equity Investment (continued)

The Group adopts cost method to account for subsidiary investment and equity method to account for joint venture and joint venture investment.

The book value of the cost of long-term equity investment which based on cost method in subsequent measurement will increase according to the fair value of the cost paid by the additional investment and the related transaction costs when additional investment is made. The cash dividend or profit declared by the invested entity shall be recognized as the current investment income according to the amount taken.

The book value of long-term equity investment which uses equity method in subsequent measurement will increase or decrease accordingly with the change of owner's equity of other invested units. Among them, when confirming the share of the net profit and loss of the invested unit, based on the fair value of the identifiable assets of the invested unit at the time of acquiring the investment, and in accordance with the accounting policies and accounting period of the group, and offsetting the internal transaction gains and losses occurring between the joint venture and the joint venture, which belong to the invested enterprise according to the share-holding ratio, the net value of the invested unit shall be calculated. Profit is confirmed after adjustment.

When the long-term equity investment is disposed, the difference between its book value and the actual price obtained shall be included in the current investment income. If a long-term equity investment calculated by the equity method is included in the owner's rights and interests due to other changes in the owner's rights and interests other than net profit and loss of the invested entity, the portion originally included in the owner's rights and interests shall be transferred to the current investment profit and loss according to the corresponding proportion when disposing of the investment.

82

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

13. Long-term Equity Investment (continued)

If the joint control or significant influence on the invested unit is lost due to the disposal of part of the equity investment, the residual equity after disposal shall be accounted for financial assets available for sale. The difference between the fair value and book value of the remaining equity on the date of the loss of joint control or significant influence shall be included in the current profits and losses. The other comprehensive income of the original equity investment confirmed by the equity method shall be accounted for on the same basis as the assets or liabilities directly disposed of by the invested entity when the equity method is terminated.

If the disposal of part of the long-term equity investment loses control over the invested entity, the residual equity after disposal can exercise joint control or exert significant influence on the invested entity, the balance between the book value of the disposal equity and the disposal consideration shall be accounted for as the investment income, and the residual equity shall be accounted for by the equity method after disposal. If the residual equity cannot exert joint control or exert significant influence on the invested unit, it shall be accounted for according to the relevant provisions of the financial assets available for sale. The difference between the book value of the disposal equity and the book value of the disposal equity shall be included in the investment income. The difference between the fair value of the residual equity on the day of losing control and the book value shall be included in the current investment profit and loss.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

13. Long-term Equity Investment (continued)

If the transaction from step-by-step disposal to the loss of controlling rights does not belong to the package of transaction, each transaction is accounted for separately. In a "package transaction", transactions are treated as a transaction to dispose of subsidiaries and lose control rights. However, before the loss of control rights, the difference between the disposal price of each transaction and the book value of the long-term equity investment corresponding to the disposed equity is recognized as other comprehensive income, and when the control rights are lost, it will be transferred to current profits and losses of losing control rights.

14. Investment Properties

Investment properties comprise land-use rights and buildings which are held for long-term rental yields and not occupied by the Group, and uncompleted buildings which are intended to hold for rent. Investment properties are initially recognized at cost. The subsequently costs shall be added to the initial costs of the investment properties when the economic benefit related is likely to realize and is measurable. Or else, it should be stated in current profit or loss.

Depreciation (or amortization) of investment properties is calculated using a straight-line method to allocate the depreciable amounts (cost less residual value) over the estimated useful life. Below is the table of estimated useful lives, residual value rate and annual depreciation (amortization) rates:

Estimated

Annual

Estimated

residual value

depreciation

Category

useful life

rates (%)

rate (%)

Buildings (including the

land-use right)

30-50 years

0.00-5.00

1.90-3.33

84

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

14. Investment Properties (continued)

If the usage is changed into owner-occupied, the investment property is reclassified into a property, plant and equipment or an intangible asset since the day the change has been made. On the contrary, the fix or intangible asset is transferred into investment property if the usage of these properties is to earn rentals or capital appreciations. When a transfer occurs, the previous carrying amount shall be used as the new book value.

The estimated useful lives, estimated residual value rates and depreciation method shall be annually reviewed and adjusted properly.

An investment property shall be derecognized on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The gains from sale, transfer, written- off or destroy of the investment properties less the carrying amount and relevant taxes shall be recognized in current profit or loss.

When an investment property's recoverable amount is lower than its carrying amount, the carry amount shall be decreased to the recoverable amount.

15. Property, Plant and Equipment

(1) Recognition and Initial measurement of property, plant and equipment

Property, plant and equipment comprise buildings, machineries, transportations, office equipments end etc.

Property, plant and equipment are recognized when it is probable that the future economic benefits associated with the assets will flow into the entity, and the cost of the asset can be measured reliably. It is recognized at purchase cost or construction cost for the initial cost. The state owned property, plant and equipment were recognized at the evaluation price during the system-changing of the state-owned enterprise.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

15. Property, Plant and Equipment (continued)

(1) Recognition and Initial measurement of property, plant and equipment

(continued)

Subsequent recognition is recorded when the future economic benefits associated with the asset is likely to flow into the entity and the cost of the asset can be measured reliably. The value of the replaced part shall be derecognized its carrying amount. The other subsequent expenses are recognized in the current profit or loss.

(2) Depreciation of property, plant and equipment

Depreciation is calculated using a straight-line method to allocate the depreciable amounts (cost less residual value) over the estimated useful life. As for the property, plant and equipment with impairment provisions, the Depreciation is calculated using a straight-line method to allocate the depreciable amounts (cost less residual and impairment value) over the estimated useful life.

Estimated

Estimated

Annual

useful lives

residual

depreciation

No.

Category

(years)

value (%)

rate (%)

1

Buildings

20-50 years

3.00-5.00

1.90-4.75

2

Machinery

7-28 years

5.00

3.39-13.57

equipments

3

Transportations

6-12 years

5.00

7.92-15.83

4

Office equipments

3-14 years

5.00

6.79-31.67

86

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

15. Property, Plant and Equipment (continued)

(2) Depreciation of property, plant and equipment (continued)

The estimated useful lives, estimated residual value rate and depreciation method shall be annually reviewed and adjusted properly.

When the recoverable amount of property, plant and equipment is lower than the carrying amounts, the carrying amounts shall be decreased to the recoverable amounts.

(3) Disposal of property, plant and equipment

The property, plant and equipment should be derecognized on disposal or when the property, plant and equipment is permanently withdrawn from use and no future economic benefits are expected from its disposal. The gains from sale, transfer, written-off or destroy of the property, plant and equipment less the carrying amount and relevant taxes shall be recognized in current profit or loss.

16. Construction in Progress

Construction in progress is recognized according to the actual costs. The actual costs include construction cost, installment cost, borrowing costs eligible for capitalization and other necessary expenses incurred in order to make the construction in progress ready to use. When construction in progress reaches the predetermined usable state, it should be transferred to fixed asset and be depreciated from the next month. When the recoverable amount of construction in progress is lower than the carrying amount, the carrying amount shall be decreased to the recoverable amount.

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

17. Borrowings costs

General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale. Capitalization should cease when substantially all of the activities necessary to prepare the asset for its intended use or sale are complete. Capitalization should be suspended during periods in which active development is interrupted abnormally for more than 3 months. And it recapitalized when the abnormal interruption is over.

The actual interest costs incurred by the funds borrowed specifically less the interest earned by the unused part deposited in the bank or any income earned on the temporary investment shall be capitalized; where funds are part of a general pool, the eligible amount is determined by applying a capitalization rate to the expenditure on that asset. The capitalization rate will be the weighted average of the borrowing costs applicable to the general pool.

88

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

18. Right-of-use assets

Right-of-use assets refer to the right of the Group as a lessee to use leased assets during the lease term. The types of leased assets of the Group mainly include buildings, machinery and equipment and site use rights.

(1) Initial measurement

At the start of the lease period, the Group initially measures the right-of- use asset at cost. The cost includes the following four items: (i) The initial measurement amount of the lease liability, that is, the present value of the outstanding lease payments is recognized as the lease liability, except for short-term leases and leases of low-value assets; (ii) Lease payments paid on or before the start of the lease period, where lease incentives exist, deduct the relevant amount of lease incentives already enjoyed; (iii) The initial direct costs incurred, that is, the incremental costs incurred to reach the lease; (iv) Expected costs incurred to demolish and remove leased assets, rehabilitate the site where the leased assets are located, or restore leased assets to the state agreed in the lease terms, except for costs incurred for the production of inventory.

(2) Subsequent measurement

After the start of the lease period, the Group adopts a cost model for subsequent measurement of the right-of-use asset, that is, the cost-of-use asset is measured at cost less accumulated depreciation and accumulated impairment losses.

If the Group remeasures the lease liability in accordance with the relevant provisions of the lease standards, the book value of the right-of-use asset shall be adjusted accordingly.

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

18. Right-of-use assets (continued)

(3) Depreciation of right-of-use assets

From the start of the lease period, the Group depreciates the right-of-use assets. The right-of-use asset is generally depreciated from the month in which the lease term begins. The amount of depreciation accrued is included in the cost of the relevant asset or the current profit or loss based on the use of the right-of-use asset.

When determining the depreciation method of the right-of-use asset, the Group makes a decision based on the expected consumption of the economic benefits related to the right-of-use asset, and depreciates the right-of-use asset on a straight-line basis.

When determining the depreciation period of the right-of-use asset, the Group adheres to the following principles: If it can reasonably determine the ownership of the leased asset at the end of the lease period, depreciation will be accrued within the remaining useful life of the leased asset; it cannot be reasonably determined that the lease can be obtained when the lease period expires For asset ownership, depreciation is accrued during the shortest period between the lease term and the remaining useful life of the leased asset.

If the right-of-use asset is impaired, the Group depreciates the book value of the right-of-use asset after deducting impairment losses.

90

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

19. Intangible Assets

Intangible assets comprise the land-use rights, technical know-how, brand, customer relationships, franchise rights and software etc, it is recognized at cost. The state-owned intangible assets were recognized at the evaluation price during the system-changing of the state-owned enterprise.

(1) Categories of intangible assets

1) Land-use right

Depreciation is calculated using a straight-line method to allocate the depreciable amounts over the useful life of 30 to 50 years. If it is difficult to identify the purchase price of the land-use right to that of the building, the whole price is recognized as a fixed asset.

2) Technical know-how

Technical know-how is shown at cost as all investors agreed. Amortization is calculated using the straight-line method to allocate the cost of technical know-how over its estimated useful life of 10 years. The Group acquired all of the technical know-how which is acquired by the subsidiaries and should be recognized at fair value at the acquisition date in 2011. And the estimated useful life is 6 to 10 years.

3) Brand and customer relationships

Brand and customer relationships are recognized at fair value at the acquisition date in a business combination in 2010. Since the brand has an indefinite useful life, brand shall not be amortized during the useful life and should be tested annually for impairment. Customer relationships shall be amortized using the straight-line method over their estimated useful lives of 10 to 12 years.

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

91

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

19. Intangible Assets (continued)

(1) Categories of intangible assets (continued)

4) Software

Software licenses are capitalized by the purchase price and are amortized over their estimated useful lives of 2 to 10 years.

5) Franchise rights

The Group engages in certain service concession arrangements in which the Group carries out construction work for the granting authority and receives in exchange a right to operate the assets concerned in accordance with the pre-established conditions set by the granting authority. The franchise rights are classified as intangible assets or accounts receivable from the granting authority.

According to the contract, in a certain period after the construction, the Group is entitled to receive a certain amount of monetary resources or other financial assets from the granting authority; or when the charge for the user is lower than a certain limitation, the granting authority will compensate for the difference, which is shown as financial assets while the Group recognize the revenue.

Also if the operator receives a right to charge user within a certain period, but the amount is uncertain and unable to claim a right for accounts receivable, it is stated as an intangible asset while recognizing the revenue.

92

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

19. Intangible Assets (continued)

(1) Categories of intangible assets (continued)

5) Franchise rights (continued)

If intangible assets model is applicable, the Group classifies the relevant non-current assets linked to the long-term investment in these franchise arrangements as "franchise rights" within under intangible assets classification on the consolidated balance sheet. Once the relevant infrastructure projects under the franchise arrangements have been completed, the franchise rights will be amortized over the term of the franchise period on the straight-line basis under the intangible assets model.

If financial assets model is applicable, the Group classifies the assets under these franchise arrangements as financial assets on the consolidated balance sheet. Once the relevant infrastructure projects under the franchise arrangements have been completed, the interest of financial assets will be calculated using effective interest rate method and related gain/(loss) will be charged to the profit or loss within the franchise period.

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

93

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

19. Intangible Assets (continued)

(1) Categories of intangible assets (continued)

6) Research and development

Internal research and development costs will be separated into research expenditure and development cost based on their nature and whether there is great uncertainty of the research and development will finally form an intangible asset.

Research expenditure is recognized as expenses as incurred. Costs incurred on development projects are recognized as intangible assets when all the following criteria are fulfilled:

(a)

It is technically feasible to complete the intangible asset so

that it will be available for use or sale;

(b)

Management intends to complete the intangible asset to use or

sell it;

(c)

It can be demonstrated how the intangible asset will generate

probable future economic benefits;

(d) Adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and

(e) The expenditure attributable to the intangible asset during its development can be reliably measured.

94

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

19. Intangible Assets (continued)

(1) Categories of intangible assets (continued)

6) Research and development (continued)

If development costs don't meet the above criteria, they are recognized as an expense as incurred . Development costs previously recognized as an expense cannot be reclassified as an intangible asset in subsequent periods. Capitalized costs are recorded as development expenditures on balance sheet and are transferred into intangible assets only after technical and commercial feasibility of the asset for sale or use have been established.

(2) Impairment of intangible assets

When the recoverable amount is lower than its carrying amount, the carrying amount of the asset shall be written down to the recoverable amount.

(3) Regular review of the useful lives and the amortization method

As for intangible asset with a definite useful life, the useful lives and depreciation method shall be annually reviewed and adjusted properly.

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

95

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

20. Impairment of long-term assets

At the end of each reporting period, long-term equity investments, investment property carried at cost, property, plant and equipment, construction in progress, right-of-use asset, intangible assets with definite useful lives and operating lease assets are assessed for impairment by the Group when there is any indication that an asset may be impaired. Goodwill and intangible assets with indefinite useful lives shall be assessed for impairment at the end of each reporting period no matter there is any indication for impairment or not.

The recoverable amount is the higher of an asset's fair value less costs of disposal and its value in use. The recoverable amount should be determined for an individual asset. If it is not possible to determine the recoverable amount for an individual asset, the recoverable amount shall be determined for cash- generating units in which the asset included. The identification of an asset's cash-generating unit shall be based on whether the main cash inflows generated by the asset's cash-generating unit are independent of the cash inflows from other assets or cash-generating units. When the recoverable amount of an asset or a cash-generating unit is less than its carrying amount, the carrying amount shall be written down to its recoverable amount. The reduction shall be recognised as the current profit or loss, and the corresponding provision for impairment of assets is also recognised.

96

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

20. Impairment of long-term assets (continued)

When testing the impairment of relevant cash-generating units or groups of cash-generating units containing goodwill, if there are signs of impairment of cash-generating units or groups of cash-generating units related to goodwill, the impairment test of cash-generating units or cash-generating units without goodwill is carried out first, and the recoverable amount is calculated to confirm the corresponding impairment loss. Then the impairment test is carried out on the cash-generating units or groups of cash-generating units containing goodwill, and the carrying amount and the recoverable amount are compared. If the recoverable amount is lower than the carrying amount, the impairment loss is allocated first to reduce the carrying amount of goodwill allocated to the cash-generating units or groups of cash-generating units; and then, reduce the carrying amounts of the other assets included in the cash-generating units or groups of cash-generating units pro rata on the basis.

Reversal of an impairment loss for the above assets is prohibited.

21. Long-term deferred expenses

Long-term deferred expenses include the improvement expenditures of property, plant and equipment under operating lease, and other expenses which incurred in the current period but are required to be amortized for more than one fiscal period. Long-term deferred expenses are amortized on the straight-line basis over the expected benefit period and are recorded as the actual expenses less the accumulated amortization.

As for the molds stated in the long-term deferred expenses, the service life average method is used to apportion them to the benefit period.

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2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020

(All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

22. Contract liabilities

The Group lists the obligations it has received or receivable from customers to transfer goods to customers as contract liabilities, such as the amount the company has received before transferring the promised goods.

The Group will show the contract assets and contract liabilities under the same contract as each other in net amounts.

23 Employee Benefits

Employee benefits of the Group refer to rewards or compensations paid for services provided by employees or employer layoffs benefits, which include short-term employee benefits, post-employment benefits, termination benefits and other long-term employee benefits.

Short-term employee benefits include salaries, bonus, allowance and subsidies, staff benefits, medical insurance, employment injury insurance, maternity insurance, housing fund, union and educational appropriations, short-term paid absences, etc. Short-term benefits are recognized as liabilities during the accounting period when employees render service to the Group. Employee benefits are recognized as profit or loss in the current period or allocated to the cost of related assets. The non-monetary benefits are measured at fair value.

Post-employment benefit schemes are classified as defined contribution plan and defined benefit plan. Defined contribution plans of the Group are a kind of post-employment benefit scheme in which the Group pays fixed fees to an independent fund and is no longer obligated to make further payments. Defined benefit plans are post-employment benefit plans other than a defined contribution plans. The post-employment benefits of the Group mainly refer to basic pension and unemployment insurance during this reporting period, both of which belong to the defined contribution plan.

98

Notes to the Consolidated Financial Statements (Continued)

From 1 January 2020 to 30 June 2020 (All amounts are presented in RMB except otherwise stated)

IV. SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)

23 Employee Benefits (continued)

Employees of the Group are all involved in employee's endowment insurance policy implemented by local labour and social security department. The Group makes the monthly payment to the local institution of employee's endowment insurance at a regulated base and proportion. After employees are retired, local labour and social security department has the obligation to pay their basic pension. The payment made according to the policy when employee render service to the Group is recognized as a liability and stated as profit or loss or allocated to the cost of related assets during the period.

Termination benefits are the compensations made to employees when the Group terminates the employment relationship with employees prior to the expire of the employment contracts or provides compensations as an offer to encourage employees to accept voluntary layoffs. When the Group provides termination benefits, the employment benefit liabilities generated from termination benefits are recognized to profit or loss in the current period on the early date of the followings: (a) when the Group can no longer withdraw the offer of those benefits or layoff plans unilaterally; and (b) when the Group recognizes costs for a restructuring related to termination benefits.

2020 Report Interim LTD ,.CO ELECTRIC & MACHINERY CHONGQING

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Chongqing Machinery & Electric Co. Ltd. published this content on 14 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 September 2020 09:44:06 UTC