CSC Financial : 2020 Interim Report

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

Stock Code: 6066

2020

Interim Report

	Contents
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Section 1	Company Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Section 2	Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Section 3 Management Discussion and Analysis . . . . . . . . . . . . . . . . .	11
Section 4	Significant Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	48
Section 5 Changes in Ordinary Shares and Information on
	Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	53
Section 6 Directors, Supervisors, Senior Management and
	Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	56
Annex	Report on Review of Interim Financial Information and
	Notes to the Interim Condensed Consolidated
	Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .	62

DEFINITIONS

Unless the context otherwise requires, the following expressions have the following meanings in this report:

Definitions of common terms
"Articles of Association" or "Articles"	the articles of association of CSC Financial Co., Ltd.
"A Share(s)"	domestic shares in the share capital of our Company with a
	nominal value of RMB1.00 each, listed on the Shanghai Stock
	Exchange and traded in RMB
"Board" or "Board of Directors"	the board of directors of our Company
"BSCOMC"	Beijing State-owned Capital Operation and Management Center
	(北京國有資本經營管理中心)
"Central Huijin"	Central Huijin Investment Limited (中央匯金投資有限責任公司)
"China Securities Capital"	China Capital Management Limited (中信建投資本管理有限公司)
"China Securities Funds"	China Securities Funds Management Limited (中信建投基金管理有
	限公司)
"China Securities Futures"	China Futures Co., Ltd. (中信建投期貨有限公司)
"China Securities International"	China Securities (International) Finance Holding Company Limited
	(中信建投（國際）金融控股有限公司)
"China Securities Investment"	China Securities Investment Limited (中信建投投資有限公司)
"CITIC Group"	CITIC Group Corporation Ltd. (中國中信集團有限公司)
"CITIC Limited"	CITIC Limited (中國中信股份有限公司)
"CITIC Securities"	CITIC Securities Co., Ltd. (中信証券股份有限公司)

2 CSC Financial Co., Ltd

DEFINITIONS

"Company Law"	Company Law of the People's Republic of China
"CSC" or "Company",	CSC Financial Co., Ltd. (中信建投証券股份有限公司)
"our Company", "parent company"
"CSRC"	the China Securities Regulatory Commission (中國證券監督管理委
	員會)
"CSRF"	China Structural Reform Fund Co., Ltd. (中國國有企業結構調整基金
	股份有限公司)
"Director(s)"	director(s) of our Company
"ETF"	Exchange Traded Fund
"Glasslake Holdings"	Glasslake Holdings Limited (鏡湖控股有限公司)
"Group"	CSC Financial Co., Ltd. and its subsidiaries
"HK$" or "HKD"	Hong Kong dollars, the lawful currency of Hong Kong
"Hong Kong" or "HK"	the Hong Kong Special Administrative Region of the PRC
"Hong Kong Listing Rules"	the Rules Governing the Listing of Securities on The Stock
or "Listing Rules"	Exchange of Hong Kong Limited (as amended from time to time)
"Hong Kong Stock Exchange"	The Stock Exchange of Hong Kong Limited
"H Share(s)"	overseas listed foreign shares in the share capital of our Company
	with a nominal value of RMB1.00 each, listed on the Hong Kong
	Stock Exchange and traded in HK dollars
"IPO"	initial public offering

Interim Report 2020

3

DEFINITIONS

"Latest Practicable Date"	25 August 2020, being the latest practicable date prior to the
	printing of this interim report for the purposes of ascertaining the
	information contained herein
"Ministry of Finance"	Ministry of Finance of the People's Republic of China
"NEEQ Company"	National Equities Exchange and Quotations Co., Ltd. (全國中小企
	業股份轉讓系統有限責任公司)
"PwC"	PricewaterhouseCoopers
"PwC Zhong Tian"	PricewaterhouseCoopers Zhong Tian LLP
"QFII"	Qualified Foreign Institutional Investor (合格境外機構投資者)
"Reporting Period"	from 1 January 2020 to 30 June 2020
"RMB" or "Renminbi"	the lawful currency of the PRC
"RQFII"	Renminbi Qualified Foreign Institutional Investor (人民幣合格境外
	機構投資者)
"Securities Law"	Securities Law of the People's Republic of China
"Shanghai and Shenzhen Stock	Shanghai Stock Exchange and Shenzhen Stock Exchange
Exchanges"
"Shanghai Shangyan"	Shanghai Shangyan Investment Center (Limited Partnership) (上海
	商言投資中心（有限合夥))
"Shareholder(s)"	holder(s) of the Share(s)
"Share(s)"	ordinary shares in the share capital of our Company with a nominal
	value of RMB1.00 each, comprising A Shares and H Shares

4 CSC Financial Co., Ltd

DEFINITIONS

"SSE"	Shanghai Stock Exchange
"SSE Listing Rules"	the Rules Governing the Listing of Stocks on the Shanghai Stock
	Exchange
"SZSE"	Shenzhen Stock Exchange
"Supervisor(s)"	the supervisor(s) of the Company
"Supervisory Committee"	the supervisory committee of the Company
"Tengyun Investment"	Xizang Tengyun Investment Management Limited (西藏騰雲投資管
	理有限公司), formerly known as Xizang Shannan Century Jinyuan
	Investment Management Limited (西藏山南世紀金源投資管理有限公
	司)

"the end of the Reporting Period" "US$, USD, US Dollar(s)" "Wind Info"

30 June 2020

United States dollars, the lawful currency of the United States

Wind Information Co . , Ltd . ( 萬得信息技術股份有限公司), a joint-stock company with limited liability incorporated in the PRC and a service provider of financial data, information and software

1. The Company prepared this interim report in both English and Chinese. In the event of any discrepancies in interpretation between the English version and Chinese version of this interim report, the Chinese version shall prevail.
2. In this interim report, the discrepancies in the decimal place between the sum of the amount of each sub-item and the grand total are due to rounding to the nearest integer.

Interim Report 2020

5

SECTION 1 COMPANY INFORMATION

I.	PROFILE
	Name in Chinese	中信建投証券股份有限公司
	Abbreviation in Chinese	中信建投証券
	Name in English	China Securities Co., Ltd.
		CSC Financial Co., Ltd. (carrying on business in Hong
		Kong with such registered English name)
	Abbreviation in English	CSC
	Chairman of the Board and Legal	WANG Changqing
	Representative
	General Manager	LI Geping
	Registered Capital and Net Capital
				Unit: RMB Yuan
				As at the end
			As at the end of
			the Reporting Period	of the previous year
			(30 June 2020)	(31 December 2019)
	Registered Capital		7,646,385,238	7,646,385,238
	Net Capital		57,229,535,236.50	53,955,640,469.01

Notes: As of the date of this report, the total number of Shares of the Company was 7,646,385,238, of which 6,385,361,476 Shares were A Shares and 1,261,023,762 Shares were H Shares.

1. BASIC INFORMATION

During the Reporting Period, there were no changes in basic information of the Company.

Registered Address	Unit 4, No. 66 Anli Road, Chaoyang District, Beijing
Postal Code of Registered Address	100101
Office Address	No. 188 Chaonei Avenue, Dongcheng District, Beijing
Postal Code of Office Address	100010
Place of Business in Hong Kong	18/F, Two Exchange Square, Central, Hong Kong
Website	www.csc108.com
Telephone	[phone]
Facsimile	[phone]
National Customer Service Hotline	+86 95587/400 8888 108
Investor Relations Hotline	[phone]
United Social Credibility Code	91110000781703453H
Websites for Information Disclosure	HKEXnews website of HKEx: www.hkexnews.hk
	Official website of CSC: www.csc108.com
Authorised Representatives of the Company	WANG Changqing, LI Geping
Joint Company Secretaries	WANG Guangxue, WONG Wai Ling

6 CSC Financial Co., Ltd

SECTION 1 COMPANY INFORMATION

1. CONTACT PERSONS AND METHODS

Contact Person	WANG Guangxue
Contact Address	No. 188 Chaonei Avenue, Dongcheng District, Beijing
Telephone	[phone]
Facsimile	[phone]
Email	[e-mail]

IV. PLACES WHERE INTERIM REPORTS OF THE COMPANY ARE AVAILABLE

No. 188 Chaonei Avenue, Dongcheng District, Beijing

18/F, Two Exchange Square, Central, Hong Kong

1. OTHER RELEVANT INFORMATION

Auditors	PricewaterhouseCoopers Zhong Tian LLP
	11/F PricewaterhouseCoopers Center
	Link Square 2, 202 Hu Bin Road
	Huangpu District, Shanghai
	PricewaterhouseCoopers
	22/F, Prince's Building, Central, Hong Kong
H Share Registrar	Computershare Hong Kong Investor Services Limited
	17M Floor, Hopewell Centre, 183 Queen's Road East
	Wanchai, Hong Kong

Interim Report 2020

7

SECTION 2 FINANCIAL SUMMARY

1.		KEY ACCOUNTING DATA
					UNIT: RMB MILLION
					Increase/decrease
					as compared to
			January to June	January to June	the same period
		Items	2020	2019	last year
					(%)
		Total revenue and other income	13,009	8,613	51.04
		Operating profit	5,868	3,063	91.58
		Profit before income tax	5,869	3,065	91.49
		Net profit attributable to equity holders of
		the Company	4,578	2,330	96.54
		Net cash flow from operating activities	-24,960	542	-4,705.17
					UNIT: RMB MILLION
					Increase/decrease
					as compared to
			30 June	31 December	the end of last
		Items	2020	2019	year
					(%)
		Total assets	311,522	285,670	9.05
		Total liabilities	252,114	228,775	10.20
		Equity attributable to equity holders of the
		Company	59,086	56,582	4.43
	Total share capital	7,646	7,646	-

8 CSC Financial Co., Ltd

SECTION 2 FINANCIAL SUMMARY

2.		KEY FINANCIAL INDICATORS
					Increase/decrease
					as compared to
			January to June	January to June	the same period
	Items	2020	2019	last year
					(%)
	Basic earnings per share (RMB Yuan/	0.58	0.30	93.33
		Share)
	Diluted earnings per share (RMB Yuan/	0.58	0.30	93.33
		Share)
	Return on weighted average equity (%)	9.12	5.34	Increased by 3.78
					percentage points

Note: Earnings per Share and the return on weighted average equity above are calculated in accordance with the International Accounting Standards, and might be different from those calculated in accordance with the relevant regulations stipulated under the Standards Concerning the Compilation Rules for Information Disclosure by Companies Offering Securities to the Public No. 9 - Calculation and Disclosure of Return on Net Assets and Earnings per Share (2010 Revision) issued by the CSRC.

			Increase/decrease
			as compared to
	30 June	31 December	the end of last
Items	2020	2019	year
			(%)
Net assets per share attributable to equity	7.73	7.40	4.46
holders of the Company (RMB Yuan/
Share)
Gearing ratio (%)	75.34	75.37	Decreased by
			0.03 percentage
			points

Note: In the gearing ratios for the Reporting Period shown in the above table, it has excluded the effect of customer brokerage deposits in assets and liabilities.

In calculating the net assets per Share attributable to equity holders of the Company as indicated in the table above, the perpetual bonds issued by the Company was included in the net assets attributable to equity holders of the Company. After excluding such impact, the net assets per share attributable to ordinary shareholders of the Company as at the end of Reporting Period was RMB6.42 (31 December 2019: RMB6.09).

Interim Report 2020

9

SECTION 2 FINANCIAL SUMMARY

3. NET CAPITAL AND RISK CONTROL INDICATORS OF THE COMPANY

Items	30 June 2020 31 December 2019
Net capital (RMB Million)	57,230	53,956
Net assets (RMB Million)	57,068	54,901
Total risk capital reserves (RMB Million)	19,056	19,607
Risk coverage ratio (%)	300.33	275.19
Capital leverage ratio (%)	22.44	16.84
Liquidity coverage ratio (%)	215.40	252.17
Net stable funding ratio (%)	170.05	162.06
Net capital/net assets (%)	100.28	98.28
Net capital/liabilities (%)	33.85	36.28
Net assets/liabilities (%)	33.76	36.92
Proprietary equity securities and securities derivatives/net
capital (%)	19.69	16.41
Proprietary non-equity securities and securities derivatives/
net capital (%)	227.78	196.19

Note: All risk control indicators including net capital of the Company complied with the relevant requirements of the Administrative Measures for Risk Control Indicators of Securities Companies (Revision in 2016) 《( 證券公司風險控制 指標管理辦法》) (2016年修訂版) issued by the CSRC.

10 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

1. ANALYSIS ON CORE COMPETITIVENESS

In the first half of 2020, the Company continued to adhere to the core value of "achievements leading to status", as well as the concepts of "healthy development" and "risk management as priority" to strive for better service for existing customers and realise mutual growth with the enterprise. In the meantime, the Company penetrated the local market and moved towards the international market to explore potential quality customers. The Company aimed at taking the advantages of investment banking business as the starting point to steadily develop innovative business, becoming a large best-in-classfull-service investment bank based in the PRC with global vision leveraging the development trends in the PRC and global capital market.

Investment banking business ranked among top in the industry consecutively, in terms of core indicators leading the industry. In the first half of 2020, the Company's equity financing business achieved another success, completing 22 equity financing projects, with a lead underwriting amount of RMB69.313 billion, both ranking No. 1 in the industry. The Company's debt financing business continued to maintain good development momentum, completing a total of 1,164 lead underwriting projects, with a lead underwriting scale of RMB572.803 billion, ranking No. 2 in the industry. In the first half of 2020, the Company led an underwriting amount of RMB20.7 billion of bonds for epidemic prevention and control. (Source: NEEQ Company, Wind Info and statistics of the Company)

Wealth management business remained among top ten in the industry. In the first half of 2020, the net income from the securities brokerage business of the Company accounted for 3.22% of the market share, ranking No. 10 in the industry. As of 30 June 2020, the Company's stock fund transaction amount totalled RMB5.45 trillion, accounting for 3.22% of the market; its sales of standardised products amounted to RMB37.966 billion; its net income from financial product sales constituted 3.54% of the market, ranking No. 9 in the industry; in the first half of 2020, the Company's interest income from its margin financing and securities ranked ten in the industry; its interest income arising from collateralised stock repurchase business ranked No. 8 in the industry. (Source: the SSE, the SZSE, China Securities Depositary and Clearing Corporation Limited, the Securities Association of China and statistics of the Company)

Trading and institutional customer service business delivered excellent performance. In the first half of 2020, with respect to securities trading business, the Company accurately seized segment opportunity in structural market, and obtained better absolute gains; the Company vigorously promoted off-marketoptions business, as subsisting notional principal of off-marketoptions, ranking No. 3 in the industry as of the end of May 2020. In the first half of 2020, with respect to fixed income business, the Company continued to maintain sound proprietary investment, and kept close abreast of market trend for proprietary bond operation. By leveraging the combination of stable configuration with positive directional trading, the Company achieved higher returns on investment. Bond sales remained in the leading position as before. Debenture sales of the Company continued to rank No.1 in terms of both sales scale and indices (Source: Wind Info and statistics of the Company); in respect of international business, in the first half of 2020, the Bond Connect business of the Company ranked top 5 in the industry in average.(Source: Bond Connect Company Limited)

Interim Report 2020

11

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

The asset management business structure continued to be optimised. In the first half of 2020, the Company continued to regulate its stock business smoothly and orderly and vigorously promoted the development of the net-worth-basedactive management business in accordance with the requirements of the new asset management regulations such as "net value management" and "de- channel business". As of June 30, 2020, the Company's entrusted assets management scale ranked No. 6 in the industry, and the monthly active assets management scale ranked No. 6 in the industry in average. The management scale of China Securities Investment Fund's public offering fund amounted to RMB21.72 billion, an increase of 26.29% from the end of 2019. CITIC Construction invested RMB37.476 billion in private equity funds under its management, an increase of RMB921 million from the end of 2019. It completed 35 exit projects, with an average investment yield of 105%. (Source: the Asset Management Association of China, Wind Info and statistics of the Company)

Fintech helps digital transformation. The Company proactively researched and developed the digital transformation scheme with establishment of information specialist (SI) posts in each department to promote digital transformation and landing of the Company. The Company kept optimizing systems including Qingting Dianjin, targeted operation platform, service platform for transactions of institutional customers and intelligent documents of investment banks, strengthened application of Big Data and artificial intelligence in business and management scenarios, and enhanced digital construction in core business departments by launching online registration of trading capability for ChiNext and NEEQ to improve business efficiency. The Company, after obtaining ISO20000 certification, continued to expand its certification scope and launched the ISO27001 certification project to further raise the management level in operation and maintenance of information technology and management capability in information safety of the Company.

1. BUSINESS OVERVIEW
2. 1. Overview
      As of 30 June 2020, the total assets of the Group were RMB311,522 million, representing an increase of 9.05% as compared to that on 31 December 2019. Equity attributable to equity holders of the Company was RMB59,086 million, representing an increase of 4.43% as compared to that on 31 December 2019. During the Reporting Period, total revenue and other income of the Group amounted to RMB13,009 million in aggregate, representing a year-on-year increase of 51.04%. Total expenses amounted to RMB7,141 million in aggregate, representing a year-on-year increase of 28.67%. Net profit attributable to equity holders of the Company amounted to RMB4,578 million, representing a year-on-year increase of 96.54%.

1. Analysis of Principal Businesses
   The principal businesses of the Group comprise four segments: investment banking business, wealth management business, trading and institutional client services business and asset management business. During the Reporting Period, total revenue and other income of the investment banking segment amounted to RMB2,074 million in aggregate, representing a year-on-year increase of 24.71%. Total revenue and other income of the wealth management segment amounted to RMB3,830 million in aggregate, representing a year-on-year increase of 12.45%. Total revenue and other income of the trading and institutional client services segment amounted to RMB5,939 million in aggregate, representing a year-on-year increase of 142.01%. Total revenue and other income of the asset management segment amounted to RMB789 million in aggregate, representing a year-on-year increase of 0.90%.

12 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

1. Investment Banking Business Segment

The investment banking business segment of the Group mainly comprises equity financing business, debt financing business and financial advisory business.

1. Equity Financing Business
   In the first half of 2020, the newly revised Securities Law was formally implemented, the STAR Market operated steadily, the capital market continued to deepen comprehensive reforms, and various major measures were implemented. In the first half of 2020, a total of 256 equity financing projects were issued in the A-share market, an increase of 39.89% year on year, and the funds raised amounted to RMB504.698 billion, a year-on-year decrease of 0.94%. Among them, the number of IPO projects and the scale of financing increased significantly: 128 IPO projects and raised funds of RMB143.628 billion, a year-on-year increases of 100% and 134.85% respectively. There were 128 equity refinancing projects, which increased by 7.56% compared with the same period last year. The funds raised were RMB361.070 billion, a year-on-year decrease of 19.46%. (Source: Wind Info.: placement is inclusive of asset-oriented private placement)
   In the first half of 2020, the Company's equity financing business achieved another good result: 22 equity financing projects were completed, and the lead underwriting amount was RMB69.313 billion, both ranking No. 1 in the industry. Among them, there are 14 IPO lead underwriters, and the lead underwriter amount is RMB42.377 billion, ranking No. 1 in the industry. The Beijing-Shanghai high- speed railway's IPO project, exclusively sponsored by the company, is the first time China's high-speed rail has landed in the capital market, where It raised more than RMB30 billion and is the ninth largest IPO project in the history of the A-share market. It achieved a strategic breakthrough in market-oriented inquiry and marked that the securitization of railway transportation assets had entered a new stage. The number of refinancing lead underwriters is 8, ranking No. 4 in the industry, and the lead underwriting amount is RMB26.935 billion, ranking No. 1 in the industry. The Company's exclusively sponsored and underwritten ZTE non- public offering project raised RMB11.5 billion, mainly used for technology research and product development projects for 5G network evolution to enhance product competitiveness and global market position. In the first half of 2020, the Company completed 9 convertible bond projects, with an amount underwritten by us as a lead underwriter of RMB10,013 million. In respect of project reserve, as of 30 June 2020, the Company had 53 IPO projects pending review, ranking No. 2 in the industry, including 17 and 13 projects on the Main Board and STAR Market of the SSE respectively, as well as 5 and 18 projects on the SME Board and ChiNext of the SZSE respectively. The Company had 36 equity refinancing projects (including convertible bonds) pending review, ranking No. 2 in the industry. (Source: CSRC, SSE, SZSE, Wind Info and statistics of the Company)

Interim Report 2020

13

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

Details of the Company's equity underwriting and sponsorship in the first half of

2020 are set out below:

			First half of 2020	First half of 2019
			Amount of		Number of	Amount of	Number of
Items	lead underwriting		offerings	lead underwriting	offerings
	(RMB'00 million)				(RMB'00 million)
IPO	423.77		14		44.09	6
Refinancing Issuance	269.35		8		41.35	10
Total	693.13		22		85.44	16

Source: Statistics of the Company

Note: 1. The statistical scope of refinancing includes allotment of shares, public placement, financing-oriented private placement (inclusive of non-public issuance and reorganization ancillary financing), preference shares, but excludes asset-oriented private placement.

2. The total amount of the lead underwriting amount is attributable to the tail difference due to rounding.

Development Outlook for the Second Half of 2020

In the second half of 2020, the domestic capital market will continue to develop along the main lines of marketization, rule of law and internationalization, giving full play to the central role of the capital market and serving the development of the real economy. The Company will strictly control the quality of equity financing projects, fulfill the duties of intermediary agencies, seize the opportunities from the pilot promotion of the registration system, and enhance the professional capabilities that are compatible with the central role of the capital market. It will also actively carry out the development and execution of projects such as layer selection on the ChiNext and NEEQ, and the return of red chip enterprises. For international business, China Securities International will continue to expand business scope in view of its business development needs, and continue developing multiple types of equity financing businesses in addition to its current listing sponsorship projects and securities underwriting services.

2. Debt Financing Business

In the first half of 2020, the bond market experienced severe volatility, and the overall yield remained at a relatively low level in recent years. From the beginning of the year to the end of April, due to the impact of the COVID-19 pandemic, downward pressure on the global economy has intensified, and financial markets have fluctuated sharply. In order to stabilise the financial market, major central banks around the world have introduced loose policies, lowered policy interest rates, and invested large amounts of funds into the market. Meanwhile, the People's Bank of China has repeatedly introduced loose measures such as lowering the RRR and lowering policy interest rates. Driven by this, the bond market yields fell sharply to historical lows, which drove bond issuance. However, since May, as the domestic epidemic prevention and control situation continues to improve, economic data has shown a marginal improvement, the central bank's monetary policy has tightened marginally, the market RRR was reduced, and interest rate cut expectations continued to fail, capital prices rose significantly, and the bond market tightened.

14 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

In the first half of 2020, the Company's debt financing business continued to maintain good development momentum. A total of 1,164 lead underwriting projects were completed, with a lead underwriting scale of RMB572.803 billion, ranking No. 2 in the industry. Among them, there are 289 corporate debt underwriters, with a lead underwriting scale of RMB219.884 billion, ranking No. 1 in the industry. With its professional advantages in corporate debt business, the Company has accumulated sizable state-owned enterprise customers and high-quality industrial customers including PetroChina, Sinopec, State Grid, and China Huaneng. In terms of product innovation, as the lead underwriter, the Company successfully issued nearly 20 green bonds, 2 relief bonds, 3 double innovation bonds and 2 special poverty alleviation debts. In addition, 20 China Coal 01 is the first registered corporate bond issued in the entire market, and the Datong Coal Mine Supply Chain Asset-BackedMedium-term Notes are the first batch of pilot projects in the ABCP product market in the inter-bank market. In the face of the new coronavirus pandemic, we take active actions and closely link the issuer and the sales sides. The first epidemic prevention and control bond Sinopharm Leasing private placement bond led by the company was successfully issued on 12 February, 2020. It was also the first special debt for private epidemic prevention and control on the Shanghai Stock Exchange. In the first half of 2020, the Company led an underwriting amount of RMB20.7 billion of bonds for epidemic prevention and control.

Details of debt financing business of the Company in 2020 are as follows:

			First half of 2020									First half of 2019
Items			Amount of		Total		Number of			Amount of		Total	Number of
lead underwriting		project scale		offerings	lead underwriting		project scale	offerings
	(RMB'00 million)	(RMB'00 million)					(RMB'00 million)	(RMB'00 million)
Corporate bonds	2,198.84		4,452.48	289	2,033.72	3,375.12	183
Enterprise bonds	166.91		409.60	24	81.80	113.80	8
Convertible bonds	100.77		135.11	10	111.18	511.15	7
Financial bonds	796.22	5,058.70	36	826.98	2,786.00	26
Others	2,465.29	21,849.04	805	1,646.44	19,764.80	561
Total	5,728.03		31,904.93	1,164	4,698.62	26,520.87	784

Source: Wind Info and statistics of the Company

Note: Others mainly consist of medium-term notes, short-term commercial papers, private placement notes, asset-backed securitization, government-backed agency bonds and convertible bonds.

For overseas business, in the first half of 2020, China Securities International completed 13 overseas bond issuance transactions, ranking No. 7 among mainland investment securities companies in Hong Kong; project amount totaled HK$36.209 billion, ranking No. 8 among mainland investment securities companies in Hong Kong. (Source: Bloomberg)

Interim Report 2020

15

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

Outlook for the second half of 2020

In the second half of 2020, in addition to consolidating and maintaining the market competitiveness of traditional advantageous business type, the Company will further strengthen the service of banks, listed companies and industry customers, strive to establish new project reserves including debt financing instruments of non-financial enterprises, financial bonds, and corporate bonds, develop innovative business such as project revenue bonds, special-purpose bonds, perpetual bonds, asset-backed security, Panda Bonds, exchangeable bond, convertible bond, debt-to-equity swap of central government-owned enterprises, in order to provide a full range of products, achieve balanced development and keep improving its overall strength in debt financing business. For overseas business, China Securities International will continue to actively expand the mainland- invested companies' overseas bond issuance projects, for which it will act as a global coordinator, bookkeeper and rating advisor.

3. Financial Advisory Business

In the first half of 2020, 66 mergers and acquisitions ("M&A") financial advisory projects (including acquisition of assets through issuance of shares and major asset restructuring) were completed in A-share market, representing a year-on- year decrease of 23.26%, and the transaction amount was RMB291,686 million, representing a year-on-year increase of 4.57%. The Company completed five mergers and acquisitions and restructuring financial advisory projects, ranking No. 5 in the industry; the transaction amount was RMB25.631 billion, ranking No. 5 in the industry. In terms of project reserves, as of June 30, 2020, the company has 2 projects under review, ranking No. 3 in the industry. (Source: Wind Info and statistics of the Company)

In the first half of 2020, 64 new companies were newly listed on the NEEQ market and 471 were delisted. As of June 30, 2020, the total number of listed companies was 8,547, of which 1,189 were innovative. National Equities Exchange and Quotations Co., Ltd. officially launched the public issuance of shares to unspecified qualified investors on 27 April, 2020 and conducted listing declaration work for the selection layers. As of June 30, 2020, a total of 73 listed companies had declared to be listed on the selection layer, 70 of which were accepted. 8 listed companies sponsored by the Company declared to be listed on the selection layer, ranking No. 1 in the industry. The Company completed 9 private placement projects for listed companies and raised RMB462 million. As of 30 June 2019, the Company continuously oversaw 55 NEEQ enterprises in the innovation level, ranking second in the industry. (Source: NEEQ Company and Choice financial terminal)

For overseas business, in the first half of 2020, China Securities International completed four financial advisory projects, involving a total of HK$1.239 billion.

16 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

Outlook for the second half of 2020

In the second half of 2020, the Company will continue to improve its ability to facilitate M&A transactions, increase its efforts in developing cross-border M&A business, actively provide service for venture capital companies to resolve crisis, further consolidate its advantages in financial advisory business on bankruptcy reorganization of listed companies, and keep improving its diversified service capabilities for M&A business. The Company will actively undertake high-quality NEEQ projects to increase the reserve of follow-up projects. For high-quality basic level companies supervised by the Company, we will plan ahead to smoothly enter the innovation level and lay the foundation for the listing on the selected level.

2. Wealth Management Segment

The Company's wealth management segment mainly comprises securities and future brokerage and wealth management business, margin financing and securities lending business and stock pledge business.

1. Brokerage and Wealth Management Business

In the first half of 2020, the bilateral trading volume of equity and funds in the market was RMB169.39 trillion, representing a year-on-year increase of 26.23% (Source: Shanghai and Shenzhen Stock Exchanges). The Company endeavoured to establish an integrated client services platform and ecological chain to develop businesses covering financial products, margin financing and securities lending, the NEEQ Market, STAR Market, investment advisory services, share options, precious metals and futures through resource integration. The Company, with customer-oriented culture, continued to strengthen the core competitiveness of brokerage business with clients as the focus through raising the standard of service and increasing service methods, and strived to fulfil diversified wealth management, investment and financing needs of retail clients, high-net-worth clients, institutional clients, corporate clients and other clients at different levels.

In the first half of 2020, the net income from the securities brokerage business of the Company accounted for 3.22% of the market share, ranking No. 10 in the industry. As of 30 June 2020, trading volume of the agency sales of equity funds of the Company amounted to RMB5.45 trillion with a market share of 3.22%. The sale of standardised products amounted to RMB37,966 million, and the net income from the distribution of financial products had a market share of 3.54%, ranking No. 9 in the industry. The number of new capital accounts was 292,400; the total number of clients' securities capital accounts as of 30 June 2020 was 9,339,100. The market value of securities under custody for the Company's clients accounts was RMB2.91 trillion with a market share of 6.08%, ranking No. 3 in the industry; in which new client assets amounted to RMB206,299 million (Sources: Shanghai and Shenzhen Stock Exchanges, China Securities Depositary and Clearing Corporation Limited, The Securities Association of China and statistics of the Company). The MAU of Qingting Dianjin APP ranked No. 7 in the industry, up by 2 rankings compared with the end of 2019. As of 30 June 2020, the Group had 295 securities branches, of which 57% were located in the relatively active five provinces and two municipalities in the stock exchange (Beijing, Shanghai, Guangdong, Fujian, Zhejiang, Jiangsu and Shandong), and among which 53 securities branches were located in Beijing. Being the securities company with the largest number of securities branches in Beijing, the Company has established a solid client base for its brokerage and wealth management businesses.

Interim Report 2020

17

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

In terms of futures brokerage business, as of 30 June 2020, China Securities Futures has realised a cumulative transaction volume of RMB4.12 trillion, a year- on-year increase of 8.40%. Among them, the commodity futures agency transaction amounts totalled RMB2.56 trillion, a year-on-year decrease of 3.35%, whereas the financial futures agency transaction volume amounted to RMB1.56 trillion, a year- on-year increase of 35.53%. The Company's agency transaction volume of China Securities Futures. accounted for 1.24% of the market, a decrease of 8.15% from the end of 2019. China Futures Co., Ltd. added 13,493 clients, a year-on-year increase of 64.23%.

With respect to overseas business, as of 30 June 2020, the aggregate transaction amount of stock agency of China Securities International was HK$16,786 million, with 700 new clients compared with the end of 2019 and 10,501 clients in aggregate, and the total market value of stock under custody for the Company's clients' accounts was HK$19,630 million, basically at the same level as at the end of 2019.

Outlook for the second half of 2020

In the second half of 2020, the Company's brokerage business will continue to be guided by transformation of wealth management. The Company will continue to develop investment advisory service brand. The Company, enabled by technology, will build an all-around brokerage business customer service system, in order to continuously ensure compliant operation, prevent risks, consolidate its foundation, intensively develop business and ultimately improve the quality of customer service along brokerage business line in all aspects. In terms of its future brokerage business, China Securities Futures will continue to intensively develop risk management business and improve its capability to serve the real economy. Meanwhile, the Company will get well prepared for the lifting of financial futures and options by optimizing the construction of rapid transaction system. In terms of overseas business, as the bridge between domestic and overseas security business of the Company, China Securities International will on one hand satisfy high net worth customers' demand for overseas investment and wealth inheritance through security and insurance products, and will on the other hand guide overseas customers to invest in domestic financial market relying on the interconnection mechanism among financial products, representing an effective overseas expansion in wealth management. In regard to its overseas business, the Company will focus on the development of integrated financial management business covering investment in overseas securities, futures and funds.

18 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

1. 1. Margin Financing and Securities Lending Business
      In the first half of 2020, A Share market stabilised and recovered as a whole, and margin financing and securities lending business scale in the whole market remained steady and showed a slight rise. As of 30 June 2020, the balance of margin financing and securities lending of the Shanghai Stock Exchange and Shenzhen Stock Exchange was RMB1,163,768 million, which increased by 14.17% as compared to that of the end of 2019 (Source: Wind Info). As of 30 June 2020, the balance of the Company's margin financing and securities lending business was RMB36,799 million, representing an increase of 25.67% as compared with that at the end of 2019, accounting for 3.16% of the market, increasing 0.29 percentage point from the end of 2019. The number of margin financing and securities lending accounts was 151,300, representing an increase of 6.00% as compared to that at the end of 2019. In the first half of 2020, the Company's interest income from its margin financing and securities ranked No. 10 in the industry.
      With respect to overseas business, as of 30 June 2020, the balance of China Securities International's margin financing and securities lending business was HK$107 million2, representing an increase of 69.57% as compared to that at the end of 2019.
      Outlook for the second half of 2020
      In the second half of 2020, the Company will continue to promote the development of a tiered service system for margin trading customers, in order to provide different categories of customers with integrated customer service plans, including individual investment reports, investment advisory and strategic services and algorithmic trading. In addition, the Company will be committed to improving the outreach of services to high net-worth clients and further improving its capacity of providing specialised services through a number of measures, such as unified service standards and exchanges with high-end customers.
   2. Stock Pledge Business
      In the first half of 2020, the scale of stock pledge financing in the market steadily declined. As of 30 June, 2020, the principal balance of the Company's stock pledge repurchase business was RMB23.658 billion, a decrease of RMB5.305 billion or 18.32% from the end of 2019. Among them, the investment (refer to the balance sheet) stock pledged repurchase business balance was RMB11.305 billion, with an average performance guarantee ratio of 408.02%; the management (outside the balance sheet) stock pledged repurchase business balance was RMB12.353 billion, with an average performance guarantee ratio of 94.44%. In the first half of 2020, the Company's interest income from stock pledge repurchase ranked No. 8 in the industry.
2. According to the requirements of the Securities and Futures Commission of Hong Kong for the protection of customer assets and the handling of "dormant accounts" in the "Customer Service and Account Management Manual", the Company will convert accounts into dormant accounts if it does not hold any funds or stocks, it has not been involved in any transaction for more than two years or it has been frozen for more than 12 months. Dormant accounts will be excluded from the cumulative customer count from March 2020.
3. Excluding Hong Kong stocks new margin business.

Interim Report 2020

19

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

Outlook for the second half of 2020

In the second half of 2020, the Company will prudently implement stock pledge repurchase business on the premise of making sure that risks are testable, controllable and tolerable, and accelerate its assets integration to provide its strategic clients with a basket of business solutions. Relying on its investment research capability, the Company will improve risk identification relating to listed companies, and further improve the asset quality of its stock pledge business through structural adjustment.

1. Trading and Institutional Client Services Segment
   The trading and institutional client services segment of the Group mainly comprises stock sales and trading business, sales of fixed-income products and trading business, investment research business, prime brokerage business and the QFII and RQFII business.
   1. Equity Sales and Trading Business
   The stock sales and trading business of the Company mainly provides trading, advisory and research services, and sells shares underwritten by the Company to institutional customers. The Company also engages in proprietary trading and market-making activities of stocks, funds, ETF, and financial derivatives including stock index futures, commodity futures, options and total return swaps. It provides clients with customised options and swaps products linked to various types of assets to meet the hedging and investment demand of institutional clients.
   With respect to the securities trading business, the Company closely tracked domestic and international economic conditions and pandemic data to strengthen macro-strategy research and judgment, seized structural opportunities arising in the market, and strictly controlled risks relating to business. With respect of NEEQ market-making business, the Company provided market-making services to 12 listed companies in the first half of 2020. In terms of derivatives trading business, as one of the industry's first primary dealers of OTC options, the Company steadily promoted OTC derivatives business such as OTC options and income swaps, further enriching the types of linked targets and income structure, and meeting the individualised investment needs of clients. By the end of May, 2020, the nominal principal of the OTC options was ranked No. 3 in the industry. Meanwhile, the Company continued to expand its market creation business scope and scale to enhance its market competitiveness. The current market creation products include ETF funds, options, futures and other trading products.
   In terms of the stock sales business, in the first half of 2020, based on the original core customer system, the Company increased communication with investors on QFII, public funds, etc. in response to the new situation in the issuance market to continuously improve issuer customer satisfaction. In the first half of 2020, the Company completed a total of 22 lead underwriting stock project sales, with a cumulative sales amount of RMB69.312 billion, covering 14 IPOs, 7 non-public issuances, and 1 allotment. The sales amount was RMB42.376 billion, RMB26.491 billion, RMB445 million, with the number and amount of share sales projects ranking No. 1 in the industry.

20 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

Outlook for the second half of 2020

In the second half of 2020, the Company will continue to strengthen its macroeconomic and market strategy research, and pay continuous attention to the economic environment and industrial changes. The Company will also adhere to the concept of value investment, carry out in-depth industrial research and discover opportunities relating to individual stocks, allocate resources to different sectors, and realise stable incomes that are aligned with market conditions. Meanwhile, the Company will pay close attention to trend of listed companies, in order to prevent and control risks. The Company will continue to develop the OTC derivative business, increase resource investment in market-making and continuously explore opportunities for cross-border investments to further satisfy various needs of clients and improve its investment system using its own funds.

2. Sales of Fixed-income Products and Trading Business

In the first half of 2020, the Company maintained a stable pattern in proprietary investment, in particular the proprietary investment in bonds, which precisely caught up with market trend with the combination of a stable allocation and positive directional trading, hence achieving a satisfactory result in bond investment. Meanwhile, in the first quarter of 2020, the Company ranked No. 10 among market- makers (including banks) in the inter-bank bond market, and ranked No. 5 among attempted market-makers. (Source: China Foreign Exchange Trade System). In January 2020, the Company successfully obtained the qualification for foreign exchange settlement and sale business approved by the State Administration of Foreign Exchange, and started the pilot foreign exchange settlement and sale business.

The Company continued to maintain its leading position in terms of bond sales business. In the first half of 2020, the Company sold 1,314 bonds, with a sales amount of RMB533,504 million, ranking No. 2 in the industry. The Company sold 54 epidemic prevention and control credit bonds, with a sales amount of RMB16.390 billion, ranking No. 4 in the list of epidemic prevention and control debt underwriting; the scale and number of corporate bond sales continued to rank No. 1 in the industry; the underwriting amount of local government bonds was RMB84.414 billion, with 573 underwriting projects, ranking No. 2 in the industry (Source: Wind Info and statistics of the Company).

With respect to overseas business, since the Company was qualified as a quotation institution of the "Bond Connect" in July 2018, the Company has entered into Bond Connect transactions with several overseas institutional investors. In the first half of 2020, the Bond Connect business of the Company ranked top 5 in the industry in average.(Source: Bond Connect Company Limited) Since the Company was qualified to carry out pilot cross-border business in October 2018, the Company has conducted cross-border transactions in a stable manner to expand the scale of cross-border assets progressively. Cross-border investment has recorded rewarding revenue. Further, as of 30 June 2020, the volume of China Securities International's bond trading was HK$12,370 million.

Interim Report 2020

21

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

Outlook for the second half of 2020

In the second half of 2020, the Company will further exploit its advantages in highly professional fixed-income business, wide customer coverage and effective internal and external coordination, continue to improve the level of comprehensive services provided to customers, and facilitate better development of bond sales business and investment advisory business. Moreover, in the light of changes in market, the Company will flexibly adjust the structure of proprietary investment portfolio and conduct business at a more internationalised and automated level.

3. Investment Research Business

The investment research business of the Company mainly provides institutional clients with research consultation services covering macro-economy, fixed income, strategy, industry, corporate, financial engineering and other aspects. Clients mainly include mutual funds, insurance companies, the National Social Security Fund, private equity funds, securities firms, overseas financial institutions and other institutions. The Company provides clients with research reports and various kinds of tailored research consultation services. In the first half of 2020, the Company, against the backdrop of the COVID-19 pandemic and complicated and changing international circumstances, enhanced targeted research planning and cross-industry interaction and well kept abreast of market conditions and market focus. We will also largely strengthen our remote services and conversion of Mainland Chinese and Taiwanese products, as well as considerably increasing our services for overseas clients. As of 30 June 2020, the Company had a research and sales team comprising 169 members, and published a total of 2,685 research reports of various types in the first half of 2020; we continued to expand the industry coverage and coverage of overseas listed companies. At present, the Company's stock research covered 27 industries. In the first half of 2020, the Company provided institutional customers with 11,836 online and offline roadshows of various types and 102 offline surveys, and successfully organised conventions including the online "Meeting of Investment Strategies during Spring" and "Exchange Meeting of Companies Listed during Spring".

Outlook for the second half of 2020

In the first half of 2020, amidst relatively loose fiscal and monetary policies and industrial resumption, the Company's research division firmly grasped the opportunities from the current market recovery to keep improving research with wider perspective and deeper insight, in order to further digitise our services and provide domestic and overseas clients with more comprehensive and in-depth research services.

22 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

4. Prime Brokerage Business

The Company provides market-leadingfull-chain prime brokerage services to institutional investors, including trading service, account service, product design and agency sales, institutional investment and financing service, asset custody service, product operating service, research service, financing solution and value -added services.

As of 30 June 2020, the total scale of custody and operating services of the Company amounted to RMB307,472 million, representing an increase of 2.49% as compared to that of the end of 2019. Among it, the number of products under custody reached 2,001, and products of operating service reached 1,831, representing an increase of 10.49% and 10.50% respectively as compared to that of the end of 2019.

The prime brokerage system of the Company is one of the most comprehensive system with the widest range of supportive systems among the securities brokers in the industry, which connects markets of margin financing and securities lending services, stock index futures, commodity futures stock options, the NEEQ and Southbound trading markets to offer its clients with convenience and favourable experience in carrying out various businesses at the same time. The self-developed algorithmic trading platform within the prime brokerage system maintained a leading position in the industry in terms of the efficiency of execution of algorithmic trading, which is widely recognised and trusted by various clients including those from the banking, insurance, public offering, private equity and QFII sectors and enterprises as well as high-net-worth individual clients. Newly developed services including bonds, treasury bond repurchases and selected NEEQ layers satisfied customers' diversified trading needs. As of 30 June 2020, the Company's algorithmic trading customers amounted to 654, ranked No. 1 in the insurance asset management industry. The Company set up special counters for institutional trading to provide independent trading channels with more functions for financial institutions, gaining widespread recognition from banks, public offerings and insurance clients. The trading volume of the prime brokerage business of the Company grew continuously, with an upward trend in trading performance of algorithmic trading and continuous expansion of client type and scale.

Outlook for the second half of 2020

In the second half of 2020, with the aim to constantly satisfy institutional investors' trading needs, the Company continued to improve its various types of prime brokerage system and counter services for institutions. The embedded algorithmic platform will connect with more trading software including TDX and will provide algorithm trading strategies for clients. The Company will keep abreast of the changes in the market environment and regulatory policy changes to further provide diversified and personalised professional trading services, so as to further meet the trading needs of various clients.

Interim Report 2020

23

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

1. QFII and RQFII Business
   The Company carries out QFII and RQFII brokerage agency trading business. Currently, the Company's QFII and RQFII businesses have developed a professional service brand featuring advanced transaction system and trading algorithm and extensive investment research information services by leveraging its first-class investment research service resources in the first half of 2020, integrating its domestic business strengths and constantly serving and developing the international market.
   Outlook for the second half of 2020
   In the second half of 2020, the Company will continue to build a diversified client network to consolidate its position of offering clients leading investment research services, in an effort to promote integrated cross-border development and provide clients with high-level,all-round, diversified, differentiated and integrated financial services by means of professional sales and service.
2. Alternative Investment Business
   In the first half of 2020, affected by the COVID-19 pandemic, the domestic macroeconomic downward pressure has intensified, and the activity of the private equity investment market dropped significantly. In this context, China Securities Investment adhered to the principle of "stable stability and long-term development" and the concept of "serving the real economy, technological innovation and economic transformation", and actively utilised the Internet and other information technology methods to, in an orderly manner, develop and reserve projects and investment layout work, completing 43 investments (including 4 IPO follow-up investments on the STAR Market), with an investment amount of RMB655 million.
   Outlook for the second half of 2020
   In the second half of 2020, China Securities Investment will continue to promote the development of various investment businesses, increase its investment scale and implement its investment layout by putting strict control over project quality as the top priority. Meanwhile, the Company will promote IPO projects in the STAR Market and conduct IPO follow-up work under the ChiNext registration system in an orderly manner, in an effort to turn it into a new profit growth point of the Company.

24 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

(IV) Investment Management Segment

1. Asset Management Business of the Securities Company

In the first half of 2020, the Company, as required by "net worth management" and "de-channeling business" under new asset management rules, continued to steadily and orderly standardise the existing business, actively promote the development of NAV business under active management, and constantly sought new business development opportunities. In the first half of 2020, the Company's asset management business had made considerable progress in large-scale transformation, QDII business, and digital transformation. As of 30 June 2020, the Company's AUM of entrusted assets reached RMB484,439 million, a decrease of 11.56% from the end of 2019 and ranking No. 6 in the industry. Among them, the scale of actively managed products reached RMB248,753 million, increasing by RMB16.439 billion from the end of 2019, accounting for 51.35% of the total AUM, representing an increase of 8.94 percentage points as compared to that of the end of 2019; the monthly active management products scale amounted to RMB156.615 billion, ranking No. 6 in the industry in average.(Source: Asset Management Association of China, the Securities Association of China and statistics of the Company).

The scale of the Company's asset management business is as follows:

				Unit: RMB'00 million
		AUM
		30 June 2020		31 December 2019
Collective asset management business	320.01			285.59
Targeted asset management business	3,613.43		4,385.80
Specialised asset management business	910.95			806.30
Total	4,844.39		5,477.69

Source: The Securities Association of China, and statistics of the Company

With respect to overseas business, as of 30 June 2020, China Securities International's total AUM reached US$55.56 million, of which bonds AUM amounted to approximately US$46.97 million, while equity AUM amounted to approximately US$1.32 million. Balanced fund AUM amounted to approximately US$920,000 and limited partnership fund AUM amounted to approximately US$6.35 million.

Outlook for the second half of 2020

In the second half of 2020, the Company will continue to improve its investment management capability, and intensify business transformation through broadening the variety of products, developing sales channels for products, improving the investment performance of products and other means. Meanwhile, the Company will keep strengthening product operation management, risk control management and compliance management, in order to safeguard robust operation of business.

Interim Report 2020

25

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

1. Fund Management Business
   In the first half of 2020, on the basis of insisting on returning to its roots, the China Securities Funds seized market opportunities and actively developed business, greatly improving its investment performance. Meanwhile, the fund actively responded to the requirements of the new asset management regulations by continuously increasing the management scale of public funds and reducing that of special account products. As of 30 June, 2020, the asset management scale of the fund reached RMB71.831 billion, a decrease of 10.46% from the end of 2019, of which the management scale of public funds was RMB21.72 billion, an increase of 26.29% from the end of 2019; The management scale of the fund's special account products and fund subsidiary Yuandaxin Capital Management Co., Ltd.'s special account products was RMB50.111 billion, a decrease of 20.49% from the end of 2019.
   Outlook for the second half of 2020
   In the second half of 2020, conforming to the development orientation of the asset management industry in the new era, China Securities Funds will continue to diversified product portfolio and take the initiative to promote marketing capability, with an aim to drive business development by enhancing internal governance, strengthening client system construction, and nurturing core talents, and will continue to develop its level of investment research, expand client base and launch key and core products to realise a stable growth in management scale and the value preservation and appreciation of the clients' assets, to strengthen its core competitiveness and improve its brand influence.
2. Private Equity Investment Business
   Due to the COVID-19 pandemic in the first half of 2020, the private equity market was greatly affected. Beginning in the second quarter of 2020, the domestic pandemic has been effectively controlled, the resumption of work and production fully promoted, the economy has shown a recovery trend, and the private equity market has also slowly recovered. In the first half of 2020, China Securities Capital continued to strengthen the in-depth cooperation with local governments and institutions on the capital platform for government-controlled enterprises. As of 30 June 2020, China Securities Capital managed a total of 41 private equity investment funds, including 14 integrated funds, 4 industrial funds, 17 designated funds, 4 real estate funds and 2 funds of funds, with the fund management scale of RMB37,476 million, representing an increase of RMB921 million as compared to that at the end of 2019. As of 30 June 2020, China Securities Capital completed investment in 130 enterprises, including 10 listed on the Main Board, 3 on the SME Board, 7 on the ChiNext, 4 on the STAR Market, 26 on the NEEQ Market, and 35 exit projects, with an average investment yield of 105%.

26 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

Outlook for the second half of 2020

In the second half of 2020, by taking full advantage of its professional investment capability, China Securities Capital, while strengthening its compliant risk control management, will expand its fundraising channels, seek premium project resources, promote collaboration focusing on government platforms and capital in the state-owned enterprise industry, promote fund raising in healthcare, TMT, high- end manufacturing and information security fields, and realise stable and sound investment.

1. FINANCIAL STATEMENT ANALYSIS
2. 1. Profitability Analysis
      In the first half of 2020, the Group recognised a total revenue and other income of RMB13,009 million, representing a year-on-year increase of 51.04%. The changes of key items are as follows:
   2. • fee and commission income amounted to RMB5,232 million, representing a year-on-year increase of 29.70%, which was mainly due to the year-on-year increase in fee and commission income from brokerage business and investment banking business in the first half of 2020;
      • interest income amounted to RMB3,148 million, representing a year-on-year increase of 3.65% which was mainly due to the increase of income from margin financing and securities lending business and bank deposit interest in the first half of 2020; and
      • investment gains amounted to RMB4,450 million, representing a year-on-year increase of 196.47%, which was mainly due to the increase in net gains from financial assets at fair value through profit or loss in the first half of 2020.

In the first half of 2020, the total expenses of the Group amounted to RMB7,141 million, representing a year-on-year increase of 28.67%. The changes of key items are as follows:

• fee and commission expenses amounted to RMB615 million, representing a year-on-year increase of 30.02%, which was mainly due to a year-on-year increase in fee and commission expenses from brokerage business in the first half of 2020;
• interest expenses amounted to RMB2,490 million, representing a year-on-year increase of 11.96%, which was mainly due to the increase in interest expense arising from bonds in issue, short-term financing instruments and placements from banks and other financial institutions in the first half of 2020;
• employee expenses amounted to RMB2,810 million, representing a year-on-year increase of 31.00%, which was mainly due to the year-on-year increase in performance-based remuneration in the first half of 2020;
• credit impairment losses amounted to RMB209 million, representing a year-on-year increase of RMB309 million, which is mainly due to the provision of impairment loss of financial assets held under resale agreements, margin financing and financial assets at fair value through other comprehensive income in the first half of 2020.

Interim Report 2020

27

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

In the first half of 2020, the Group realised net profit attributable to equity holders of the Company of RMB4,578 million, representing a year-on-year increase of 96.54%, and realised basic earnings per share of RMB0.58, representing a year-on-year increase of 93.33%. The return on weighted average equity 9.12%, representing a year-on-year increase of 3.78 percentage points, which was mainly due to the year-on-year increase of the net profit during this period.

1. Asset Structure and Asset Quality
   During the Reporting Period, total assets and total liabilities of the Company increased by different margins. Operation of the Company was more prudent, stability of asset and liability structure was maintained, while high asset quality and sound financial status were guaranteed.
   As of 30 June 2020, the total assets of the Group amounted to RMB311,522 million, representing an increase of RMB25,852 million, or 9.05%, as compared with that at the end of 2019. Excluding the accounts payable to brokerage clients, the total assets of the Group amounted to RMB240,885 million, representing an increase of RMB9,841 million, or 4.26%, as compared with that at the end of 2019, among which, assets in investments, (mainly include investments in associates and investments in financial assets) accounted for 65.62%, while margin accounts and financial assets held under resale agreements accounted for 21.75%, cash and bank balances accounted for 8.67%, and other assets accounted for 3.96%.
   As of 30 June 2020, the total liabilities of the Group amounted to RMB252,114 million, representing an increase of RMB23,339 million, or 10.20%, as compared with that at the end of 2019. Excluding the accounts payable to the brokerage clients, the total liabilities of the Group amounted to RMB181,477 million, representing an increase of RMB7,328 million, or 4.21%, as compared with that at the end of 2019, among which, financial assets sold under repurchase agreements amounted to RMB70,285 million, accounting for 38.73%; bonds in issue amounted to RMB39,207 million, accounting for 21.60%; short-term borrowings, placements from banks and other financing institutions, short-term financing instruments payable and non-current liabilities due within one year amounted to RMB48,889 million, accounting for 26.94%; financial liabilities at fair value through profit or loss and derivative financial liabilities amounted to RMB2,253 million, accounting for 1.25%; and the amount from other liabilities in aggregate was RMB20,843 million, accounting for 11.48% of the total liabilities.
   As of 30 June 2020, the Group's equity attributable to equity holders of the Company amounted to RMB59,086 million, representing an increase of RMB2,504 million, or 4.43%, as compared with that at the end of 2019.
   As of 30 June 2020, after deducting accounts payable to brokerage clients, the gearing ratio of the Group was 75.34%, representing a decrease of 0.03 percentage points, as compared with that at the end of 2019.

1. Cash Flow Status
   Excluding the accounts payable to brokerage clients, the Group's net increase in cash and cash equivalents was RMB-26,526 million in the first half of 2020, which was mainly due to the year-on-year increase in cash outflow from operating activities.

28 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

The net cash outflow from operating activities in the first half of 2020 was RMB24,960 million, representing a year-on-year net increase of RMB25,502 million in outflow as compared with the net inflow of RMB542 million in the same period of 2019, which was mainly attributable to an increase of net cash outflow due to the decrease of accounts payable to underwriting clients and the increase of financial assets at fair value through profit or loss.

Net cash outflow from investing activities in the first half of 2020 was RMB2,259 million, representing a year-on-year net decrease of RMB203 million in outflow when compared with the net outflow of RMB2,462 million in the same period of 2019, which was mainly attributable to a decrease of net cash outflow due to financial assets at fair value change through other comprehensive income in the current period.

Net cash inflow from financing activities in the first half of 2020 was RMB694 million, compared with a net inflow of RMB9,476 million in the same period of 2019, representing a year-on-year net decrease of RMB8,782 million in inflow, which was mainly attributable to an increase in cash outflow for the repayment of bonds in issue.

IV. ANALYSIS OF PRINCIPAL SUBSIDIARIES AND NON - CONTROLLING COMPANIES

	Shareholding
	of the	Date of	Registered			Contact
Name	Company	establishment	capital	Place of business	Registered address	number
China	100%	16 March 1993	RMB1,000	11-B (Parallel to Ground	11-B (Parallel to Ground	023-86769602
Securities			million	Level)/11-A,8-B4,9-B & C	Level)/11-A,8-B4,9-B & C
Futures				(Nominal Level), Shangzhan	(Nominal Level), Shangzhan
				Building, 107 Zhongshan	Building, 107 Zhongshan
				Third Road, Yuzhong	Third Road, Yuzhong District,
				District, Chongqing (重慶市	Chongqing (重慶市渝中區中山
				渝中區中山三路107號上站大	三路107號上站大樓平街11-B，
				樓平街11-B，名義層11-A，	名義層11-A，8-B4，9-B、C)
				8-B4，9-B、C)
China	100%	31 July 2009	RMB1,650	12/F, Block B, Kaiheng Center	Room 2, East Side, 6/F, 188	010-85130648
Securities			million	Building, Dongcheng	Chaoyangmennei Avenue,
Capital				District, Beijing (北京市東城	Dongcheng District, Beijing
				區凱恒中心大廈B座12層)	(北京市東城區朝陽門內大街188
					號6層東側2間)
China	100%	12 July 2012	Share capital	18/F, Two Exchange Square,	18/F, Two Exchange Square,	[phone]
Securities			of HK$2,000 8 Connaught Place, Central,	8 Connaught Place, Central,
International			million	Hong Kong	Hong Kong
China	55%	9 September	RMB300 million	17 & 19/F, Block B, Kaiheng	Unit 1, Building No. 3,	010-59100211
Securities		2013		Center Building, Dongcheng	Balongqiao Yayuan, Qiaozi
Funds				District, Beijing (北京市東城	Town, Huairou District, Beijing
				區凱恒中心大廈B座17、19	(北京市懷柔區橋梓鎮八龍橋雅
				層)	苑3號樓1室)
China	100%	27 November	RMB3,700	9/F, Block B, Kaiheng Center	Unit 109, Block C, Beijing Fund	010-85130622
Securities		2017	million	Building, Dongcheng	Town Center, No. 1 Jinyuan
Investment				District, Beijing (北京市東城	Avenue, Changgou Town,
				區凱恒中心大廈B座9層)	Fangshan District, Beijing (北
					京市房山區長溝鎮金元大街1號
					北京基金小鎮大廈C座109)

Interim Report 2020

29

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

1. China Securities Futures: as of 30 June 2020, total assets and net assets of China Securities Futures amounted to RMB13,429.22 million and RMB1,852.83 million, respectively. In the first half of 2020, China Securities Futures realised total revenue and other income amounting to RMB406.92 million in aggregate, profit before income tax amounting to RMB122.65 million and net profit amounting to RMB105.70 million; (unaudited)
   The principal business of China Securities Futures includes commodities futures brokerage, financial futures brokerage, futures investment advisory, asset management and fund sale.
2. China Securities Capital: as of 30 June 2020, total assets and net assets of China Securities Capital amounted to RMB2,621.02 million and RMB1,663.98 million, respectively. In the first half of 2020, China Securities Capital realised total revenue and other income amounting to RMB56.20 million in aggregate, profit before income tax amounting to RMB18.14 million and net profit amounting to RMB13.34 million; (unaudited)
   The principal business of China Securities Capital includes project investment, investment management, asset management and financial advisory (excluding intermediary services).
3. China Securities International: as of 30 June 2020, total assets and net assets of China Securities International amounted to RMB7,212.56 million and RMB1,716.55 million, respectively. In the first half of 2020, China Securities International realised total revenue and other income amounting to RMB161.95 million in aggregate, profit before income tax amounting to RMB5.09 million and net profit amounting to RMB3.23 million; (unaudited)
   The principal business of China Securities International includes investment holding. Its subsidiaries engage in the business of securities brokerage, asset management, investment banking, pledge and financing, dealing in futures and proprietary investment.
4. China Securities Funds: as of 30 June 2020, total assets and net assets of China Securities Funds amounted to RMB668.97 million and RMB554.91 million, respectively. In the first half of 2020, China Securities Funds realised total revenue and other income amounting to RMB157.83 million in aggregate, profit before income tax amounting to RMB13.19 million and net profit amounting to RMB9.51 million (unaudited).
   The principal business of China Securities Funds includes fundraising, fund sale, asset management for specific clients, asset management and other business as approved by the CSRC.
5. China Securities Investment: as of 30 June 2020, total assets and net assets of China Securities Investment amounted to RMB2,565.40 million and RMB2,460.57 million, respectively. In the first half of 2020, China Securities Investment realised total revenue and other income amounting to RMB260.98 million in aggregate, profit before income tax amounting to RMB256.53 million and net profit amounting to RMB192.96 million. (unaudited)
   The principal business of China Securities Investment includes equity investment management, investment advisory service (excluding intermediary services) and project investment.

30 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

1. INFORMATION OF SECURITIES BRANCHES

No.	Branch	Date of establishmentRegistered address	Contact number
1	Hubei Branch	6 February 2012	3/F, Block A, Longyuan Building, 24 Zhongbei Road,	[phone]
				Wuchang District, Wuhan City, Hubei Province
2	Shanghai Branch	6 February 2012	Rooms 308, No. 818, Yingkou Road, Yangpu District,	[phone]
				Shanghai City
3	Shenyang Branch	7 February 2012	No. 1, 12/F, 61 Beizhan Road, Shenhe District,	[phone]
				Shenyang City, Liaoning Province
4	Jiangsu Branch	13	February 2012	2/F, Huanghe Building, 58 Longyuan West Road,	[phone]
				Gulou District, Nanjing City, Jiangsu Province
5	Hunan Branch	1 March 2013	No. 9, Furong Middle Road Section 2, Furong	[phone]
				District, Changsha City, Hunan Province
6	Fujian Branch	16	April 2013	3/F, Wuyi Center, 33 East Street, Gulou District,	[phone]
				Fuzhou City, Fujian Province
7	Zhejiang Branch	18	April 2013	Room 604, 6/F, 225 Qing Chun Road, Shangcheng	[phone]
				District, Hangzhou City, Zhejiang Province
8	Northwest Branch	19	April 2013	56 Nanda Street, Beilin District, Xi'an City Shaanxi	[phone]
				Province
9	Guangdong Branch	24	April 2013	Units 5102 and 5105, 30 Zhujiang East Road, Tianhe	[phone]
				District, Guangzhou City, Guangdong Province
10	Chongqing Branch	14	April 2014	2-2, Block 2, Yijing Fenghao, 195 Longshan Road,	[phone]
				Longshan Avenue, Yubei District, Chongqing City
11	Shenzhen Branch	21	April 2014	22/F, Block B, Rongchao Business Center, 6003	[phone]
				Yitian Road, Futian District, Shenzhen City,
				Guangdong Province
12	Sichuan Branch	25	April 2014	25, South Third Section, First Ring Road, Wuhou	[phone]
				District, Chengdu City, Sichuan Province
13	Shandong Branch	23	May 2014	11/F, Block 4, 8 Long'ao North Road, Lixia District,	[phone]
				Jinan City, Shandong Province
14	Jiangxi Branch	28	May 2014	Unit 5, 30/F, Block 2#, Heping International Hotel, 69	[phone]
				Yanjiang North Avenue, Donghu District, Nanchang
				City, Jiangxi Province
15	Henan Branch	3 June 2014	2/F, Zhonghua Mansion, 3 Shangwu Outer Ring	[phone]
				Road, Zhengdong New District, Zhengzhou City,
				Henan Province
16	Shanghai Free	26	September 2014 Room 2206, North Building, 528 South Pudong Road,	[phone]
	Trade Zone Branch			China (Shanghai) Free Trade Zone
17	Tianjin Branch	10	November 2014	Room 201, International Communication Center	[phone]
				South Building, Tianjin University of Technology, 26
				Yuliang Road, Nankai District, Tianjin City
18	Beijing Hongyi	19	March 2019	4-4, Third Section, 6/F, Building No. 4, 66 Anli Road,	[phone]
	Branch			Chaoyang District, Beijing City
Note:	"Date of establishment" refers to the date of obtaining a business license of the securities institution.

Interim Report 2020

31

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

VI. EXPLANATION OF CHANGES IN SCOPE OF STATEMENT CONSOLIDATION

During the Reporting Period, there was no change in the number of primary entities included in the consolidated financial statement of the Company.

VII. NO CHANGE IN THE INCOME TAX POLICY OF THE COMPANY DURING THE REPORTING PERIOD

From 1 January 2008, the Enterprise Income Tax Law of the PRC 《( 中華人民共和國企業所得稅法》) and the Regulations on the Implementation of Enterprise Income Tax Law of the PRC 《( 中華人民共和國企業 所得稅法實施條例》) became effective for the Company and other subsidiaries (except China Securities Futures and China Securities International). Income tax computation and payment are governed by the Announcement of the State Administration of Taxation on Printing and Distributing the Administrative Measures for Collection of Consolidated Payments of Enterprise Income Tax by the Enterprises with Trans-regionalOperations (《國家稅務總局關於印發〈跨地區經營匯總納稅企業所得稅徵收管理辦法〉 的公告》) (Public Notice of the State Administration of Taxation [2012] No. 57). The income tax rate applicable to the Company is 25%.

In accordance with the Explanation on Implementation of Tax Preferential Treatments concerning Western China Development Strategy 《( 關於執行國家西部大開發所得稅優惠政策的說明》) issued by the local taxation bureau in Yuzhong District, Chongqing City, the applicable income tax rate for China Securities Futures was 15%.

The applicable income tax rate for China Securities International was 16.5%.

VIII. ANALYSIS ON AND EXPLANATION OF THE REASONS AND IMPACT OF CHANGES IN ACCOUNTING POLICIES, ACCOUNTING ESTIMATES OR ACCOUNTING METHODS BY THE BOARD

During the Reporting Period, there were no significant changes in the principal accounting policies and key accounting estimates of the Company.

IX. FINANCING OF THE COMPANY

During the Reporting Period, significant financing activities of the Company are as follows:

1. Details of previously raised funds
   The proceeds previously raised referred to in this report include the proceeds raised through overseas listed foreign shares (H Shares) in December 2016 and the over-allotment of overseas listed foreign shares (H Shares) in January 2017 (hereinafter referred to collectively as "proceeds raised through overseas listed foreign shares").
   Pursuant to the Reply on the Issue of Overseas Listed Foreign Shares by CSC Financial Co., Ltd. (Zheng Jian Xu Ke [2016] No. 2529) issued by the CSRC on 4 November 2016, CSC Financial Co., Ltd. (hereinafter referred to as the "Company") was authorised to issue to the public 1,076,470,000 overseas listed foreign shares (H Shares) at an offer price of HK$6.81 per share (equivalent to RMB6.06). The proceeds were paid up in Hong Kong dollars, amounting to HK$7,330,760,700.00 (equivalent to RMB6,518,732,337.26). Upon deduction of the issuance expense equivalent to RMB200,903,380.25, the proceeds raised amounted to the equivalent of RMB6,317,828,957.01. The above mentioned proceeds were paid up on 9 December 2016.

32 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

On 5 January 2017, the Company exercised partial over-allotment options to issue 69,915,238 overseas listed foreign shares (H shares) at the offer price of HK$6.81 per share (equivalent to RMB6.09). The proceeds were paid up in Hong Kong dollars, amounting to HK$476,122,770.78 (equivalent to RMB425,534,726.38). Upon deduction of the issuance expense equivalent to RMB10,671,134.34, the proceeds raised were equivalent to RMB414,863,592.04, which were paid up on 5 January 2017. The above mentioned proceeds raised amounted to an equivalent of RMB6,732,692,549.05, and such proceeds were verified PricewaterhouseCoopers Zhong Tian LLP, Beijing Branch, which issued the capital verification report numbered PricewaterhouseCoopers Zhong Tian Beijing Yan Zi [2017] No. 037.

As of 30 June 2020, the balance of such proceeds raised in the designated bank account of H Share proceeds was equivalent to RMB188.6097 million, including unused proceeds and bank deposit interest.

1. Actual Use of The Proceeds Previously Raised
   According to the prospectus for overseas listed foreign shares (H Shares) issued by the Company in 2016, the Company planned to use an amount equivalent to RMB6,310.8920 million in total for five specific projects. The balance of additional proceeds from the exercise of any over-allotment option will be allocated to the above mentioned projects on a pro rata basis. The proceeds raised through the exercise of over-allotment options by the Company was equivalent to RMB414.8636 million, amounting to an equivalent of RMB6,725.7556 million when taken together with the proceeds raised as disclosed in the above mentioned H Share prospectus. As of 30 June 2020, the actual amount invested in the projects involving the use of the proceeds previously raised amounted to the equivalent of RMB6,608.4483 million in total.
   The use of proceeds raised through overseas listed foreign shares of the Company as of 30 June 2020 is as follows:

		Unit: RMB ten thousand
Total proceeds raised:	673,269.25	The accumulated amount of	660,844.83
		proceeds raised that has
		been used:
Total amount of proceeds raised	Nil	Total amount of raised	660,844.83
with purpose changed:		proceeds used in each
		year:
Proportion of raised proceeds	Nil	2016:	204,106.16
with purpose changed:		2017:	320,177.66
		2018:	125,000.00
		2019:	11,561.01

Interim Report 2020

33

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

Investment project

Total investment amount of the raised proceeds

The accumulated investment amount of the raised

The date on

Proceeds as of 30 June 2020

which the

Difference

project is

between

ready for

actual

use (or the

investment

completion

Proposed

Proposed

and proposed

progress of

investment

investment

Proposed

Proposed

investment

the project

Proposed

Actual

amount before

amount after

investment

investment

Actual

amount after

as of the

investment

investment

fundraising

fundraising

Actual

amount before

amount after

investment

fundraising

closing

No.

project

project

(Note 3)

(Note 3)

investment

fundraising

fundraising

(Note 2)

(Note 1)

date)

1

Meeting

Meeting

35%, an amount

35%, an amount

235,644.24

235,401.45

235,644.24

235,644.24

-

Nil

investment

investment

equivalent to

equivalent

and financing

and financing

235,401.45

235,644.24

needs of

needs of

customers

customers

2

Enhancing

Enhancing

20%, an amount

20%, an amount

134,479.82

134,515.11

134,653.85

134,479.82

(174.03)

Nil

investment and

investment and

equivalent to

equivalent to

market-making

market-making

134,515.11

134,653.85

capacity

capacity

3

Product seed

Product seed

20%, an amount

20%, an amount

134,653.85

134,515.11

134,653.85

134,653.85

-

Nil

fund

fund

equivalent to

equivalent

134,515.11

134,653.85

4

Enhancing cross-

Enhancing cross-

15%, an amount

15%, an amount

88,740.00

100,886.33

100,990.39

88,740.00

(12,250.39)

Nil

border business

border business

equivalent to

equivalent to

capacity and

capacity and

100,886.33

100,990.39

international

international

competitiveness,

competitiveness,

increasing

increasing

proportion of

proportion of

overseas assets

overseas assets

and revenue

and revenue

5

Working capital

Working capital

10%, an amount

10%, an amount

67,326.92

67,257.56

67,326.92

67,326.92

-

Nil

and other

and other

to equivalent

equivalent to

general

general

67,257.56

67,326.92

business use

business use

Total

672,575.56

673,269.25

660,844.83

672,575.56

673,269.25

660,844.83

(12,424.42)

Nil

Note 1: The difference between the actual investment amount and the proposed investment amount was the unused proceeds as at 30 June 2020 and the exchange gains and losses caused by the difference between the actual exchange rate and the exchange rate of the total investment after fundraising. The Company has compared, item by item, the proposed investment projects stated in the H Share prospectus with the specific usage as disclosed. As of 30 June 2020, H Share proceeds proposed to be used but not used by the Company amounted to RMB122.5039 million. The Company will use the remaining H Share proceeds according to the actual development needs. Among these, the H Share proceeds intended to be used for enhancing cross-border business capacity and international competitiveness (equivalent to RMB122.5039 million) will be maintained at the overseas fundraising account temporarily and remitted to the overseas subsidiaries for further use according to the actual business needs of the overseas subsidiaries after obtaining the approval of the relevant regulatory authorities. In addition, as of 30 June 2020, the proceeds proposed to be used in enhancing investment and market- making capacity equivalent to RMB1,346.5385 million has all been settled and used up. The difference between actual investment and proposed investment amounted to RMB1.7403 million, which was the exchange gains and losses caused by the difference between the actual exchange rate and the exchange rate of the total investment after fundraising.

34 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

Note 2: The actual investment of proceeds raised through overseas listed foreign shares is translated into RMB equivalent based on the actual exchange rate. Amount in the designated bank account for proceeds raised will be transferred to the Company's own general account upon the approval given by the Company for the purposes of the actual investment projects. Proceeds raised would not be separated from other proceeds within the self-owned general account. The Company recognised the actual use of the proceeds raised by further review and approval on the use and payment of the proceeds within the general account pursuant to the purposes of the actual investment projects.

Note 3: The difference between proposed investment before and after fundraising was mainly the difference arising from foreign exchange translation.

The Company has made no guarantee on benefits generated from the use of proceeds upon the issuance of overseas listed foreign shares. A portion of proceeds raised through overseas listed foreign shares has already been used on the work proposed in the prospectus upon being paid up; correspondingly, net assets and net capital of the Company were both increased. Since proceeds used in all of the investment projects of proceeds raised include original self-owned proceeds and proceeds raised, it is not possible to separately calculate the benefits realised with the proceeds raised as of 30 June 2020.

1. Bond Financing
   In the first half of 2020, the Company publicly issued two tranches of corporate bonds with a total issuance amount of RMB9 billion, non-publicly issued one tranche of perpetual subordinated bonds with a total issuance amount of RMB5 billion, all of which was used for replenishment of working capital, repayment of debt financing instruments falling due, redeemed or repurchased; nine tranches of short-term financing bonds with a total issuance amount of RMB36.5 billion; and 227 tranches of structured notes with a total issuance amount of approximately RMB13.3 billion, all of which was used to replenish liquidity of the Company.
   As of 30 June 2020, the balance of outstanding bonds of the Company amounted to RMB80.2 billion, with the balances of corporate bonds, perpetual subordinated bonds, subordinated bonds, US Dollar bonds, short-term financing bonds and financial bonds amounting to RMB28.8 billion, RMB10.0 billion, RMB19.5 billion, USD 0.2 billion (equivalent to approximately RMB1.4 billion), RMB16.5 billion and RMB4.0 billion, respectively. In addition, as of 30 June 2020, the balance of structured notes issued by the Company was approximately RMB7.1 billion. The above utilization of proceeds was in line with the disclosure provided in the offering documents. In the second half of 2020, the Company will continue to utilise the proceeds in accordance with the Company's operation and development strategies with reference to capital market conditions.
   In the second half of 2020, the Company will continue to issue corporate bonds, subordinated bonds, perpetual subordinated bonds, short-term financing bonds, financial bonds, beneficiary certificates and other financing instruments permitted by regulatory authorities according to the Company's capital needs with reference to the market conditions.

Interim Report 2020

35

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

1. RISK MANAGEMENT
   1. Overview
   The Company attaches great importance to the formation work of a risk management system. Adopting the risk management concept of "risk management by all, risk management as priority", the Company regards alignment with the general operating strategic goal of the Company and maintaining risks at a tolerable level as the foundation of risk management and seeks to ensure that risks associated with various businesses of the Company are measurable, controllable and commensurate with returns. The Company continues to enhance its risk management system in accordance with the needs arising from its business development, market condition changes and the regulatory pilot requirements, so as to enhance group risk management capability, ensure the progressive enhancement and effective operation of a comprehensive risk management mechanism.

1. Structure of Risk Management
   The Board of Directors is the Company's ultimate decision-making body for risk management. The executive management is the executive body, while different units are responsible for directly managing the risks in their business or operational activities. The Company has three dedicated risk control departments, namely the Risk Management Department, the Legal and Compliance Department and the Internal Audit Department, which independently monitor and manage risks before, during and after the event, according to their respective roles and responsibilities.
   The Board of Directors makes decisions with respect to the Company's risk management strategies and policies, internal control arrangements, as well as the resolution of significant risk events. The Supervisory Committee carries out supervision on the performance of risk management duties of the Board of Directors, Executive Committee and senior management in accordance with laws, regulations and the Articles of Association.
   The Risk Management Committee under the Board of Directors is responsible for supervising the overall risk management of the Company in general and ensuring the risks are adequately managed so that management activities may be effectively carried out on risks associated with the Company's business and operating activities. The Risk Management Committee under the Board of Directors considers and advises the overall objectives and basic policies of compliance management and risk management, confirms the specific constitution of risk management strategies and risk management resources so that they are aligned with the internal risk management policies; formulates tolerance level for major risks; and supervises and reviews the risk management policies and makes recommendations to the Board.

36 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

The Company's Executive Committee makes overall decisions with respect to the prevention, control, mitigation, or acceptance of risks in the Company's business and operating activities and makes decisions on efforts to improve the internal control rules and procedures and control measures in accordance with the risk management policies adopted by the Board.

The Risk Management Committee under the Executive Committee is responsible for determining the Company's risk appetite, risk tolerance level and major risk limits; formulating and promoting the implementation of the Company's risk management rules and procedures; approving risk limits and risk control standards specific to each business line; reviewing and approving new businesses and products; reviewing and approving the Company's risk reports and regular compliance risk reports; conducting research on risk control strategies and action plans for major business matters.

The Chief Risk Officer of the Company is responsible for leading professional risk management activities across the Company, including organizing the formulation of relevant risk management rules and procedures, improving the Company's risk management practices, and guiding the Risk Management Department in the identification, evaluation, monitoring and reporting of various risks.

Each and every department, branch and subsidiary of the Company, within their respective roles and responsibilities, is responsible for following the decisions, rules and procedures, and risk control polices, and implementing risk-control measures and engaging in direct risk control efforts in their business activities. Every staff of the Company has the responsibility to comply with the Company's relevant rules and procedures and contribute to daily risk control efforts as part of their own job responsibilities.

The Risk Management Department is responsible for risk management of the Company; the Legal and Compliance Department is responsible for legal affairs and compliance management, and the Internal Audit Department is responsible for the Company's internal audit activities. The aforementioned three independent risk management departments establish their own rules and procedures and operate independently to promote risk management of the Company. Specifically, the Risk Management Department is responsible for risk management before and during the event through risk identification, monitoring and assessment, the Legal and Compliance Department is responsible for managing the overall legal and compliance risks of the Company, and the Internal Audit Department is responsible for conducting audits to identify material defects in key rules and procedures and processes, as well as internal control weakness, and supervising corrections and rectifications.

Interim Report 2020

37

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

Structure Diagram of Risk Management of the Company

Board of Directors

Risk Management Committee

of the Board of Directors

Executives Committee

Chief Risk Officer

Risk Management

Committee

BusinessTrading committee-SubRisk

RiskCredit committee-Sub

InvestmentBanking committee-SubBusiness

ClientandProduct committeeSuitability-Sub

Risk Management

Department

Board of Supervisors

Audit Committee of the

Board of Directors

Chief Compliance

Officer

Legal and Compliance		Audit Department
Department

Other departments,		Compliance management personnel from
subsidiaries and branches		business departments and branches at all levels

In addition, pursuant to the needs of risk management in investment banking business, along with regulatory requirements, the Company has established the internal audit department in 2018. Through company-level review, the Company conducted export management and terminal risk control of investment banking projects, and performed ultimate approval of decision-making functions for the materials and documents submitted, reported, issued or disclosed in the name of the Company.

38 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

1. Risk Management Mechanism
   The Risk Management Department works with business and management departments to identify major risks during the course of different business and management activities, issue the Risk Catalogue and Key Control List, and continue to update the same in light of business changes and monitoring findings.
   The Company establishes a before-the-event risk control mechanism. It focuses on each of the main business lines to formulate specific risk limits and risk control standards, and has explicit procedures of risk control; the Risk Management Department and the Legal and Compliance Department have participated in the before-the-event evaluation for systematic processes, important projects and the operation system, and have expressed their opinions independently; important risk control parameters are directly under the management and control of the Risk Management Department, which also conducts independent verification for valuation model of financial instruments before going online.
   The Risk Management Department formulates the risk monitoring processes and indicators for key business and management lines. In particular, risk monitoring indicators for brokerage business, proprietary business, securities financing business, and asset management business as well as risk control indicators including net capital are monitored through the monitoring system, while the risk monitoring for other business or management lines primarily relies on regular and ad hoc monitoring by means of on-site monitoring, risk information reporting, data access and regular meetings.
   The Company also formulates operational process for risk assessment, and determines main assessment methods and qualitative and quantitative risk rating criteria for various types of risks. The Risk Management Department assesses and rates the risk matters on an ongoing basis, evaluates the control of major business risks on a regular basis, and conducts comprehensive year-end assessments of the risk control process, risk events and positions, and risk incidents of the departments, branches and subsidiaries as a key component of their performance assessment.
   The Company has formulated guidelines for various types of risk management and control, including market risk, credit risk, operational risk, liquidity risk and reputation risk, in order to guide and regulate the response to risks in various business lines. The Company has established crisis management mechanism and programs, and has formulated effective contingency measures and plans for various businesses, especially for key risks and emergencies such as liquidity crisis and accidents on transaction system, while emergency response mechanism has been established and is drilled sporadically on a regular or irregular basis.

Interim Report 2020

39

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

The Company is responsible for building mechanisms for communicating and reporting risk information and significant risk warnings, communicating and managing risk information and providing significant risk warnings. The Risk Management Department is responsible for formulating operational procedures for communicating and reporting risk information and issuing risk warnings, and the departments and branches and subsidiaries report risk information or issue warnings on potential risks identified by themselves to the Risk Management Department. The Risk Management Department then manages the risk information, performs comprehensive analyses on various risk information to identify risk control weaknesses and loopholes and propose recommendations on improving risk control, reports significant risks to the Chief Risk Officer and executive management or a Risk Management Committee, and at the same time, communicates risk information to relevant departments, while tracking any follow-up activities. The Risk Management Department prepares risk reports and risk control recommendation reports according to the results on risk identification, monitoring and assessment, and reports the findings to involved parties and the executive management of the Company. The Risk Management Department continuously monitors risks and the risk control status by following up on the implementation of risk control recommendations by relevant parties in managing risks identified in the risk reports.

The Legal and Compliance Department manages legal and compliance risks through compliance consultation, compliance review, compliance inspection, compliance supervision, compliance reporting, complaints reporting and handling, compliance accountability, information segregation wall, anti-money laundering and a series of compliance management methods as well as contracts, litigation management and other before- and during-the-event management for business lines.

The Internal Audit Department detects material defects in key rules and procedures and processes or internal control weaknesses through audits, reports these issues to the Supervisory Committee, the Audit Committee, management, the Legal and Compliance Department and the Risk Management Department, and drives any follow-up corrections and rectifications.

40 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

(IV) Details of the Primary Risks Associated with the Operation of the Company

The risks in the daily operating activities of the Company primarily include strategic risk, credit risk, liquidity risk, market risk, operational risk, information technology risk, legal risk and compliance risk and reputation risk. The Company has established specific policies and procedures to identify and address these risks, set out appropriate risk limits and internal control processes to manage these risks, and built a sound control mechanism and information technology systems to continuously monitor and control these risks.

1. Strategic Risk Management
   Strategic risks refer to the risks that affects the Company's overall development direction, corporate culture, information and capability of survival or corporate effectiveness.
   The Company established rational organizational structure of strategic management, including the Board of Directors and the Development Strategy Committee, the Executive Committee and the Executive Office (leading organizational department for strategic planning) under the Board of Directors, as well as each department, each branch and subsidiary.
   The Company has clearly formulated the procedures and methods of strategic planning, established assessment mechanism for strategic risk, including analysis on potential risk factors when formulating strategic plans, as well as regular review and discussion performed by the Board of Directors and the Executive Committee during the process of strategic planning. The Company will, based on the assessment on the implementation of strategic planning, make adjustment to the strategic plans or adopt targeted measures to control the strategic risk when necessary.
2. Credit Risk Management
   Credit risks refer to the risks arising from the economic loss caused by failure of performing the obligations in the contract by counterparties, issuers of debt financing instruments (or financiers).
   Credit risks of the Company arising from securities financial business primarily includes risks from decline in value or insufficient liquidity of collateral provided by customers, customers' failure to repay debts in full in a timely manner due to involvement in legal disputes of collateral assets, and credit risks arising from fraudulent credit information, violation of contracts and regulatory requirements in transaction actions. Control of credit risk from securities financing business is realised primarily through risk education for customers, credit investigation and verification on customers, credit management, risk assessment on collateralised (pledged) securities, reasonable setting of indication of defaulting customers, financing of customers with insufficient guaranteed securities and normal customers, the Company will perform the provision for impairment in accordance with prudential principles by complying with the accounting standards of IFRS 9, and actively recover debts from defaulting clients.

Interim Report 2020

41

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

Credit risk arising from bond investments is primarily due to bond financing instrument issuer defaults or decline in the creditworthiness of issuers, defaults of counterparty to bond trade, among others. The Company conducts necessary due diligence to issuers and counterparties, implements internal rating on issuers, debts and counterparty, executes access and limit management based on internal and external rating, and controls credit risk by using other follow-up monitoring and management tools. In the first half of 2020, with the increasing number of default cases in market, the Company continued to improve the credit quality of investment portfolio, and credit risk management capability by enhancing due diligence to investment subject and counterparties and improving internal rating system.

The Company controls credit risk arising from over-the-counter derivative transactions through setting counterparty ratings and credit lines, and setting limits on the sizes of transactions and credit risk exposures before transactions take place. The Company conducts a daily check and measurement of the credit risk exposures of counterparties. The Company has also adopted mark-to-market practices to monitor the contracts of derivative transactions and for valuation of collateral, and established forced position squaring procedures to control its credit risk exposures within established credit limits.

In order to manage the credit risk arising from the brokerage business, securities brokerage transactions in mainland China are all settled on a fully pledged basis, which enables settlement risks associated with brokerage business to be well under control. The Company strictly complies with relevant trading and settlement rules and procedures to eliminate non-compliant financing operations for clients. With regard to clients' credit risk, the Company has adopted safeguarding measures to prevent overdraft or negative balance of equivalent securities for repurchase financing clients, including due diligence of clients, establishing reasonable trade limit with customers, discount rate of pledged bonds, minimum ratio of equivalent securities retained, maximum leverage ratio and pledge concentration of single bond, and established various rules and practices to manage the credit risk of option trading clients, including margin management, position limits, and forced closeout.

Furthermore, the Company's Risk Management Department monitors the credit risk on an ongoing basis, including tracking the credit qualification status of counterparties and bond issuers, monitoring coverage of collateral for securities and financial business, requiring the business department to fulfill its duty of post-investment management, as well as using stress testing and sensitivity analysis, among others, to measure the credit risk of major business lines.

42 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

3. Liquidity Risk Management

Liquidity risks refer to the risks that a commercial bank is unable to acquire sufficient funds in a timely manner at a reasonable cost, in response to repay due debts, fulfil other payment obligations and meet other funding needs during normal course of business.

The Company has established clear decision-making levels, along with authority mechanism, mechanism for hierarchical control, and has clearly defined the duties and functions of the Board of Directors, as well as executive management and business departments of the Company in terms of liquidity risk management. The Company has established strict administrative measures of proprietary funds, and requires strict compliance with such administrative measures in implementing foreign liabilities, guarantees and investments. The Company also implements management on liquidity risk limits and conducts daily position analyses and monthly liquidity position analyses mechanism to manage liquidity movements in a timely manner. In respect of business, in order to effectively control the market liquidity risk of its securities portfolios, the Company has implemented securities centralised management system in securities investment and securities financial business, and adopted bond credit rating standards for fixed income securities investments. The Company has calculated liquidity coverage rates and net stable funds rates in accordance with regulatory requirements and controlled all indicators to be fell within the safety and compliance interval.

The Asset and Liability Management Committee is responsible for organizing and managing the asset and liability allocation plan of the Company, reviewing and approving the internal valuation interest rate of capital and emergency plans for liquidity risk. The Company established the Treasury Operations Department to initiate the management of the liquidity of its proprietary funds, accounting for expanding mid- and long-term stable funding channels, reasonably adjusting the asset allocation among various business lines, and steadily optimizing its assets and liabilities structure. The Company has improved its daily practice for liquidity risk management and control mechanism with the assistance of liquidity reserve assets management system, refining internal funds transfer pricing (FTP) system, as well as establishing and optimizing liquidity emergency plans and stress tests. In addition, in the first half of 2020, the Company further optimised its debt maturity structure and maintained adequate liquidity reserve by issuing various debt financing instruments including corporate bonds, short-term financing bills and income certificates, improved the emergency plan for liquidity risk, and secured liquidity risk to be measurable and controllable.

Interim Report 2020

43

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

4. Market Risk Management

Market risks refer to the risks of losses in the Company's on-and-off balance sheet business due to adverse changes in the market price (interest rate, exchange rate, securities price and commodity price).

For market risks, the Company has established an integrated risk management organizational structure, implemented stage-by-stage authorization, provided clear structure of duties and authorities of the Board of Directors, executive management and business department in market risk control and built risk management processes that enable coverage of activities before, during and after making investments, with an overall risk limits application. The Company annually reviews and approves risk limits for the entire Company as well as each proprietary business line, including: exposure limits, stop-loss limits, value-at-risk ("VaR") limits, limits of sensitive indicators and stress testing limits, with the Risk Management Department monitoring and supervising their implementation and compliance. The Company has adopted daily mark-to-market practices and implemented stop-loss procedures which commensurate with its trading strategies. On a regular basis, the Company assesses the risk tolerance of its proprietary business lines, the effectiveness of risk control and revenue after risk adjustment, and includes the assessment results in the performance evaluation of these business lines. The Company makes ongoing efforts to improve its proprietary business management system, to steadily realise automated controls over relevant limit indicators. The Company adopts VaR as a tool to measure the market risk of its investment portfolio comprising securities and its derivatives. VaR is a method that estimates the maximum possible loss on the portfolio due to movements in market interest rates or securities prices over designated period and within a given confidence interval. As VaR mainly relies on relevant information of historical data, it has certain inherent limitations. To complement, the Company implements daily and specific stress tests to assess the impact on the risk control indicators of net capital of the Company and profit or loss of proprietary portfolio from extreme adverse changes of risk factors, and proposes emergency plans with relevant recommendations and measures in accordance with the assessment.

The Company uses sensitivity analysis as a primary instrument to monitor the interest rate risk. Sensitivity analysis measures the impact on the total income and shareholders' equity interests arising from fair value changes of various financial instruments held at the end of the period when there are reasonable and possible changes in interest rates, on the assumptions that all other variables remain constant and overall market interest rates shift in a parallel manner, while risk management activities which may be taken by the Company to reduce interest rate risks are not taken into consideration.

44 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

With regard to foreign exchange rate risk management, as the proportion of assets denominated in foreign currencies held by our Company is insignificant, and represents a small portion of the income structure, the Company is of the view that the impact of foreign exchange rate risk on the Company's current operation is significant in general. The Company manages its foreign exchange rate risk by implementing integrated domestic and overseas business management, limiting the size of assets and liabilities denominated in foreign currencies, assigning stop-loss limits for investments in overseas companies and risk hedging with foreign exchange derivatives.

Other price risks refer to risks of fair value decline to the Company's investment portfolio due to fluctuations in market prices other than stock prices, interest rates, and foreign exchange rates, primarily including commodity prices. The Company's investment portfolio primarily comprises equity securities and their derivative instruments as well as fixed income businesses. Other market price-related businesses include gold trading and commodity derivatives trading where the Company's primarily focuses on providing liquidity services and arbitrage trading, representing a very small portion of the Company's portfolio and a negligible risk exposure. Accordingly, the Group believes that the other price risks do not have a significant impact on the Group's current operations.

5. Operational Risk

Operational Risks refer to the risks of losses caused by imperfect or problematic internal procedures, employees, IT systems or external events.

Concerning the potential operational risks in each business and management activity of the Company, the Company carries out the segregation of various businesses with three lines of defense comprising a system of checks and balances between its front, middle and back offices. A business authority delegation and accountability system, as well as a management system, procedures and risk control measures for each business has been established and reinforced. Within the scope of authority of the Company, operational risks are transferred or mitigated by personnel and operation outsourcing and, where necessary, insurance is purchased to the extent authorised. Mechanisms for information exchange, reporting of major events and information feedback have also been set up.

The Risk Management Department of the Company monitors and assesses the operational risks of various businesses including the brokerage business, and also implements regular risk control evaluation. It examines the key risks of various business and management lines, and establishes and implements key control measures in practical business procedures. The department also develops and improves internal control matrix. The business departments are organised to conduct self-evaluation of risk and control to identify new material risks and take appropriate risk control measures. Statistical analysis on various types of operational risk events is performed at least on an annual basis to calculate the frequency of their occurrence and the level of losses, as well as to assess the changing trend of risk and risk allocations. In the first half of 2020, the Company further implemented various risk warnings and risk education programs, and held "First Culture and Employee Practice Compliance Examination in Securities Industry in 2020" attended by all the staff members, enhanced targeted monitoring and investigation of major risks, further improved internal control construction and promoted the applications of various operational risk management tools such as the Key Risk Indicators (KRI).

Interim Report 2020

45

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

1. Information Technology Risk Management
   Information technology risks refer to the operational, legal and reputational risks incurred from natural factors, human factors, technical defects and management flaws while the information technology is applied in the Company.
   The Information Technology Department of the Company is responsible for the management of planning, establishment and operation maintenance of the information technology system. The Company carries out centralised management and backup of the data in transaction system, implementation of mutual separation of development, testing and operation maintenance of information technology system, as well as mutual separation of data management and application system, and implements strict control of access authority and track record, controls the choice of relevant software, hardware and external suppliers of information technology system, enhances external system management, performs real-time and automatic monitoring of the connection of important communication network and operation of the significant business system. In addition, the emergency management of business continuity of the Company is centrally led by the Risk Management Department, and the Information Technology Department is responsible for the technical support work.
2. Legal Risk and Compliance Risk Management
   Legal risks refer to the risk from contracts not being performed due to invalidity within the law, or improper entering into of the contracts; compliance risks refer to the risk that the Company may be exposed to legal sanction or regulatory measures, major property loss or reputation loss as a result of its non-compliance with the laws and regulations, regulatory requirements, rules, relevant codes stipulated by self-regulatory organizations as well as code of conduct applicable for our own business activities.
   The Legal and Compliance Department of the Company unified to manage legal affairs of the Company and controlled legal risks. It centralised to review all agreements and contracts of the Company, provided legal opinions on major business matters of the Company and performed centralised management, as well as instructed to handle litigations of the Company. Meanwhile, as the department responsible for compliance management under the guidance of the Chief Compliance Officer to carry out independent compliance management of the Company. The main responsibilities of compliance management of the Legal and Compliance Department are daily tracking, analysis, issue of laws and regulatory rules currently in effect and timely identifying, evaluating and managing relevant compliance risk in business operation and business innovation of the Company through various means and methods of compliance inspection, compliance review, compliance checking, compliance supervision. Specific or part-time compliance management officers are engaged in all functional departments, business lines and securities branches of the Company, and are responsible for daily compliance issues in their own departments. The compliance management of the Company has permeated all divisions of the Company, such as decision-making, implementation, supervision and feedback, which have been included in the whole process of executive management of the Company. The Company proactively cultivates a culture of compliance and improves the self-restraint mechanisms in order to ensure compliant operations and standardised development.

46 CSC Financial Co., Ltd

SECTION 3 MANAGEMENT DISCUSSION AND ANALYSIS

8. Reputation Risk Management

Reputation risks refer to the risks of negative comments to the Company from relevant stakeholders as a result of our operations, management and other activities or external events.

The Company strictly upholds the compliance operation concept in accordance with laws, enhances information disclosure management, treasuring and proactively maintaining its reputation. The Executive Office of the Company, the leading management department for management of significant emergency issues and public opinions, is responsible for comprehending the emergency issues and other issues which may have impact on the reputation of the Company by improving reputation risk management system and mechanism and timely obtaining the relevant information reported by the media to monitor, evaluate and coordinate response to the reputation risk. In the first half of 2020, in response to the sudden COVID-19 pandemic, the Company fully identified the potential adverse effects on its various business and management activities, and took targeted measures to maintain its normal operations, and various business risks can be measured and controlled; the Company took the opportunity to formally join the consolidated supervision test to further optimise the overall risk management mechanism, and study and strengthen the vertical control of its subsidiaries and integrated group management to improve the Company's group risk management capabilities.

XI. OTHER STATEMENT

Save as disclosed in this interim report, from 1 January 2020 to 30 June 2020, there are no material changes affecting the Company's performance that need to be disclosed under paragraphs 32 and 40(2) of Appendix 16 to the Listing Rules.

Interim Report 2020

47

SECTION 4 SIGNIFICANT EVENTS

1. MATERIAL LITIGATION AND ARBITRATION

During the Reporting Period, the Group had no major litigation or arbitration that involves an amount exceeding RMB10 million and accounting for more than 10 percent of the absolute value of the Company's latest audited net assets to be disclosed under the SSE Listing Rules.

As of the date of the Report, the Company, as the subject of bond issuance, has issued the following interim announcements on involvement in litigation and arbitration on the bond section on the website of SSE:

Summary and type of events	Index for inquiries

Update on the case that the Company, as the applicant, applied for arbitration in relation to the event of default in stock-pledged repurchase business by Wang Yue, the financier.

Update on the case that Beijing Runxin Dingtai Investment Center (L.P.) (北京潤信鼎 泰投資中心(有限合夥)), the privately offered fund for which Beijing Runxin Dingtai Capital Management Co., Ltd. (北京潤信鼎泰資本 管理有限公司), an indirect wholly - owned subsidiary of the Company and China Capital Management Limited (中信建投資本管理有 限公司), a wholly-ownedsubsidiary of the Company act as the mangers, as the plaintiff, applied for litigation in relation to the event of default in equity investment by Guangdong Southern Radio, Film and Television Media Group Co., Ltd. (廣東南方廣播影視傳媒集團有 限公司) and Guangdong South Lead TV & Film Co., Ltd. (廣東南方領航影視傳播有限公司).

Announcement on the Update of Involvement in Litigation and Arbitration of CSC Financial Co., Ltd. and its Subsidiaries issued on the bond section on the website of SSE on February 8, 2020

Announcement on the Update of Involvement in Litigation and Arbitration of CSC Financial Co., Ltd. and its Subsidiaries issued on the bond section on the website of SSE on February 8, 2020

Update on the case that China Securities (International) Brokerage Company Limited (中 信建投(國際)證券有限公司), an indirect wholly- owned subsidiary of the Company, applied for litigation in relation to the event of default in stock-pledged repurchase business by Ho Born Investment Holdings Limited (浩邦投資 控股有限公司), the financier, and Shi Hongliu, the guarantor.

Announcement on the Update of Involvement in Litigation and Arbitration of CSC Financial Co., Ltd. and its Subsidiaries issued on the bond section on the website of SSE on February 8, 2020

48 CSC Financial Co., Ltd

SECTION 4 SIGNIFICANT EVENTS

Summary and type of events	Index for inquiries

The case that the Company as the plaintiff, applied for litigation in relation to the event of default in default in collateralised stock repurchase business by Huijin Juhe (Ningbo) Investment Management Co., Ltd. (匯金聚合 (寧波)投資管理有限公司), the financier and Juntian (Ningxia) Investment Management Center (L.P.) the guarantor.

Announcement on Involvement in Litigation of Subsidiaries of CSC Financial Co., Ltd. issued on the bond section on the website of SSE on February 29, 2020

Update on the case that the Company, as the applicant, applied for arbitration in relation to the event of default in stock-pledged repurchase business by Beijing Shouhang Ripple Tube Manufacturing Co., Ltd. (北京首航 波紋管製造有限公司), the financier, and Huang Qingle, Huang Huiting and Huang Zhihong, the guarantors.

Announcement on the Update of Involvement in Litigation and Arbitration of CSC Financial Co., Ltd. issued on the bond section on the website of SSE on April 30, 2020

Update on the case that the Company, as one of the respondents, was involved in a lawsuit filed against Wuzhou International Holdings Limited (五洲國際控股有限公司) by Meiqi Asset Management Center (limited partnership) (上 海美期資產管理中心（有限合夥）) in respect of dispute of securities contract.

Announcement on the Update of Involvement in Litigation and Arbitration of CSC Financial Co., Ltd. issued on the bond section on the website of SSE on April 30, 2020

The case that the Company, as the applicant, applied for arbitration in relation to the event of default in stock-pledged repurchase business by Zhang Kezheng, the financier, Gao Yang, the guarantors.

The case that an asset management plan managed by the Company as the plaintiff applied for arbitration in relation to the event of default by China Minsheng Investment Co., Ltd. (中國民生投資股份有限公司) as a bond issuer for breach of contract

Announcement on the Update of Involvement in Litigation and Arbitration of CSC Financial Co., Ltd. issued on the bond section on the website of SSE on April 30, 2020

Announcement on the Update of Involvement in Litigation and Arbitration of CSC Financial Co., Ltd. issued on the bond section on the website of SSE on April 30, 2020

Interim Report 2020

49

SECTION 4 SIGNIFICANT EVENTS

Summary and type of events	Index for inquiries

The case that an asset management plan managed by the company as the plaintiff applied for arbitration in relation to the event of default by Jilin Province Modern Agricultural Industry Investment Fund (LLP) (吉林省交通投 資集團有限公司) as a bond issuer for breach of contract

Announcement on the Update of Involvement in Litigation and Arbitration of CSC Financial Co., Ltd. issued on the bond section on the website of SSE on April 30, 2020

Update on the case that the Company, as one of the defendants, was involved in a lawsuit filed against Wu Sheng Asset Management (Guangzhou) Co., Ltd. (吳聲資產管理（廣州） 有限公司) by Jiaxing Yuansheng Trading Co., Ltd. (嘉興市遠盛商貿有限責任公司) in respect of dispute of trading in securities investment funds.

Announcement on the Update of Involvement in Litigation and Arbitration of CSC Financial Co., Ltd. issued on the bond section on the website of SSE on April 30, 2020

1. PUNISHMENT DURING THE REPORTING PERIOD OF THE COMPANY

On April 15, 2020, the Beijing branch office of the CSRC issued the Decision on Taking Regulatory Measure of Issuing a Warning Letter to CSC Financial Co., Ltd., pointing out that the Company manages 8 equity management plans, and the funds invested in the same assets are all more than 25% of the net asset value of the asset management plan. It is decided to take administrative supervision measures to issue warning letters to the Company.

50 CSC Financial Co., Ltd

SECTION 4 SIGNIFICANT EVENTS

In view of the punishment, the Company's rectification measures are as follows: 1. With regard to organization structure, it has adjusted the organizational structure of the Asset Management Department according to the principles of reasonable division of labor, clear powers and responsibilities, cross-checking and effective supervision and further optimised the respective duties of marketing team, investment team and China-Taiwan business team. 2.With regard to system, in accordance with the requirements of the new regulations on asset management, the Asset Management Department has comprehensively improved the system and business process in internal control system, authority management, investment process, examination and approval standards and emergency response management. 3. With regard to business development and investment process, the Asset Management Department has comprehensively organised the investment decision-making process and business process, and conducted compliance risk point inspection and self-examination on all products of the department. 4. The Company performed compliance accountability of the relevant accountable departments and persons.

1. MATERIAL ASSET ACQUISITION AND DISPOSAL, MORTGAGE OR PLEDGE, MATERIAL CONTINGENT LIABILITIES AND EXTERNAL GUARANTEES OF THE COMPANY

During the Reporting Period, the Company did not undertake any material asset acquisition, disposal or swap, or merger and acquisition. During the Reporting Period, there was no off-balance sheet item or contingent liability which may have a material impact on the financial condition and operating results of the Company, such as material external guarantee, mortgage and pledge.

Interim Report 2020

51

SECTION 4 SIGNIFICANT EVENTS

IV. RATING CLASSIFICATION OF THE COMPANY BY SECURITIES REGULATORS

In 2019, under the classification based on securities firms by the CSRC, the Company was rated "Class A Grade AA" for ten consecutive years with such a rating being the highest rank granted by the CSRC.

V. COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

During the Reporting Period, the Company strictly complied with the Corporate Governance Code contained in Appendix 14 to the Hong Kong Listing Rules ("Corporate Governance Code"), followed all code provisions and met the requirements of part of the recommended best practices set out in the Corporate Governance Code.

VI. REPURCHASE, SALE OR REDEMPTION OF SECURITIES OF THE COMPANY

During the Reporting Period, there was no repurchase, sale or redemption of securities of the Company made by the Company or any of its subsidiaries.

VII. DIVIDEND

The Board of Directors did not present the proposal in relation to the distribution of any 2020 interim dividends for the six months ended June 30, 2020.

52 CSC Financial Co., Ltd

SECTION 5 CHANGES IN ORDINARY SHARES AND INFORMATION ON SHAREHOLDERS

1. SHARE CAPITAL STRUCTURE OF THE COMPANY

As of 30 June 2020, the share capital structure of the Company was as follows:

				Percentage
		Number	in the total
Name of Shareholders	Type of Shares	of Shares number of Shares
BSCOMC (北京國管中心)	A Shares	2,684,309,017		35.11%
Central Huijin (中央匯金)	A Shares	2,386,052,459		31.21%
HKSCC Nominees Limited (香港中央結算
(代理人）有限公司)(note1)
Glasslake Holdings (鏡湖控股)	H Shares	351,647,000		4.60%
CSRF(結構調整基金)	H Shares	38,758,500	0.51%
Other Shares held under the name of
HKSCC Nominee Limited	H Shares	870,330,685	11.37%
Other Shares held under the name of
HKSCC Nominee Limited	A Shares	50,966,433	0.66%
CITIC Securities (中信証券)	A Shares	382,849,268	5.01%
Tengyun Investment (騰雲投資)	A Shares	300,000,000	3.92%
Shanghai Shangyan (上海商言)	A Shares	150,624,815	1.97%
Other public holders of A Shares	A Shares	430,559,484	5.63%
Other public holders of H Shares	H Shares	287,577	0.01%
Total		7,646,385,238		100.00%

Note1： As of 30 June 2020, the Company noted from the Shareholders' interests disclosed on the Hong Kong Stock Exchange that Glasslake Holdings held 351,647,000 H Shares of the Company, representing 4.60% of the total share capital of the Company and CSRF held 38,758,500 H Shares of the Company, representing 0.51% of the total share capital of the Company. The total number of H Shares of the Company held by HKSCC Nominees Limited acting as the nominee for all institutional and individual investors that maintain an account with it was 1,260,736,185 H Shares as of 30 June 2020. Save for 351,647,000 H Shares and 38,758,500 H Shares of the Company held by Glasslake Holdings and CSRF, respectively, to the knowledge of the Company, the number of remaining H Shares of the Company held under the name of HKSCC Nominees Limited was 870,330,685 H Shares.

1. SHAREHOLDERS

As of 30 June 2020, the total number of Shareholders as shown on the register of members of the Company was 110,406, of which 110,335 were A Shareholders and 71 were H Share registered Shareholders. The H Share registered Shareholders include HKSCC Nominees Limited, which held H Shares and A Shares of the Company as the nominee for all institutional and individual investors that maintained an account with it as of 30 June 2020.

Interim Report 2020

53

SECTION 5 CHANGES IN ORDINARY SHARES AND INFORMATION ON SHAREHOLDERS

1. SHAREHOLDERS' INTERESTS AND SHORT POSITIONS REQUIRED TO BE DISCLOSED UNDER THE SECURITIES AND FUTURES ORDINANCE ("SFO")

To the knowledge of the Directors, as of 30 June 2020, the following Shareholders (except Directors, Supervisors and senior management) had interests or short positions in the Shares and underlying Shares of the Company required to be recorded in the register to be kept by the Company under Section 336 of the SFO:

						Approximate
						Percentage of	Approximate
			Number of			Shareholding	Percentage of
			Shares Directly			in the Total	Shareholding
			or Indirectly		Nature of	Issued Ordinary	In the Relevant
Name		Capacity	Held	Class of Shares Interest	Share Capital	Class of Shares
1.	BSCOMC (北京國管中心)	Beneficial owner	2,684,309,017	A Shares	Long positions	35.11%	42.04%
2.	Central Huijin (中央匯金)	Beneficial owner	2,386,052,459	A Shares	Long positions	31.21%	37.37%
3.	CITIC Securities(中信証券)Beneficial owner	383,099,268	A Shares	Long positions	5.01%	6.00%
			250,000	A Shares	Short positions	0.003%	0.004%
		Approved	250,000	A Shares	Long positions	0.003%	0.004%
		lending agent			(Shares
					available for
					loan)
4.	Glasslake Holdings (鏡湖 Beneficial owner	351,647,000	H Shares	Long positions	4.60%	27.89%
	控股)(note1)
5.	Affluent East Investments	Interest of	351,647,000	H Shares	Long positions	4.60%	27.89%
	Limited (東滿投資有限公	Controlled
	司)(note1)	Corporation
6.	CITIC Limited (中信股份)	Interest of	351,647,000	H Shares	Long positions	4.60%	27.89%
	(note1)	Controlled
		Corporation
7.	CITIC Group (中信集團)	Interest of	351,647,000	H Shares	Long positions	4.60%	27.89%
	(note1)	Controlled
		Corporation

Note:

1. Glasslake Holdings is wholly-owned by Affluent East Investments Limited (東滿投資有限公司) ("Affluent East"), which is in turn a wholly-owned subsidiary by CITIC Limited. CITIC Group indirectly holds a majority of equity interest in CITIC Limited. Therefore, each of Affluent East, CITIC Limited and CITIC Group is deemed to be interested in the H Shares held by Glasslake Holdings under the SFO.

54 CSC Financial Co., Ltd

SECTION 5 CHANGES IN ORDINARY SHARES AND INFORMATION ON SHAREHOLDERS

Save as disclosed above, as at 30 June 2020, to the knowledge of the Directors, no other person (except Directors, Supervisors and senior management) had interests or short positions in the Shares and underlying Shares of the Company required to be recorded in the register to be kept by the Company under Section 336 of the SFO.

Save as disclosed in this report, as at 30 June 2020, none of the Directors hold the position as a Director or was employed in other companies which has an equity or short positions which shall be notified to the Company under sections 2 and 3 of Part XV of the Securities and Futures Ordinance.

IV. ISSUANCE OF SHARES OR CHANGES IN REGISTERED CAPITAL OF THE COMPANY

On 21 January 2019, the Company disclosed the Proposed Non-public Issuance of A Shares on the website of the Hong Kong Stock Exchange. In March 2020, the Company's non-public offering of A Shares was approved by the CSRC.

Interim Report 2020

55

SECTION 6 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

1. THE BOARD OF DIRECTORS AND THE BOARD COMMITTEE
   Composition of the Board of Directors

As of 30 June 2020, the Board of the Company is currently comprised of 13 Directors, two of which are executive Directors (Mr. WANG Changqing and Mr. LI Geping), six are non-executive Directors (Mr. YU Zhongfu, Ms. ZHANG Qin, Ms. ZHU Jia, Mr. WANG Hao, Mr. WANG Bo and Mr. XU Gang) and five are independent non-executive Directors (Mr. FENG Genfu, Ms. ZHU Shengqin, Mr. DAI Deming, Mr. BAI Jianjun and Mr. LIU Qiao). Mr. WANG Changqing is the Chairman of the Board and Mr. LI Geping is the general manager. Save as the above employment information and the publicly disclosed information, none of the Directors, Supervisors and members of the senior management is related to other Directors, Supervisors and members of the senior management of the Company.

Board Committees under the Board

In accordance with the corporate governance practices prescribed in relevant PRC laws and regulations, the Articles of Association and the Hong Kong Listing Rules, the Company has established four Board committees, namely: the Development Strategy Committee, the Risk Management Committee, the Audit Committee and the Remuneration and Nomination Committee, to which certain responsibilities are delegated, so as to assist the Board to perform its duties in various aspects. The composition of each Board committee is listed as follows:

Name of committee	Members of committee
Development Strategy Committee	WANG Changqing (Chairman), YU Zhongfu, LI Geping, ZHU
	Jia, WANG Hao, XU Gang, FENG Genfu
Risk Management Committee	WANG Hao (Chairman), LI Geping, ZHANG Qin, WANG Bo, XU
	Gang, BAI Jianjun, LIU Qiao
Audit Committee	DAI Deming (Chairman), ZHANG Qin, WANG Bo, FENG Genfu,
	ZHU Shengqin
Remuneration and Nomination	BAI Jianjun (Chairman), WANG Changqing, YU Zhongfu, ZHU
Committee	Shengqin, DAI Deming, LIU Qiao

During the Reporting Period, all Directors faithfully and diligently performed their duties entitled by laws and regulations, and have protected the overall interests of the Company and its Shareholders, especially the legitimate interests of minority Shareholders. The Audit Committee of the Board of the Company has reviewed the accounting policies adopted by the Company, discussed matters including the internal control and financial statements of the Company, and reviewed the consolidated interim financial information of the Company for the six months ended 30 June 2020 and this interim report, and no disagreement was proposed in respect of the accounting policies adopted by the Company and financial reports thereof. The external auditor of the Company has reviewed the interim financial information in accordance with the International Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity".

The financial information set out in this interim report is unaudited.

56 CSC Financial Co., Ltd

SECTION 6 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

1. THE SUPERVISORY COMMITTEE

The Company strictly complied with the requirements of the Articles of Association and relevant rules in respect of the appointment of Supervisors. The Company's Supervisory Committee currently comprises five Supervisors, including two employee representative Supervisors (Ms. LIN Xuan and Mr. ZHAO Ming) and three Shareholder representative Supervisors (Mr. LI Shihua, Ms. AI Bo and Ms. ZHAO Lijun); of which, Mr. Li Shihua was appointed a the chairman of the supervisory committee.

Pursuant to relevant requirements of the Company Law, the Securities Law, relevant laws and regulations of the PRC and the Articles of Association, all Supervisors stringently performed their duties, supervised the standardised operation of the Company, and protected the statutory rights of the Company and its Shareholders.

1. CHANGES IN DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT DURING THE REPORTING PERIOD

Name	Positions	Changes
LI Yunan	Member of the Executive Committee	Appointed

On 26 March 2020, the 20th meeting of the second session of the Board of the Company supplemented Mr. LI Yunan as a member of the Executive Committee of the Company. Mr. LI Yunan duly performed the duties from the date when the Board considered and approved the proposal on his appointment. The term of office of Mr. Li Yunan shall be until the expiry of the second session of the Board.

Subsequent events:

On 28 July 2020, the second EGM of the Company elected Mr. WANG Xiaolin as a director of the second session of the Board of the Company. Mr. WANG Xiaolin duly performed the duties from the date when the Board considered and approved the proposal on his appointment. The term of office of WANG Xiaolin shall be until the expiry of the second session of the Board.

On 29 July 2020, Mr. Wang Bo, a non-executive director of the Company, tendered his resignation to the Board of the Company due to change of work arrangement, resigning from the position of non- executive director of the Company, as well as member of Risk Management Committee and Audit Committee of the Board of the Company. According to the relevant provisions of the PRC Company Law and the Articles of Association of CSC Financial Co., Ltd., Mr. Wang Bo's resignation will not cause the number of members of the Board of the Company to be less than the minimum quorum. The resignation took effect from 29 July 2020.

Interim Report 2020

57

SECTION 6 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

IV. DEALING IN SECURITIES BY DIRECTORS AND SUPERVISORS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers contained in Appendix 10 to the Hong Kong Listing Rules (the "Model Code") in respect of the securities transactions entered into by its Directors and Supervisors. The Company has made specific inquiries to all Directors and Supervisors on any non-compliance with the Model Code. All the Directors and Supervisors have confirmed that they have completely complied with the provisions and standards of the Model Code during the period from 1 January 2020 up to the date of announcement of 2020 interim results.

1. INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY

To the best knowledge of all Directors, as of 30 June 2020, no Directors, Supervisors or senior management of the Company had any interests or short positions in the Shares, underlying Shares and debentures of the Company or any of the Company's associated corporations (as defined in Part XV of the SFO), which were required, pursuant to Section 352 of the SFO, to be entered into the register referred to therein, or required, pursuant to the Model Code under Appendix 10 to the Hong Kong Listing Rules, to be notified to the Company and the Hong Kong Stock Exchange.

As of 30 June 2020, no Directors and Supervisors or any of their spouses or children under 18 years of age had been granted the rights to purchase Shares or debentures of the Company for the benefit or exercise any aforesaid rights by themselves, nor have any Directors and Supervisors or any of their spouses or children under 18 years of age been granted the aforesaid rights from any other corporate body due to the arrangement made by the Company or any its subsidiaries.

VI. RIGHTS OF DIRECTORS TO ACQUIRE SHARES OR DEBENTURES

During the Reporting Period and as of the end of the Reporting Period, there was no arrangement of which one of the parties is the Company, the subsidiaries of the Company, or the subsidiaries of the controlling companies of the Company, while the purpose or one of the purposes of such arrangement is to enable any Directors, Supervisors or any of their spouses or children under 18 years of age to gain benefits through purchasing Shares or debentures of the Company or any other legal entities.

58 CSC Financial Co., Ltd

SECTION 6 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

VII. EMPLOYEES

1. Number and Composition of Employees
   As of 30 June 2020, the Group had 9,321 employees in total (excluding brokers and dispatched employees), among which the parent Company had 8,416 employees (excluding brokers and dispatched employees). The composition is as follows:

	The Group	The Company
	Number	Percentage	Number of	Percentage
Item	of employees	(%)	employees	(%)
Brokerage business	5,643	60.54%	5,421	64.41%
Investment banking	1,034	11.09%	969	11.51%
Information technology	526	5.64%	452	5.37%
Financial planning	301	3.23%	248	2.95%
Administration	61	0.65%	18	0.21%
Research	206	2.21%	169	2.01%
Fixed income business	138	1.48%	129	1.53%
Professional structure Asset management business	220	2.36%	126	1.50%
Margin financing and securities lending businesses	46	0.49%	46	0.55%
Security investment	83	0.89%	83	0.99%
Settlement	136	1.46%	111	1.32%
Legal and compliance/audit	441	4.73%	408	4.85%
Risk management	85	0.91%	57	0.68%
Others	401	4.30%	179	2.13%
Total	9,321	100%	8,416	100%

The Company believes that excellent cadre teams are the cornerstone for sustainable development. The Company has devoted enormous resources to the human resources management. The Company constantly attracts professional talents to join and creates the core competitiveness of the Company through a series of human resources management measures such as stringent recruitment conditions and selection procedures, competitive remuneration and benefits in the market, comprehensive training and nurturing program, scientific and effective performance management policies and long-term talents development plans.

Interim Report 2020

59

SECTION 6 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

1. Relevant Information of Securities Brokers
   As of 30 June 2020, the Company had a total of 163 business departments that had implemented a securities broker system. There was a total of 1,100 brokers who obtained professional brokerage qualifications as reviewed and approved by the Securities Association of China.

1. Employee Remuneration
   The Company established a sound human resources management system in compliance with the relevant provisions of the PRC laws on labour contract and labour protection formulated various rules and policies in relation to remuneration, position and grade, performance assessments, benefits and holidays, etc., and stringently implemented such policies. The Company effectively protected the staff's interest in various aspects such as labor protection, working environment, payment of wages, social insurance, healthcare and vacation. The Company carried through the principle of marketization when determining the remuneration standard. Remuneration for employees includes fixed salary, performance-related bonuses and insurance benefits. Fixed salary is determined according to the position and grade, and the standard of position and grade integrates the factors of qualification, capability, professional knowledge and experience of employees, while performance-related bonuses are associated with the completion of results and assessment results in the corresponding year. The total amount of annual bonuses is deducted from total amount of profit in accordance with the ratio determined by the Board. The Company established a comprehensive benefit protection system, and the statutory benefits are paid in accordance with the rules and standards as stipulated by the PRC government. Benefits of the Company covered various aspects, including replenishment of medical insurance, enterprise annuity, paid leave and medical examination.

(IV) Training Program

The Company continues to promote and implement staff training programs with comprehensive layout, overall planning, implementation by levels and clear purposes and constantly strengthens the development of a team with talents. The Company proactively improves its multi-level training system which focuses on the "ladder of training for the growth of employees" against different career development paths of employees of its headquarters and branches. Utilizing E-learning platform and its mobile online learning as carriers for learning resources as well as face-to-face and online broadcasting teaching as the major training form, the Company creates room for learning and growth for employees and comprehensively improves the professional skills and professionalism of the employees through multi-channel,multi-way and multi-means training which broadens the scope and depth of training.

60 CSC Financial Co., Ltd

SECTION 6 DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

1. 1. The Company enhanced the training of senior employees on leadership and management skills, broadened their innovative idea and international perspective, improved their reform management capability, strategic analysis capability, executive management capability, business synergy capability, risk prevention capability and integrated humanity quality, and nurtured quality leaders for enterprise operation and management.
   2. The Company strengthened the training of mid-level staff on implementation, competence and professional skills, and strived to improve their professional knowledge, project implementation capability, business development and innovation capability as well as team management capability.
   3. The Company strengthened the training of reserve management talents in branches by enhancing integrated training on self-management, team management, systematic thinking and problem analysis and solving ability as well as improving their management awareness and level.
   4. The Company popularised vocational training and common skills training for employees at the basic level, strengthened the promotion of values for the integration of its financial industry culture, group culture and corporate culture, as well as the education of professional compliance, business operation, workflow, regulations and system, and strived to enhance their communication and presentation capability, customer service capability, team coordination capability and office operation capability.
   5. The Company attached high importance to recruitment at university campuses, and commenced a series of enrollment and trainee cultivation program to recruit outstanding graduates and students with working and placement opportunities. As of 30 June 2020, the Company provided over 999 internship positions for the on-campus students, and hired 169 new graduates. The Company provided an approximately 70-hour online orientation in total for new staff members of headquarters and branches. In addition, with the prevention and control requirements of COVID-19, the Company organised concentrated training for new entrants by way of online broadcasting.
2. Relationship with Employees
   During the Reporting Period and up to the Latest Practicable Date, our Company has not experienced any strike actions by staff members or other material labor disputes affecting the Company's operation. Our Company has maintained a good relationship with employees.

Interim Report 2020

61

REPORT ON REVIEW OF

INTERIM FINANCIAL INFORMATION

To the Board of Directors of CSC Financial Co., Ltd.

(Incorporated in the People's Republic of China with limited liability)

INTRODUCTION

We have reviewed the interim financial information set out on pages 62 to 144, which comprises the interim condensed consolidated statement of financial position of CSC Financial Co., Ltd. (the "Company") and its subsidiaries (together, the "Group") as at 30 June 2020 and the interim condensed consolidated income statement, the interim condensed consolidated statement of comprehensive income, the interim condensed consolidated statement of changes in equity and the interim condensed consolidated statement of cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 "Interim Financial Reporting". The directors of the Company are responsible for the preparation and presentation of this interim financial information in accordance with International Accounting Standard 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this interim financial information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the interim financial information of the Group is not prepared, in all material respects, in accordance with International Accounting Standard 34 "Interim Financial Reporting".

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 25 August 2020

62 CSC Financial Co., Ltd

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

			Six months ended 30 June
	Note	2020			2019
			(Unaudited)		(Unaudited)
Revenue
Fee and commission income	6	5,232,272			4,034,133
Interest income	7	3,147,622			3,036,803
Net investment gains	8	4,450,369			1,501,263
		12,830,263		8,572,199
Other income	9	178,482		40,680
Total revenue and other income		13,008,745		8,612,879
Fee and commission expenses	10	(614,816)	(472,900)
Interest expenses	10	(2,490,413)	(2,224,063)
Staff costs	10	(2,809,787)	(2,144,647)
Tax and surcharges		(65,499)	(43,350)
Other operating expenses and costs	10	(951,056)	(764,780)
Credit impairment (losses)/reversals	11	(209,304)	99,904
Total expenses			(7,140,875)	(5,549,836)
Operating profit			5,867,870				3,063,043
Share of profits and losses of associates			878				1,772
Profit before income tax		5,868,748			3,064,815
Income tax expense	12		(1,280,602)	(722,888)
Profit for the period			4,588,146				2,341,927
Attributable to:
Equity holders of the Company		4,578,457			2,329,515
Non-controlling interests		9,689			12,412
		4,588,146		2,341,927
Earnings per share attributable to ordinary equity
holders of the Company (expressed in RMB yuan per
share)
- Basic and diluted	14	0.58			0.30

The accompanying notes form an integral part of these interim condensed consolidated financial statements.

Interim Report 2020

63

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

	Six months ended 30 June
	2020				2019
	(Unaudited)	(Unaudited)
Profit for the period	4,588,146			2,341,927
Other comprehensive income
Items that may be reclassified to profit or loss in subsequent
period
Net gains on investments in debt instruments measured at fair value
through other comprehensive income	54,683			129,615
Net losses on investments in debt instruments measured at fair
value through other comprehensive income reclassified to profit
or loss on disposal	(123,856)	(43,307)
Income tax relating to these items	17,227		(20,903)
	(51,946)	65,405
Share of other comprehensive income of associates	9				(1,352)
Foreign currency translation differences	30,361			6,735
Items that will not be reclassified subsequently to profit or loss
Net (losses)/gains on investments in equity instruments designated
as at fair value through other comprehensive income	(99,970)	213,744
Income tax relating to these items	23,301			(51,986)
	(76,669)	161,758
Other comprehensive income for the period, net of tax	(98,245)	232,546
Total comprehensive income for the period	4,489,901			2,574,473
Attributable to:
Equity holders of the Company	4,480,212			2,562,061
Non-controlling interests	9,689			12,412
	4,489,901		2,574,473

The accompanying notes form an integral part of these interim condensed consolidated financial statements.

64 CSC Financial Co., Ltd

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

	Note		30 June 2020	31 December 2019
			(Unaudited)		(Audited)
Non-current assets
Property, plant and equipment	15	449,595		503,438
Right-of-use assets	16	987,932		1,102,008
Investment properties		57,608		49,438
Intangible assets	17	227,718		235,918
Investment in associates	19	295,623		269,512
Financial assets at fair value through profit or loss	20	3,907,611		3,296,031
Financial assets at fair value through other
comprehensive income	21	3,060,110		3,153,312
Financial assets held under resale agreements	22	1,660,118		2,507,276
Refundable deposits	23	4,338,483		2,793,611
Deferred tax assets	24	1,328,622		963,865
Other non-current assets	25	108,110		126,428
Total non-current assets		16,421,530		15,000,837
Current assets
Margin accounts	26	34,066,576		27,806,140
Accounts receivable	27	4,337,040		2,136,866
Financial assets at fair value through profit or loss	20	114,081,736		88,459,902
Financial assets at fair value through other
comprehensive income	21	35,467,517		32,490,523
Derivative financial assets	28	1,266,305		955,450
Financial assets held under resale agreements	22	16,659,231		18,611,480
Cash held on behalf of clients	29	67,994,776		52,695,657
Cash and bank balances	30	20,891,759		47,221,055
Other current assets	31	335,588		291,715
Total current assets		295,100,528		270,668,788
Total assets		311,522,058		285,669,625

Interim Report 2020

65

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)

AS AT 30 JUNE 2020

(In RMB thousands, unless otherwise stated)

	Note			30 June 2020	31 December 2019
				(Unaudited)		(Audited)
Current liabilities
Accounts payable to brokerage clients	32	70,637,157		54,625,736
Lease liabilities	33	332,469		340,140
Derivative financial liabilities	28	1,426,456		761,572
Financial liabilities at fair value through profit or loss	34	285,272		1,126,344
Financial assets sold under repurchase agreements	35	70,284,962		55,532,975
Placements from banks and other financial institutions	36	8,486,031		9,263,545
Taxes payable	37	1,031,064		600,594
Short-term borrowings	38	1,736,445		889,012
Short-term financing instruments payable	39	23,004,692		17,495,953
Other current liabilities	40	33,673,161		52,599,717
Total current liabilities		210,897,709		193,235,588
Net current assets		84,202,819		77,433,200
Total assets less current liabilities		100,624,349		92,434,037
Non-current liabilities
Financial liabilities at fair value through profit or loss	34	541,195			-
Bonds in issue	41	39,207,122		34,133,021
Lease liabilities	33	629,993		735,122
Deferred tax liabilities	24	833,478		660,874
Other non-current liabilities		4,414		10,286
Total non-current liabilities		41,216,202		35,539,303
Net assets		59,408,147		56,894,734

66 CSC Financial Co., Ltd

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)

AS AT 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

	Note		30 June 2020	31 December 2019
			(Unaudited)		(Audited)
Equity
Share capital	42	7,646,385		7,646,385
Other equity instruments	43	9,961,509		9,980,698
Reserves	44	21,343,588		21,412,062
Retained earnings		20,134,539		17,542,774
Equity attributable to equity holders of the Company		59,086,021		56,581,919
Non-controlling interests		322,126		312,815
Total equity		59,408,147		56,894,734

The accompanying notes form an integral part of these interim condensed consolidated financial statements.

Approved and authorized for issue by the Board of Directors on 25 August 2020.

Wang Changqing		Li Geping
Chairman		Executive Director and President

Interim Report 2020

67

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

												Attributable to equity holders of the Company
																Reserves
																								Foreign
																		Investment			currency											Non-
						Other equity	Capital			Surplus	General	revaluation	translation			Retained					controlling
	Note	Share capital	instruments	reserve			reserves	reserves			reserve			reserve			earnings			Subtotal			interests			Total
At 1 January 2020		7,646,385		9,980,698	8,753,213	3,573,328	8,691,508	203,472	190,541	17,542,774	56,581,919	312,815	56,894,734
Profit for the period				-			-	-			-	-			-			-	4,578,457	4,578,457	9,689		4,588,146
Other comprehensive (loss)/
income for the period				-			-	-			-	-	(128,606)	30,361			-	(98,245)			-	(98,245)
Total comprehensive (loss)/
income for the period				-			-	-			-	-	(128,606)	30,361	4,578,457	4,480,212	9,689	4,489,901
Capital injected by equity holders
- Capital injected by other
equity instrument holders	43			-	(19,189)	-			-	-			-			-			-	(19,189)			-	(19,189)
Appropriation to general reserve	44			-			-	-			-	29,771			-			-	(29,771)			-			-			-
Dividends to equity holders				-			-	-			-	-			-			-	(1,796,901)	(1,796,901)			-	(1,796,901)
Distribution to other equity
instrument holders				-			-	-			-	-			-			-	(160,020)	(160,020)			-	(160,020)
Dividends to non-controlling
interests				-			-	-			-	-			-			-			-			-	(378)	(378)
At 30 June 2020 (Unaudited)
	7,646,385		9,961,509	8,753,213	3,573,328	8,721,279	74,866	220,902	20,134,539	59,086,021	322,126	59,408,147

The accompanying notes form an integral part of these interim condensed consolidated financial statements.

68 CSC Financial Co., Ltd

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

									Attributable to equity holders of the Company
												Reserves
																	Foreign
															Investment	currency							Non-
				Other equity	Capital		Surplus	General	revaluation	translation		Retained				controlling
Note	Share capital	instruments	reserve		reserves	reserves		reserve	reserve		earnings		Subtotal	interests		Total
At 1 January 2019	7,646,385		5,000,000	8,753,213	3,013,066	7,535,426	(32,746)	156,705	15,505,197	47,577,246	286,151	47,863,397
Profit for the period		-		-	-		-	-		-	-	2,329,515	2,329,515	12,412	2,341,927
Other comprehensive income for
the period		-		-	-		-	-	225,811	6,735			-	232,546	-	232,546
Total comprehensive income for
the period		-		-	-		-	-	225,811	6,735		2,329,515	2,562,061	12,412	2,574,473

Capital injected by equity holders

• Capital injected by subsidiaries' non-controlling

equity holders		-	-	-	-	-	-	-		-		-	8,350	8,350
Appropriation to general reserve	44	-	-	-	-	28,574	-	-	(28,574)		-	-		-
Dividends to equity holders		-	-	-	-	-	-	-	(1,376,349)	(1,376,349)	-	(1,376,349)
Dividends to non-controlling
interests		-	-	-	-	-	-	-		-		-	(2,000)	(2,000)
At 30 June 2019 (Unaudited)		7,646,385		5,000,000	8,753,213	3,013,066	7,564,000	193,065	163,440	16,429,789	48,762,958	304,913	49,067,871

The accompanying notes form an integral part of these interim condensed consolidated financial statements.

Interim Report 2020

69

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

	Six months ended 30 June
	2020			2019
	(Unaudited)	(Unaudited)
Cash flows from operating activities
Profit before income tax	5,868,748		3,064,815
Adjustments for:
Interest expenses on bonds in issue, short-term financing
instruments payable, borrowings and lease liabilities	1,509,868		1,415,039
Dividend income and interest income from financial assets at fair
value through other comprehensive income	(555,844)	(602,639)
Net gains from disposal of financial assets at fair value through
other comprehensive income	(415,474)	(41,489)
Interest income and net gains from disposal of financial assets at
amortized costs	-	(1,235)
Net gains attributable to other interest holders of consolidated
structured entities	140,785	374,980
Share of profits/losses from associates and joint ventures	(878)	(1,772)
Net gains on disposal of property, plant, equipment and other assets	(211)	(133)
Revaluation gains/losses on financial instruments at fair value
through profit or loss	(805,907)	(400,253)
Net foreign exchange gains	(5,309)	(33)
Depreciation and amortization	316,450	268,601
Credit impairment losses	209,304	(99,904)
	6,261,532		3,975,977
Net changes in operating assets
Margin accounts	(6,259,575)	(1,795,657)
Financial assets at fair value through profit or loss	(24,751,132)	(14,014,866)
Cash held on behalf of clients	(15,284,975)	(17,320,605)
Financial assets held under resale agreements	2,698,353		(4,947,511)
Other operating assets	(3,649,191)	(2,251,344)
	(47,246,520)	(40,329,983)
Net changes in operating liabilities
Accounts payable to brokerage clients	16,011,421		17,838,635
Financial liabilities at fair value through profit or loss	(314,481)	(896,651)
Financial assets sold under repurchase agreements	14,790,323	14,993,123
Placements from banks and other financial institutions	(840,000)	3,900,000
Other operating liabilities	(12,591,420)	1,568,876
	17,055,843		37,403,983
Net cash (outflow)/inflow from operating activities before tax	(23,929,145)	1,049,977
Income tax paid	(1,031,127)	(507,840)
Net cash (outflow)/inflow from operating activities	(24,960,272)	542,137

70 CSC Financial Co., Ltd

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

		Six months ended 30 June
		2020		2019
		(Unaudited)	(Unaudited)
Cash flows from investing activities
Net cash flow from purchase or disposal of financial assets at fair
value through other comprehensive income	(2,777,620)	(3,182,462)
Dividend income and interest income received from financial assets
at fair value through other comprehensive income	596,219		516,302
Cash paid for purchase of property, plant and equipment,
intangible assets and other assets	(52,499)	(71,222)
Net cash flow from purchase or disposal of financial assets at
amortized costs	-	186,305
Net cash flow from investments in associates	(25,224)	28,207
Other cash flows from investing activities	235		60,864
Net cash outflow from investing activities	(2,258,889)	(2,462,006)
Cash flows from financing activities
Cash inflows from issuing perpetual bonds	5,000,000		-
Cash inflows from capital injected by non-controlling interests	-	8,350
Cash inflows from borrowing activities	3,830,632		23,403,883
Cash inflows from issuing bonds	57,964,490		38,007,736
Cash outflows from dividend distribution to ordinary shareholders	(1,500,560)	-
Cash outflows from distribution to other equity instrument holders	(294,000)	(294,000)
Cash outflows from distribution to subsidiaries' non-controlling
equity holders	(378)	(2,000)
Repayments of debts	(57,323,511)	(49,960,199)
Repayments of perpetual bonds	(5,000,000)	-
Repayments of interest on debts	(1,644,647)	(1,378,986)
Other cash outflows from financing activities	(338,388)	(308,859)
Net cash inflow from financing activities	693,638		9,475,925
Net change in cash and cash equivalents	(26,525,523)	7,556,056
Cash and cash equivalents at the beginning of the period	46,935,568		16,841,813
Effect of exchange rate changes on cash and cash equivalents	37,566		11,886
Cash and cash equivalents at the end of the period (Note 45)	20,447,611		24,409,755

The accompanying notes form an integral part of these interim condensed consolidated financial statements.

Interim Report 2020

71

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

1 GENERAL INFORMATION

CSC Financial Co., Ltd. (the "Company") (formerly known as China Securities Finance Co., Ltd.) is the successor entity of China Securities Finance Limited Liability Company which was approved for establishment by the China Securities Regulatory Commission (the "CSRC") on 2 November 2005. The original registered capital of the Company was RMB2,700.00 million. The registered address of the Company is Unit 4, No.66 Anli Road, Chaoyang District, Beijing, the People's Republic of China (the "PRC").

The Company received the approval of CRSC on 30 June 2011 to convert into a joint stock company, with registered capital increased to RMB6,100.00 million.

The Company completed its initial public offering of overseas listed foreign shares ("H shares") on The Stock Exchange of Hong Kong Limited on 9 December 2016. Under this offering, the Company issued a total of 1,076.47 million new shares with a nominal value of RMB1 per share. On 5 January 2017, the Company issued an additional 69,915,238 H shares through partial exercise of the over-allotment option with a nominal value of RMB1 per share. The registered capital of the Company increased to RMB7,246.39 million after such issuance. The Company completed the industrial and commercial registration for these changes on 5 June 2017, and obtained its new business license with the Unified Social Credit Code of 91110000781703453H on 9 June 2017.

The Company completed its initial public offering of domestic listed shares ("A shares") on the Shanghai Stock Exchange on 20 June 2018. The Company issued a total of 400,000,000 shares with a nominal value of RMB1 per share. After this issuance, the registered capital of the Company increased to RMB7,646,385,238.00. The Company completed the industrial and commercial registration for these changes on 18 February 2019.

The principal activities of the Company and its subsidiaries (collectively, the "Group") include securities brokerage, financial advisory relating to securities trading and securities investment activities, securities underwriting and sponsoring, proprietary trading and investment of securities, securities asset management, agency sale of securities investment funds, introducing brokerage for futures companies, margin financing and securities lending services, agency sale of financial products, market-making of stock options, custodian services for securities investment funds, and sale of precious metal products, commodity futures brokerage, financial futures brokerage and asset management, equity investment and corporate management services, investment management, raising and management of investment funds, investment management of equity investment, investment consulting, project consulting.

2 BASIS OF PREPARATION

The unaudited interim condensed consolidated financial statements for the six months ended 30 June 2020 have been prepared in accordance with International Accounting Standard ("IAS") 34 "Interim Financial Reporting", as well as with all applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

The interim condensed consolidated financial statements should be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 December 2019, which have been audited.

72 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

3 SIGNIFICANT ACCOUNTING POLICIES

The unaudited interim condensed consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments which are measured at fair value. Except for those described below, the accounting policies used in preparing the interim condensed consolidated financial statements are the same as those adopted in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019.

3.1 Amendments to the accounting standards effective in 2020 and adopted by the Group

In the current interim period, the Group has adopted the following International Financial Reporting Standards ("IFRSs") and amendments issued by the International Accounting Standards Board ("IASB"), that are mandatorily effective for the current interim period. Descriptions of these standards and amendments were disclosed in the Group's annual consolidated financial statements for the year ended 31 December 2019.

(1)	Amendments to IAS 1 and IAS 8	The Definition of Material
(2)	Amendments to IFRS 3	The Definition of A Business

The adoption of the above-mentioned standards and amendments does not have a significant impact on the operating results, comprehensive income, or financial position of the Group.

3.2 Standards and amendments relevant to the Group that are not yet effective and have not been adopted before their effective dates by the Group

The Group has not adopted the following new and amended standards that have been issued but are not yet effective.

			Effective for annual periods
			beginning on or after
(1)	IFRS 17	Insurance Contracts	1 January 2022
(2)	Amendments to IFRS 10 and	Sale or Contribution	The amendments were originally
	IAS 28	of Assets between	intended to be effective for annual
		An Investor and Its	periods beginning on or after
		Associate or Joint	1 January 2016. The effective
		Venture	date has now been deferred/
			removed. Early application of
			the amendments continues to be
			permitted.
(3)	Amendments to IAS 1	Classification of	1 January 2022
		liabilities

Descriptions of these standards and amendments were disclosed in the Group's annual consolidated financial statements for the year ended 31 December 2019. The Group anticipates that the adoption of the amendments will not have a significant impact on the Group's consolidated financial statements.

Interim Report 2020

73

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

4 TAXATION

According to relevant PRC tax policies, the most significant categories of taxes to which the Group is currently subjected are as follows:

1. Income tax
   From 1 January 2008, the "Enterprise Income Tax Law of the PRC" and the "Regulations on the Implementation of Enterprise Income Tax Law of the PRC" became effective for the Company and its subsidiaries except for China Futures Co., Ltd. and China Securities (International) Finance Holding Co., Ltd. Income tax computation and payment are governed by the "Announcement of the State Administration of Taxation on Printing and Distributing Administrative Measures for Collection of Consolidated Payments of Enterprise Income Tax by Enterprises with Multi-Location Operations" (Public Notice of the State Administration of Taxation [2012] No. 57). The PRC Enterprise income tax rate applicable to the Company is 25%.
   In accordance with Explanation on Implementation of Tax Preferential Treatments concerning Western China Development Strategy issued by local taxation bureau in Yuzhong District, Chongqing City, the applicable income tax rates for China Futures Co., Ltd. is 15%.
   The income tax rate for China Securities (International) Finance Holding Co., Ltd. (a Hong Kong Company) is 16.5%.
2. Value added tax
   Pursuant to the "Circular regarding the Comprehensive Implementation of the Pilot Programs for Transformation from Business Taxes to Value-added Taxes (the "VAT Pilot Programs")" (Cai Shui [2016] No. 36), the "Circular regarding Further Clarification of Relevant Policies Applicable to the Financial Sector in the Comprehensive Implementation of the VAT Pilot Programs (Cai Shui [2016] No. 46), the "Supplementary Circular regarding VAT Policies Applicable to Transactions between Financial Institutions" (Cai Shui [2016] No.70) issued by the Ministry of Finance (the "MOF") and the State Administration of Taxation (the "SAT") of the PRC, effective from 1 May 2016, the Group is subject to value-added taxes on its income from principal businesses at 6%.
   In accordance with the "Circular regarding the Value-added Taxes Policies for Financial, Real Estate Development and Education Ancillary and Other Services" (Cai Shui [2016] No.140), the "Supplementary Circular regarding Issues concerning Value-added Taxes Policies for Asset Management Products" (Cai Shui [2017] No.2) and the "Circular on the Relevant Issues concerning Value-added Tax Levied on Asset Management Products" (Cai Shui [2017] No.56), the Group shall pay VAT at rate of 3% for related asset management taxable activities undertaken after 1 January 2018.
   After the implementation of the VAT Pilot Programs, the Group's related income is presented at value net of its respective VAT in the consolidated income statement.

74 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

1. TAXATION (CONTINUED)
2. 1. Urban maintenance and construction taxes and educational surcharges are charged at 7% and 3% of turnover taxes payable, respectively. In addition, according to the provisions of "Administrative Measures for Collection and Usage of Local Educational Surcharges in Beijing" (Jing Zheng Fa [2011] No. 72), since 1 January 2012, the local educational surcharges of the Company's head office and securities trading department located in Beijing are levied at 2% of the total amount of value-added tax.
   2. Vehicle and vessel taxes, property taxes and stamp duties are levied in accordance with the provisions of the relevant tax laws and regulations.
3. OPERATING SEGMENT INFORMATION

For management purposes, the Group's operating businesses are structured and managed separately according to the nature of their operations and the services they provide. Each of the Group's operating segments represents a strategic business engaged in the following activities.

Investment banking segment: provides investment banking services, including financial advisory, sponsoring, underwriting of equity and debt securities.

Wealth management segment: serves as a brokerage agent for corporate and personal clients in the trading of equity stocks, funds, bonds and futures; and provides margin financing and securities lending services to these clients.

Trading and institutional client services segment: engages in trading of financial products; serves as a brokerage agent for institutional clients (financial institutions) in the trading of equity stocks, funds and bonds, and provides them with margin financing and securities lending; provides services in relation to sales of financial products to institutional clients, and provides specialized research and advisory services to assist their investment decision-making.

Asset management segment: develops asset management products, fund management products services, and private placement offerings, and provides related services through subsidiaries and consolidated structured entities.

Other segment: primarily the treasury function from the head office.

Management monitors the performance and results of these operating segments for considerations of resource allocation and operating decision-making.

Income taxes are managed as a whole and are not allocated to operating segments.

Interim Report 2020

75

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

5 OPERATING SEGMENT INFORMATION (CONTINUED)

							For the six months ended 30 June 2020
								Trading and
			Investment	Wealth	institutional	Asset
			banking	management	client services	management	Others	Total
Segment revenue and other
income
Fee and commission income	2,073,500		1,878,143	676,553	604,076	-	5,232,272
Interest income			-	1,798,046	991,870			4,440		353,266		3,147,622
Net investment gains			-	-	4,270,578			179,791		-	4,450,369
Other income	100		154,038			8			344		23,992		178,482
Total revenue and other income
2,073,600		3,830,227	5,939,009	788,651	377,258	13,008,745
Segment expenses
(865,884)	(2,850,982)	(2,983,246)	(293,763)	(147,000)	(7,140,875)
Including: Interest expenses			-	(849,237)	(1,596,709)	(29,589)	(14,878)	(2,490,413)
Credit impairment
(losses)/reversals	(25)	(117,679)	(91,600)	-	-	(209,304)
Operating profit
1,207,716		979,245	2,955,763	494,888	230,258	5,867,870
Share of profits and losses
of associates			-	-	-	(1,172)	2,050	878
Profit before income tax
1,207,716		979,245	2,955,763	493,716	232,308	5,868,748
Income tax expense															(1,280,602)
Net profit for the period
														4,588,146
Other segment information:
Depreciation and amortization	65,580		80,011	122,586	29,077	19,196	316,450
Capital expenditure	10,165		14,924	20,890	4,828	1,692	52,499

76 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

									FOR THE SIX MONTHS ENDED 30 JUNE 2020
									(In RMB thousands, unless otherwise stated)
5		OPERATING SEGMENT INFORMATION (CONTINUED)
								For the six months ended 30 June 2019
									Trading and
			Investment	Wealth	institutional	Asset
			banking	management	client services	management	Others	Total
	Segment revenue and other income
		Fee and commission income	1,662,644	1,530,071	388,943	452,475	-	4,034,133
		Interest income	-	1,871,387	861,245	14,577	289,594	3,036,803
		Net investment gains	-	-	1,203,484	297,779	-	1,501,263
		Other income	200	4,419	-	16,958	19,103	40,680
	Total revenue and other income	1,662,844		3,405,877	2,453,672	781,789	308,697	8,612,879
	Segment expenses	(742,464)	(2,482,127)	(1,897,537)	(267,422)	(160,286)	(5,549,836)
		Including: Interest expenses	(4,855)	(906,887)	(1,243,510)	(51,471)	(17,340)	(2,224,063)
		Credit impairment
		(losses)/reversals	(673)	97,166				3,411	-	-	99,904
	Operating profit	920,380		923,750	556,135	514,367	148,411	3,063,043
	Share of profits and losses of
		associates	-	-	-	1,513	259	1,772
	Profit before income tax	920,380		923,750	556,135	515,880	148,670	3,064,815
	Income tax expense																				(722,888)
	Net profit for the period																				2,341,927
	Other segment information:
		Depreciation and amortization	69,060		93,065	64,335	28,416	13,725	268,601
		Capital expenditure	17,114		27,502	15,919	6,447	4,240	71,222

Interim Report 2020

77

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

6 FEE AND COMMISSION INCOME

				Six months ended 30 June
				2020			2019
	Brokerage services income	2,487,111			1,866,073
	Investment banking income	2,073,500			1,662,644
	Asset and fund management income	604,076			452,475
	Others	67,585			52,941
	Total	5,232,272			4,034,133
7	INTEREST INCOME
				Six months ended 30 June
				2020			2019
	Margin financing and securities lending			1,127,423			1,011,039
	Bank deposits			1,026,582			827,537
	Financial assets at fair value through other comprehensive
	income			550,583			602,639
	Financial assets held under resale agreements			443,034			595,440
	Financial assets at amortized costs			-		148
	Total			3,147,622			3,036,803
8	NET INVESTMENT GAINS
				Six months ended 30 June
				2020			2019
	Net gains from financial assets at fair value through profit or
	loss			4,353,640			2,236,447
	Net gains from disposal of financial assets at fair value through
	other comprehensive income			415,474			41,489
	Dividend income from financial assets at fair value through
	other comprehensive income			5,261			-
	Net gains from disposal of financial assets at amortized costs			-		1,087
	Net (losses)/gains from financial liabilities at fair value through
	profit or loss			(38,726)		23,881
	Net gains attributable to other interest holders of consolidated
	structured entities			(140,785)		(374,980)
	Net losses from derivatives			(144,495)		(426,661)
	Total			4,450,369			1,501,263

78 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

			FOR THE SIX MONTHS ENDED 30 JUNE 2020
			(In RMB thousands, unless otherwise stated)
9		OTHER INCOME
					Six months ended 30 June
				2020		2019
	Commodity trading income		134,948		2,105
	Government grants		11,729		27,703
	Rental income		6,800		7,414
	Net gains on foreign exchange		5,309		33
	Gains on disposal of property, plant and equipment		211		133
	Others		19,485		3,292
	Total		178,482		40,680
10	EXPENSES
					Six months ended 30 June
				2020		2019
	Fee and commission expenses:
		Brokerage expenses		491,023		367,108
		Investment banking expenses		91,464		41,428
		Others		32,329		64,364
	Total		614,816		472,900
	Interest expenses:
		Bonds in issue		1,232,235	1,164,331
		Financial assets sold under repurchase agreements		547,906		530,905
		Placements from banks and other financial institutions		272,100		166,490
		Short-term financing instruments payable		253,913		214,757
		Accounts payable to brokerage clients		132,943		83,080
		Lease liabilities		19,571		18,538
		Borrowings		4,149		17,413
		Others		27,596		28,549
	Total		2,490,413	2,224,063
	Staff costs (including directors' and supervisors'
		remuneration):
		Salaries, bonuses and allowances		2,558,483	1,802,894
		Staff benefits		173,182		193,123
		Contributions to defined contribution schemes (i)		78,122		148,630
	Total		2,809,787	2,144,647

Interim Report 2020

79

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

10 EXPENSES (CONTINUED)

1. Retirement benefits are included, and their nature is described below:
   Full-time employees of the Group in Mainland China are covered by various government-sponsored retirement plans including social pension schemes and corporate pension schemes, under which the employees are entitled to a monthly pension. Relevant government agencies determine the amount of pension benefits and are responsible for the related pension liabilities to eligible retired employees. The Group is required to make monthly contributions to these government-sponsored retirement plans for active employees, which are expensed as incurred. The Group has no obligation for post-retirement benefits beyond these contributions.
   In addition, the Group participates in various defined contribution retirement schemes for its qualified employees in certain countries or regions outside of Mainland China.

Other operating expenses and costs:
		Six months ended 30 June
	2020		2019
Depreciation and amortization expenses	316,450		268,601
Electronic equipment operating expenses	68,876		52,898
Office operating expenses	57,324		47,368
Membership fees of exchanges	45,915		36,305
Securities investor protection fund	42,684		26,403
Postal and communication expenses	36,999		31,944
Business travel expenses	36,066		77,666
Business entertainment expenses	30,503		45,099
Consulting expenses	28,476		12,674
Property expenses	20,742		22,493
Auditors' remuneration	3,540		3,708
Others	263,481		139,621
Total	951,056		764,780

11 CREDIT IMPAIRMENT LOSSES/(REVERSALS)

		Six months ended 30 June
	2020		2019
Financial assets held under resale agreements	96,925		(44,843)
Financial assets at fair value through other comprehensive
income	89,736		6,721
Margin financing	22,618		(57,471)
Financial assets at amortized costs		-	(4,984)
Others	25		673
Total	209,304		(99,904)

80 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

12 INCOME TAX EXPENSE

(1) Income tax

		Six months ended 30 June
	2020		2019
Current income tax
- Mainland China	1,431,272		875,938
- Hong Kong		-	1,935
Subtotal	1,431,272		877,873
Deferred income tax	(150,670)	(154,985)
Total	1,280,602		722,888

1. Reconciliation between income tax and accounting profit
   A reconciliation of the income tax expense applicable to profit before tax at the PRC statutory income tax rate of 25% to income tax expense at the Group's effective income tax rate is as follows:

		Six months ended 30 June
	2020		2019
Profit before income tax	5,868,748		3,064,815
Income tax at the PRC statutory income tax rate	1,467,187		766,204
Effects of different applicable rates of tax prevailing in
various jurisdictions	(14,144)	(5,628)
Non-deductible expenses	5,317		6,159
Non-taxable income	(91,630)	(23,238)
Others	(86,128)	(20,609)
Income tax expenses at the Group's effective income
tax rate	1,280,602		722,888

Interim Report 2020

81

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

13 DIVIDENDS

		Six months ended 30 June
	2020		2019
Dividends distribution to ordinary shareholders	1,796,901	1,376,349
Distribution to other equity instrument holders (Note 14(i))	160,020		-

A cash dividend of RMB2.35 (tax inclusive) per 10 ordinary shares related to the year of 2019 amounting to RMB1,797 million (tax inclusive) in total and based on 7,646,385,238 shares was approved at the annual general meeting held on 5 June 2020. As of 30 June 2020, RMB1,501 million of the cash dividend was paid and the remaining RMB296 million was recognized as dividends payable, which was paid on 22 July 2020.

A cash dividend of RMB1.80 (tax inclusive) per 10 ordinary shares related to the year of 2018, amounting to RMB1,376 million (tax inclusive) in total and based on 7,646,385,238 shares was approved at the annual general meeting held on 25 June 2019 and was paid on 9 August 2019.

14 EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY

Basic earnings per share was calculated by dividing profit for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding. The calculations of basic and diluted earnings per share are based on:

		Six months ended 30 June
	2020		2019
Earnings:
Profit attributable to equity holders of the Company	4,578,457		2,329,515
Less: Profit attributable to other equity instrument holders of
the Company (i)	(160,020)		-
Profit attributable to ordinary equity holders of the Company	4,418,437		2,329,515
Shares:
Weighted average number of ordinary shares in issue
(thousand) (Note 42)	7,646,385		7,646,385
Basic and diluted earnings per share (in RMB yuan)	0.58		0.30

There were no dilutive shares during the six months ended 30 June 2020 (six months ended 30 June 2019: None).

1. As of 30 June 2020, there were two tranches of perpetual subordinated bonds existed under the terms and conditions as detailed in Note 43 Other Equity Instruments.
   For the purpose of calculating basic earnings per ordinary share, profit attributable to other equity holders was deducted from the profit attributable to ordinary equity holders of the Company.

82 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

																FOR THE SIX MONTHS ENDED 30 JUNE 2020
																(In RMB thousands, unless otherwise stated)
15		PROPERTY, PLANT AND EQUIPMENT
			Properties and	Electronic	Transportation	Communication	Office	Security
					buildings	devices			vehicles			equipment	equipment	equipment	Others	Total
	Cost
	1 January 2020	428,063		697,128	36,696	7,475	77,809	8,850	38,286	1,294,307
		Increases			-	13,692			-	128	792	-	-	14,612
		Decreases	(14,625)	(19,104)			-	(424)	(965)	(353)	(234)	(35,705)
	30 June 2020
	413,438		691,716	36,696	7,179	77,636	8,497	38,052	1,273,214
	Accumulated depreciation
	1 January 2020	(134,082)	(504,848)	(33,897)	(5,972)	(72,414)	(7,036)	(32,620)	(790,869)
	Increases	(5,611)	(49,263)	(458)	(267)	(2,264)	(308)	(900)	(59,071)
		Decreases	5,257		19,114			-	412	970	340	228	26,321
	30 June 2020
	(134,436)	(534,997)	(34,355)	(5,827)	(73,708)	(7,004)	(33,292)	(823,619)
	Net carrying amount
	30 June 2020	279,002		156,719	2,341	1,352	3,928	1,493	4,760	449,595
	Cost
	1 January 2019	431,472		609,670	37,173	7,670	80,046	9,199	38,548	1,213,778
		Increases	3,552		154,919	282	574	1,490	450	961	162,228
		Decreases	(6,961)	(67,461)	(759)	(769)	(3,727)	(799)	(1,223)	(81,699)
	31 December 2019	428,063		697,128	36,696	7,475	77,809	8,850	38,286	1,294,307
	Accumulated depreciation
	1 January 2019	(122,179)	(491,714)	(33,116)	(6,218)	(70,140)	(7,194)	(31,841)	(762,402)
	Increases	(12,593)	(80,745)	(1,517)	(500)	(5,950)	(596)	(1,983)	(103,884)
	Decreases	690			67,611	736		746	3,676		754	1,204	75,417
	31 December 2019	(134,082)	(504,848)	(33,897)	(5,972)	(72,414)	(7,036)	(32,620)	(790,869)
	Net carrying amount
	31 December 2019	293,981		192,280	2,799	1,503	5,395	1,814	5,666	503,438

Interim Report 2020

83

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(In RMB thousands, unless otherwise stated)
16		RIGHT-OF-USE ASSETS
				Properties
				and buildings	Others	Total
		Cost
		1 January 2020	1,180,831		258,321	1,439,152
	Increases	76,606			-	76,606
	Decreases	(6,568)	(175)	(6,743)
	Foreign currency translation differences	4,737			-	4,737
		30 June 2020
		1,255,606		258,146	1,513,752
		Accumulated depreciation
		1 January 2020	(299,591)	(37,553)	(337,144)
		Increases	(172,391)	(18,771)	(191,162)
		Decreases	2,958		-	2,958
		Foreign currency translation differences	(472)	-	(472)
		30 June 2020	(469,496)	(56,324)	(525,820)
		Carrying amount
		30 June 2020	786,110		201,822	987,932
		Cost
		1 January 2019	791,437		257,053	1,048,490
		Increases	386,516		1,268	387,784
		Decreases	(1,348)	-	(1,348)
		Foreign currency translation differences	4,226		-	4,226
		31 December 2019	1,180,831		258,321	1,439,152
		Accumulated depreciation
		1 January 2019	-	-	-
		Increases	(299,964)	(37,553)	(337,517)
		Decreases	667		-	667
		Foreign currency translation differences	(294)	-	(294)
		31 December 2019	(299,591)	(37,553)	(337,144)
		Carrying amount
		31 December 2019	881,240		220,768	1,102,008

84 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

17		INTANGIBLE ASSETS
							Trading seat
							rights and
				Software	others	Total
	Cost
	1 January 2020	542,596		75,948	618,544
		Increases	30,443		-	30,443
		Decreases	(4,109)	-	(4,109)
		Foreign currency translation differences	608	9	617
	30 June 2020
	569,538		75,957	645,495
	Accumulated amortization
	1 January 2020	(313,026)	(69,600)	(382,626)
	Increases	(38,792)	-	(38,792)
	Decreases	4,109			-	4,109
	Foreign currency translation differences	(468)	-	(468)
	30 June 2020	(348,177)	(69,600)	(417,777)
	Net carrying amount
	30 June 2020	221,361		6,357	227,718
	Cost
	1 January 2019	429,994		75,938	505,932
		Increases	115,829	-	115,829
		Decreases	(3,308)	-	(3,308)
		Foreign currency translation differences	81	10	91
	31 December 2019	542,596		75,948	618,544
	Accumulated amortization
	1 January 2019	(249,417)	(69,600)	(319,017)
	Increases	(66,737)	-	(66,737)
	Decreases	3,078			-	3,078
	Foreign currency translation differences	50			-	50
	31 December 2019	(313,026)	(69,600)	(382,626)
	Net carrying amount
	31 December 2019	229,570		6,348	235,918

Interim Report 2020

85

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

18 INVESTMENTS IN SUBSIDIARIES

30 June 2020 31 December 2019

Investments in subsidiaries	5,908,123	5,333,123

General information of the Company's principal subsidiaries are as follows:

				Proportion of
	Principal			voting rights	Directly/
	operating	Place of	Registered share	30 June	31 December	Indirectly
Name of subsidiaries	place	registration	capital	2020	2019	hold	Principal activities
China Futures Co., Ltd. (i)	Chongqing	Chongqing	RMB1,000 million	100%	100%	Directly	Futures brokerage
China Capital Management	Beijing	Beijing	RMB1,650 million	100%	100%	Directly	Project investment
Co., Ltd. (i)
China Securities	Hong Kong	Hong Kong	Not applicable	100%	100%	Directly	Shareholding and
(International) Finance							investment
Holding Co., Ltd.
China Fund Management	Beijing	Beijing	RMB300 million	55%	55%	Directly	Funds business, asset
Co., Ltd.							management
China Securities Investment Beijing	Beijing	RMB3,700 million	100%	100%	Directly	Investment management,
Co., Ltd. (i)							equity investment
							management, investment
							consultancy and project
							management

1. During the six months ended 30 June 2020, the Company increased capital investment and paid RMB300 million to China Futures Co., Ltd, and paid RMB150 million and RMB125 million of the subscribed capital to China Capital Management Co., Ltd. and China Securities Investment Co., Ltd., respectively.
2. China Securities (International) Finance Holding Co., Ltd. is registered as a limited company according to the laws of Hong Kong, China. Others are registered as limited liability companies according to the laws of the People's Republic of China.

86 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

19 INVESTMENTS IN ASSOCIATES

30 June 2020 31 December 2019

Investments in associates	295,623	269,512

The following table illustrates details of investments in associates:

								Movements
	1 January						under equity	30 June
Name	2020		Increase	Decrease		method	2020
Zhongguancun Equity
Trading Service Group
Co., Ltd.	45,824		-	-	43	45,867
Jiangsu DDBS
Environment
Remediation Co., LTD	45,212		-	-	(1,407)	43,805
Beijing Tinavi Medical
Technology Co., Ltd.	20,017	25,224	-	1,569	46,810
Guangdong South Lead
TV & Film Co., Ltd.	27,763		-	-	(474)	27,289
CITIC City Development
Equity Investment
Fund Management
(Shenzhen) Co., Ltd.	118,018		-	-	2,016	120,034
Shenzhen MALONG
TECHNOLOGIES Co.,
Ltd.	11,426		-	-	(862)	10,564
Beijing Haifu Capital
Management Co., Ltd.	1,252		-	-	2	1,254
Total
269,512	25,224	-	887	295,623

Interim Report 2020

87

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

19 INVESTMENTS IN ASSOCIATES (CONTINUED)

								Movements
	1 January						under equity	31 December
Name	2019		Increase	Decrease		method	2019
Zhongguancun Equity Trading Service
Group Co., Ltd.	47,565		-	-	(1,741)	45,824
Jiangsu DDBS Environment Remediation
Co., LTD	44,075		-	-	1,137	45,212
Beijing Tinavi Medical Technology Co.,
Ltd.	23,723		-	-	(3,706)	20,017
Guangdong South Lead TV & Film Co.,
Ltd.	30,000		-	-	(2,237)	27,763
CITIC City Development Equity
Investment Fund Management
(Shenzhen) Co., Ltd.	-	116,857	-	1,161	118,018
Shenzhen MALONG TECHNOLOGIES
Co., Ltd.	15,000		-	-	(3,574)	11,426
Beijing Haifu Capital Management Co.,
Ltd.	1,250		-	-	2	1,252
Xinjin Global Industrial Fund LP	1,100		-	(1,100)		-		-
Total	162,713	116,857	(1,100)	(8,958)	269,512

As at 30 June 2020 and 31 December 2019, given there was no sign of impairment on the Group's investments in associates, no impairment allowance was made.

88 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

20 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

30 June 2020 31 December 2019

Current
Financial assets at fair value through profit or loss
Debt instruments	73,170,408	50,723,715
Equity investments	11,715,030	8,073,044
Fund investments	7,749,218	8,081,851
Others	21,447,080	21,581,292
Subtotal	114,081,736	88,459,902
Analyzed into:
Listed in Hong Kong	2,276,009	1,768,887
Listed outside Hong Kong	94,814,940	69,129,269
Unlisted	16,990,787	17,561,746
Subtotal	114,081,736	88,459,902
Non-current
Financial assets at fair value through profit or loss
Equity investments	3,049,665	3,103,611
Others	857,946	192,420
Subtotal	3,907,611	3,296,031
Analyzed into:
Listed outside Hong Kong	1,151,591	1,141,393
Unlisted	2,756,020	2,154,638
Subtotal	3,907,611	3,296,031
Total	117,989,347	91,755,933

As at 30 June 2020, the fair value of financial assets pledged as collateral for repurchase agreements (Note 35), financing business from China Securities Finance Corporation Limited ("CSF") (Note 36), short-term borrowings (Note 38), futures business and securities borrowing business by the Group totaled RMB53,856.60 million (31 December 2019: RMB39,212.31 million).

As at 30 June 2020, financial assets held by the Group included securities lent amounted to RMB1,116.84 million (31 December 2019: RMB624.53 million).

As at 30 June 2020, the fair value of financial assets at fair value through profit or loss in restricted period held by the Group was RMB2,073.77 million (31 December 2019: RMB1,154.27 million).

Interim Report 2020

89

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

21 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

30 June 2020 31 December 2019

Non-current
Equity instruments (i)	3,060,110		3,153,312
Analyzed into:
Unlisted	3,060,110		3,153,312
Current
Debt instruments	35,412,652		32,430,035
Equity instruments	54,865		60,488
Subtotal	35,467,517		32,490,523
Analyzed into:
Listed in Hong Kong	1,481,217		890,954
Listed outside Hong Kong	33,876,254		31,599,569
Unlisted	110,046		-
Subtotal	35,467,517		32,490,523
Total	38,527,627		35,643,835

1. Equity instruments assets at fair value through other comprehensive income are the specific accounts invested by the Company together with several other securities companies and managed by CSF. According to the relevant contracts, risks and returns of the specific accounts are shared by the Company and other investing securities companies based on investment proportion and the accounts are operated and managed by CSF. The Company manages these financial assets for purposes other than to generate investment returns.
2. 
   As at 30 June 2020, based on investment account report provided by CSF, the balance of cost and fair value of the Company's specific investment were RMB3,075.00 million and RMB3,060.11 million, respectively.(31 December 2019: cost and fair value were RMB3,075.00 million and RMB3,153.31 million, respectively).
3. As at 30 June 2020, the fair value of securities classified as financial assets at fair value through other comprehensive income of the Group which have been pledged as collateral for repurchase agreements (Note 35), financing business from CSF (Note 36), short-term borrowings (Note
4. 1. and securities borrowing business were RMB24,319.69 million (31 December 2019: RMB24,019.91 million).

90 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

22 FINANCIAL ASSETS HELD UNDER RESALE AGREEMENTS

30 June 2020 31 December 2019

Non-current
Analyzed by collateral:
Stock	1,663,563		2,512,486
Allowance for credit impairment losses	(3,445)	(5,210)
Subtotal	1,660,118		2,507,276
Current
Analyzed by collateral:
Stock	9,665,083		12,561,744
Debts	7,080,408		6,036,856
Others	104,109		104,549
	16,849,600		18,703,149
Allowance for credit impairment losses	(190,369)	(91,669)
Subtotal	16,659,231		18,611,480
Total	18,319,349		21,118,756

The Group received securities as collateral in connection with financial assets under resale agreements, some of which are allowed to be re-pledged in the absence of default by counterparties. If the collateral received declines in value, the Group may, in certain circumstances, require additional collateral. The Group had an obligation to return the collateral to its counterparties at the maturity of the contracts.

The fair value of the collateral received in connection with financial assets under resale agreements, the collateral allowed to be re-pledged and the collateral re-pledged were as below:

	30 June 2020	31 December 2019
Collateral received	52,676,120	56,537,257
Including: Collateral allowed to be re-pledged	1,250,914	187,314
Collateral re-pledged	1,147,506		83,282

Interim Report 2020

91

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020
(In RMB thousands, unless otherwise stated)
23	REFUNDABLE DEPOSITS
			30 June 2020 31 December 2019
	Performance bonds	3,390,023	2,400,221
	Trading deposits	898,706		362,194
	Credit deposits	49,754		31,196
	Total	4,338,483	2,793,611
24	DEFERRED TAX ASSETS AND LIABILITIES

Changes of deferred tax assets and deferred tax liabilities are as follow:

		Salaries,
		bonuses,		Fair value	Allowance
		and		changes of	for credit
		allowances		financial	impairment
Deferred tax assets	payable	instruments	losses	Others	Total
1 January 2020	594,685		13,840	295,637	59,703	963,865
Credited/(debited) to the
consolidated income
statement	308,119		(1,720)	52,035	1,801	360,235
Credited/(debited) to other
comprehensive income	-	3,467	(2)	1,057	4,522
30 June 2020
902,804		15,587	347,670	62,561	1,328,622
		Salaries,
		bonuses,		Fair value	Allowance
		and		changes	for credit
		allowances		of financial	impairment
Deferred tax assets	payable		instruments	losses	Others	Total
1 January 2019	529,303		84,035	335,650	25,518	974,506
Credited/(debited) to the
consolidated income
statement	65,382		(69,378)	(40,064)	33,812	(10,248)
Credited/(debited) to other
comprehensive income	-	(817)	51	373	(393)
31 December 2019	594,685		13,840	295,637	59,703	963,865

92 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

24 DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED)

Changes of deferred tax assets and deferred tax liabilities are as follow (Continued):

		Fair value
		changes of
		financial
Deferred tax liabilities	instruments	Others	Total
1 January 2020	658,549		2,325	660,874
Debited/(credited) to the consolidated
income statement	210,674		(1,109)	209,565
(Credited)/debited to other comprehensive
income	(36,997)	36	(36,961)
30 June 2020
832,226		1,252	833,478
		Fair value
		changes of
		financial
Deferred tax liabilities	instruments	Others	Total
1 January 2019	331,291		11,351	342,642
Debited/(credited) to the consolidated
income statement	253,632	(9,126)	244,506
Debited to other comprehensive income	73,626	100	73,726
31 December 2019	658,549		2,325	660,874

25 OTHER NON-CURRENT ASSETS

As at 30 June 2020 and 31 December 2019, other non-current assets of the Group primarily represented long-term deferred expenses incurred on leasehold improvements of property, plant and equipment.

Interim Report 2020

93

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

26 MARGIN ACCOUNTS

30 June 2020 31 December 2019

Margin accounts
- Individuals	30,463,895		26,694,162
- Institutions	4,775,592		2,260,327
	35,239,487		28,954,489
Allowance for credit impairment losses	(1,172,911)	(1,148,349)
Total	34,066,576		27,806,140

Margin accounts are funds that the Group provided to clients in margin financing business. As at 30 June 2020 and 31 December 2019, no margin accounts were pledged for repurchase agreements (Note 35).

As at 30 June 2020, the fair value of securities lent in margin financing business was RMB2,626.89 million (31 December 2019: RMB1,029.66 million).

As at 30 June 2020, the Group received collateral with fair value amounted to RMB124,867.54 million (31 December 2019: RMB95,680.44 million), in connection with its margin financing business.

27 ACCOUNTS RECEIVABLE

30 June 2020 31 December 2019

Trading deposits for return swaps	3,277,780		1,655,190
Clearing funds receivable	385,782		128,775
Assets management fee receivable	96,550		85,346
Clearing settlement fund and refundable deposits advanced on
behalf of sponsored structured entities	24,691		24,494
Others	559,352		250,033
	4,344,155		2,143,838
Allowance for credit impairment losses (i)	(7,115)	(6,972)
Total	4,337,040		2,136,866

1. ECL on account receivables arising from revenue recognized in accordance with IFRS 15- Revenue, the Group is measured using simplified approach under IFRS9. ECL on other receivables is measured using the general approach and as at 30 June 2020, accounts receivables which measured using general approach was classified under Stage 1 (31 December 2019: Stage 1).

94 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

28 DERIVATIVE FINANCIAL INSTRUMENTS

			As at 30 June 2020
	Nominal		Fair value
	value
		Assets	Liabilities
Interest rate derivatives	140,073,535	775				216
Equity derivatives	109,280,717	1,206,226		1,394,170
Credit derivatives	267,000		3,144				1,194
Others	10,282,999		56,160				30,876
Total	259,904,251	1,266,305		1,426,456
	As at 31 December 2019
	Nominal		Fair value
	value
		Assets	Liabilities
Interest rate derivatives	142,900,688	87				391
Equity derivatives	71,142,876	939,568		723,540
Credit derivatives	147,000	622		1,463
Others	5,088,463	15,173		36,178
Total	219,279,027	955,450		761,572

Under the daily settlement arrangement, any gains or losses of the Group's position in futures contracts, among others, were settled daily and the corresponding payments or receipts were included in "cash and bank balances". Accordingly, the amount of mark-to-market gains or losses of unexpired futures contracts, among others, included in derivative financial instruments above was Nil. As at 30 June 2020,the fair value of the Group's unexpired futures contracts was negative RMB26.78 million (31 December 2019: negative RMB56.12 million).

29 CASH HELD ON BEHALF OF CLIENTS

The Group maintains segregated deposit accounts with banks and authorized institutions to hold cash on behalf of customers arising from its normal course of business. The Group has recorded the related amounts as cash held on behalf of clients and the corresponding liabilities as accounts payable to brokerage clients (Note 32). In Mainland China, the use of cash held on behalf of clients for securities trading and settlement is restricted and governed by relevant third-party custodian regulations issued by the CSRC. In Hong Kong, the "Securities and Futures (Client Money) Rules" under the Securities and Futures Ordinance impose similar restrictions.

Interim Report 2020

95

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

30 CASH AND BANK BALANCES

	30 June 2020	31 December 2019
Cash on hand	12	23
Deposits in banks	20,891,747	47,221,032
Total	20,891,759	47,221,055

As at 30 June 2020, the Group had restricted deposits of RMB440.68 million (31 December 2019: RMB278.37 million).

31 OTHER CURRENT ASSETS

30 June 2020 31 December 2019

Deferred expenses	11,173		6,981
Interest receivable (i)	8,764		33,749
Prepaid expenses	5,845		12,285
Commodity inventories	-	21,789
Others	347,661		254,766
	373,443		329,570
Allowance for credit impairment losses	(37,855)	(37,855)
Total	335,588		291,715

1. As at 30 June 2020 and 31 December 2019, interest income of financial assets accrued under effective interest rate method, which was overdue but not received, was reflected in Interest receivable under other current assets. Interest receivable not yet due were included in the carrying amount of the related financial assets.

32 ACCOUNTS PAYABLE TO BROKERAGE CLIENTS

Accounts payable to brokerage clients represent the amounts received from and repayable to clients arising from the ordinary course of the Group's securities brokerage business. For more details, please refer to Cash held on behalf of clients (Note 29).

96 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

33 LEASE LIABILITIES

	30 June 2020	31 December 2019
Non-current
Lease liabilities	629,993		735,122
Current
Lease liabilities	332,469		340,140
Total	962,462		1,075,262

As at 30 June 2020, the Group's leases committed but not yet commenced were RMB12.08 million(31 December 2019: RMB41.22 million)(Note 49.2).

34 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

30 June 2020 31 December 2019

Current
Financial liabilities at fair value through profit or loss (Held for
trading)
- Debt instruments	182,462	518,161
Financial liabilities designated as at fair value through profit or
loss
- Structured notes (1)	102,810	608,183
Subtotal	285,272	1,126,344
Non-current
Financial liabilities designated as at fair value through profit or
loss
- Structured notes (1)	541,195		-
Total	826,467	1,126,344

1. As at 30 June 2020 and 31 December 2019, the returns of the structured notes were linked to equity indexes.

Interim Report 2020

97

NOTES TO THE INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

35 FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS

30 June 2020 31 December 2019

Current
Analyzed by collateral:
Debt securities (Notes 20 and 21)	58,804,522	43,014,064
Gold	5,293,522	4,612,845
Others (Notes 20)	6,186,918	7,906,066
Total	70,284,962	55,532,975

As at 30 June 2020 and 31 December 2019, other collaterals mainly included the standard bonds for pledge-stylequotation-driven repurchase.

36 PLACEMENTS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS

30 June 2020 31 December 2019

Current
Placements from banks	2,400,990	8,243,359
Placements from CSF (Notes 20 and 21)	6,085,041	1,020,186
Total	8,486,031	9,263,545

37 TAXES PAYABLE

30 June 2020 31 December 2019

Current
Income tax	724,952		324,807
Value added tax	154,238		151,731
Others	151,874		124,056
Total	1,031,064		600,594

98 CSC Financial Co., Ltd

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (In RMB thousands, unless otherwise stated)

38 SHORT-TERM BORROWINGS

	30 June 2020	31 December 2019
Current
Analyzed by nature:
Credit borrowings	360,242	183,287
Mortgage borrowings (Notes 20 and 21)	1,376,203	705,725
Total	1,736,445	889,012

As at 30 June 2020 and 31 December 2019, the Group had variable-rate borrowings which carried interest at HIBOR, LIBOR or SOFR plus a margin.

As at 30 June 2020, the Group held collateral with fair value amounted to RMB1,775.78 million (31 December 2019: RMB838.71 million), in connection with its short-term borrowings.

39 SHORT-TERM FINANCING INSTRUMENTS PAYABLE

		Maturity	Coupon	1 January								30 June
Name	Issue date	date	rate	2020		Increase		Decrease	2020
19 CSC CP006	09/10/2019	08/01/2020	2.88%	4,026,439		2,203	(4,028,642)		-
19 CSC CP007	24/10/2019	22/01/2020	3.02%	4,022,774	6,931	(4,029,705)		-
19 CSC CP008	11/12/2019	06/03/2020	3.05%	4,007,000	21,667	(4,028,667)		-
20 CSC CP001	06/01/2020	03/04/2020	2.79%	-	4,026,833	(4,026,833)		-
20 CSC CP002	20/01/2020	17/04/2020	2.79%	-	4,026,833	(4,026,833)		-
20 CSC CP003	19/02/2020	12/05/2020	2.52%	-	4,022,859	(4,022,859)		-
20 CSC CP004	04/03/2020	03/06/2020	2.42%	-	4,024,134	(4,024,134)		-
20 CSC CP005	07/04/2020	24/06/2020	1.50%	-	4,012,822	(4,012,822)		-
20 CSC CP006	21/04/2020	17/07/2020	1.38%	-	4,010,738		-	4,010,738
20 CSC CP007	08/05/2020	06/08/2020	1.55%	-	4,510,319		-	4,510,319
20 CSC CP008	02/06/2020	28/08/2020	1.58%	-	4,005,021		-	4,005,021
20 CSC CP009	22/06/2020	18/09/2020	2.20%	-	4,002,170		-	4,002,170
Structured notes (i)				5,439,740		12,539,071	(11,502,367)	6,476,444
Total				17,495,953		49,211,601	(43,702,862)	23,004,692

Interim Report 2020

99