Tianneng Power International : CLARIFICATION ANNOUNCEMENT

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

TIANNENG POWER INTERNATIONAL LIMITED

天 能 動 力 國 際 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 00819)

CLARIFICATION ANNOUNCEMENT

References are made to the announcements of Tianneng Power International Limited (the "Company", together with its subsidiaries, the "Group"; Tianneng Battery Group Co., Ltd. (天 能電池集團股份有限公司), together with its subsidiaries, is referred to as "Tianneng Battery"; the Group, excluding Tianneng Battery, is referred to as the "Remaining Group") dated 27 May and 28 May 2020 (the "Announcements"), in relation to a report released by CloudyThunder Research (陰霆研究) on 27 May 2020 (the " First Report").

This announcement is made to further clarify and refute such false allegations or comments related to the Group in the First Report and a subsequent report released by CloudyThunder Research (陰霆研究) on 1 June 2020 (the "Second Report", together with the First Report, the "Reports"). Unless the context requires otherwise, capitalised terms used in this announcement shall have the same meanings as those defined in the Announcements.

Auditors' Opinions

The Company's former auditor Deloitte Touche Tohmatsu Certified Public Accountants ("Deloitte") and the Company's existing auditor ZHONGHUI ANDA CPA Limited ("ZHONGHUI") respectively expressed unqualified opinions on the Company's financial statements for the years 2017 and 2018 and for the year 2019. As the allegations set out in the Reports involve potential misstatements in the Company's financial statements, the Company has drawn the attention of Deloitte and ZHONGHUI to the Reports.

- 1 -

After perusing the Reports, Deloitte confirmed that it had not, to date, received from the Company any notification about any material misstatement in the Company's financial statements for the years ended 31 December 2017 and 2018 and, accordingly, Deloitte had no basis to revoke or modify its audit opinion on the Company's financial statements for the years 2017 and 2018. ZHONGHUI also confirmed that it had no intention to revoke or modify its audit opinion on the Company's financial statements for the year 2019.

Allegation No. 1: Overstatement of Profits by Understating Rebates to Distributors

1. The Company's clarification: The Reports alleged that the fluctuations of the accrued rebates balance between 2017 and 2019 contradict the changes in average rebate per unit during the same period. The Company provides the reasons for such fluctuations and explain the relationship between such fluctuations and the average rebate per unit as follows.
   1. The fluctuations of the balance of the Company's accrued basic rebates and special rebates to distributors from the end of 2017 to the end of 2019
   The balance of the Company's accrued basic rebates and special rebates to distributors from the end of 2017 to the end of 2019 is as follows:

		Unit: RMB100 million
Item	End of 2019	End of 2018	End of 2017
Accrued amount (tax inclusive)	4.10	1.83	4.20
Of which: Basic rebates	0.06	0.03	0.01
Special rebates	3.22	0.94	3.42

Regarding the specific reasons for the fluctuation of the above information, please refer to the section "3. The calculation of the balance of accrued rebates to distributors and the reasonableness of the fluctuation" below.

- 2 -

2. The year-end accrued rebates accounted for a relatively small percentage of the total annual rebates

From 2017 to 2019, the amounts of rebates payable to distributors by the Company approximated the actual amounts of payment, the details of which are as follows:

		Unit: RMB100 million
Item	2019	2018	2017
Amount payable (excluding tax)	65.52	38.82	31.75
Actual amount paid (excluding tax)	63.47	40.83	28.69

The balance of accrued rebates at the end of each year from 2017 to 2019 represented a relatively small percentage of the total rebates for each of such years, which are only approximately 11.31%, 4.06% and 5.54% respectively Note.

Note: The year-end accrued rebates as stated in the section "1. The fluctuations of the balance of the Company's accrued basic rebates and special rebates to distributors from the end of 2017 to the end of 2019" above are tax-inclusive amounts. In order to increase the comparability, the year-end rebates have been converted based on the relevant value- added tax rates during the calculation of such percentages, and the accrued rebates (excluding tax) as at the end of 2017, 2018 and 2019 after conversion are approximately RMB359 million, RMB158 million and RMB363 million respectively.

3. The calculation of the balance of accrued rebates to distributors and the reasonableness of the fluctuations

The Company has adopted the sales strategy of delivery-against-payment when dealing with its distributors. The distributor's transfer price (i.e. the ex-factory price) stands higher than the final settlement price, with the difference returned to the distributor through rebates. Hence, the balance of year-end accrued rebates (i.e., unpaid rebates of the Company's products delivered and received at the end of the year) is related to the following factors: Q (the quantity of products delivered and received but with unpaid rebates at the end of the year), P1 (the ex-factory price), P2 (the amount of rebates paid) and P3 (the final settlement price) etc.

Upon finalisation of accounts at the end of each year, the Company accrues the amount of rebates payable at the end of the year based on factors such as Q (the quantity of products delivered and received), P1 (the ex-factory price), P2 (the amount of rebates paid) and P3 (the final settlement price) or P4 (an estimate of the average settlement price), with such amount charged to sales revenue.

• 3 -

That is, the amount of accrued rebates payable at the end of each year = Q (the quantity of products delivered and received during the year) x (P1 (the ex-factory price) - P2 (the amount of rebates paid) - P3 (the final settlement price) or P4 (an estimate of the average settlement price)).

Specifically, Q (the quantity of products delivered), P1 (the ex-factory price) and P2 (the amount of rebates paid) are calculated according to the actual circumstances of the year. P3 or P4 is determined or estimated by the sales department of the Company based on thorough market surveys according to the level of the lead price, market competition and the Company's own sales strategies.

The calculation of the balance of accrued rebates to distributors from the end of 2017 to the end of 2019 is as follows:

		Units: 10,000 pieces, RMB10,000
Item	End of 2019	End of 2018	End of 2017
Number of orders delivered and
received in December (a)	2,169.74	1,104.96	1,501.28
Average rebate for the month (b)
(RMB/piece)	35.17	13.61	17.14
Remaining unpaid rebates for
the goods delivered and received
under the orders in October and
November (c)	-	-	14,368.29
Rebates payable for the goods
delivered and received under
the orders in December (d=axb)	76,306.28	15,043.06	25,730.44
Rebates paid for the goods delivered
and received under the orders in
December (e)	43,562.80	5,413.80	5,778.56
Balance of accrued rebates at
the end of the year (f=c+d-e)	32,743.48	9,629.26	34,320.17
Amount of subsequent rebates actually
paid in the following month	31,923.64	8,791.38	33,443.47
Percentage of payment in the following
month	97.50%	91.30%	97.45%

- 4 -

The Company's balance of accrued rebates at the end of each year was largely consistent with the balance of subsequent rebates actually paid in the following month, with adequate rebates accrued at the end of each year.

The Reports' allegation amounts to oversimplification by regarding the Company's average annual rebate per battery as the unpaid rebate at the end of the year, without considering the rebate already paid by the Company for each battery at the end of the year, which constitutes an apparent logical fallacy.

1. The Company's clarification: Regarding the Reports' allegation that the Company provided distributors with off-balance sheet lending through Changxing Private Financing Service Center ("CPFSC"), the Company offers the following response:
   1. CPFSC, co-founded and funded by the de facto controller of the Company, other key local civilian-run enterprises and the local government, is a connected person of the Company but is not under its control, with its daily operations subject to rigorous government supervision
   To the knowledge of the Company, CPFSC is a private financing service institution co-founded and funded by key local civilian-run enterprises and the local government in accordance with a series of documents such as Opinions of the General Office of Zhejiang Provincial People's Government on the Enhancement and Improvement of Civilian-runFinancing Management (Trial) 《( 浙江省人民政府辦公廳關於加 強和改進民間融資管理的若干意見（試行）》) and under the guidance of the local government, with its daily operations subject to rigorous supervision by government authorities.

- 5 -

As at the date of this announcement, Mr. Zhang Tianren, the de facto controller of the Company, held 40% equity interests in CPFSC through Tianchang Holding Co., Ltd. (天暢控股有限公司), a company under his control. Details of the shareholders of CPFSC are as follows:

	Name of	Percentage of	Relationship with the
No.	Shareholder	Shareholding	Company
1	Tianchang Holding	40.00%	98% held by Zhang Tianren
	Co., Ltd.		(the de facto controller of
			the Company) and 2% held
			by Zhang Hao (son of Zhang
			Tianren)
2	Huzhou Shenghua	39.00%	A controlled subsidiary of
	Financial Services		Zhejiang Shenghua Holdings
	Co., Ltd.* (湖州升華		Group Co., Ltd.* (浙江升
	金融服務有限公司)		華控股集團有限公司), not
			a connected person of the
			Company
3	Zhejiang Changtong	11.00%	10% held by Ni Danqing
	Technology Co.,		(brother-in-law of Zhang
	Ltd.* (浙江暢通科技		Tianren, the de facto controller
	有限公司)		of the Company) who serves as
			an executive director and the
			general manager, and 90% held
			by Zhang Mei'e (younger sister
			of Zhang Tianren) who serves
			as a supervisor, and a connected
			person of the Company
4	Zhejiang Changxing	10.00%	an enterprise controlled by the
	Financial Holdings		Finance Bureau of Changxing
	Co., Ltd.* (浙江長興		County, not a connected person
	金融控股股份有限		of the Company
	公司)
	Total	100.00%

- 6 -

To the knowledge of the Company, the board of directors of CPFSC currently comprises five directors. Among them, Du Juan and Zhang Renzhu were nominated by Tianchang Holding Co., Ltd.; Wang Feng and Jin Yuwei were nominated by Huzhou Shenghua Financial Services Co., Ltd.; Yang Xin was nominated by Zhejiang Changxing Financial Holdings Co. Ltd., a shareholder; and Du Juan is the chairman of the board of directors of CPFSC.

CPFSC is a connected person of the Company, but is not under the Company's control. The Company confirms that it has not conducted any connected transaction with

CPFSC.

2. The Company did not provide off-balance sheet lending to its distributors

To the knowledge of the Company, CPFSC mostly provides financing services to the Company's distributors in the following two ways: 1) CPFSC utilizes its own capital to provide loans to the Company's distributors and charges a corresponding interest; and 2) CPFSC serves as a finance-matching platform where third parties provide loans to the Company's distributors and charge an interest from them while CPFSC receives a service charge as the platform service provider.

In 2017, 2018 and 2019, CPFSC utilized its own capital to provide loans in the amounts of approximately RMB1.80 million, RMB99.63 million and RMB152.21 million respectively to the Company's distributors. In 2017, 2018 and 2019, CPFSC enabled third parties to provide loans in the amounts of approximately RMB6.20 million, RMB41.85 million and RMB96.90 million respectively to the Company's distributors. The above lending amounts accounted for a relatively small proportion of the Company's sales revenue from such distributors:

Item

2019

2018

2017

Amount of lead battery sales to

• the Company's distributors who
• obtained financing

	(in RMB10,000) Note	464,438.54	504,326.01	409,118.75
Total lending amount
	(in RMB10,000)	24,911	14,148	800
Percentage of the lending amount
in the lead battery revenue from
	such distributors	5.36%	2.81%	0.20%

Note: The sales amount is net of output value-added tax, but not surtax.

- 7 -

The borrowings of some of the Company's distributors from CPFSC were market- oriented lending-and-borrowing behaviour based on mutual needs. The Company did not leverage its position to force its distributors to borrow from CPFSC. It did not participate in or interfere with the lending activities between its distributors and CPFSC. It did not utilize its position to facilitate its distributors' borrowings from CPFSC or procure CPFSC to provide significant favourable conditions for loans to its distributors. It did not provide guarantee to its distributors.

In addition, according to a statement from CPFSC, it did not provide loans to the Company's distributors by way of providing loan support to other financial institutions. The Company confirms that it did not provide any loans (including off-balance sheet loans) to its distributors.

Allegation No. 2: Overstatement of ASP and Sales Volume

The Company's clarification: In the Announcements, the Company pointed out that the First Report reached a false conclusion of overstatement in revenue and profits due to its failure to consider the product sales structure and its application of wrong estimated prices, and that the First Report was wrong in employing the sales volume of electric two-wheel vehicles as stated in Yadea Holdings' 2019 annual report as the starting point of calculation for estimating the number of batteries sold to Yadea Holdings. The Company hereby sets out the current actual sales volume and ASP of large and non-large batteries under direct selling and distribution:

1. The differences, classification and sales of non-large and large batteries

"Large batteries" and "non-large batteries" are the informal names of the Company's products. Large batteries mainly refer to batteries used by micro electric vehicles and special vehicles, while non-large batteries refer to batteries other than the large batteries, mainly those used by electric two-wheeled vehicles and electric tricycles.

Among the lead batteries, direct selling serves as the main model for the sales of batteries for special vehicles, energy storage batteries and standby batteries. On the other hand, distribution supplemented by direct selling serves as the model for the sales of lead batteries for electric two-wheeled vehicles and electric tricycles and micro electric vehicles.

- 8 -

2. The actual sales, sales volume and ASP under direct selling and distribution from 2016 to 2019

The Company's actual sales, sales volume and ASP of lead batteries (including only motive batteries and start-stop batteries) under direct selling and distribution from 2016 to 2019 are as follows:

			Units: 10,000 pieces, RMB100 million and RMB/piece
Type		Direct Selling			Distribution
	Quantity	Sales	ASP	Quantity	Sales	ASP
2019	5,184	60.67	117	21,612	237.05	110
2018	4,058	59.23	146	20,027	241.21	120
2017	3,890	54.88	141	15,839	190.01	120
2016	4,950	55.04	111	13,881	142.22	102

Note: The sales amounts in the above table are amounts before deduction of surtax.

3. The sales of Aima Technology and Yadea Holdings from 2016 to 2019

The batteries sold to Aima Technology and Yadea Holdings by the Company were mainly batteries for electric two-wheeled vehicles and electric tricycles. Their sales from 2016 to

2019 are as follows:

Unit: RMB100 million

Aima Yadea

Technology Holdings

2016	10.70	9.04
2017	12.39	7.75
2018	14.85	7.27
2019	17.39	10.97

Note: The sales amounts in the above table are amounts before deduction of surtax.

The Company reiterates that the difference between the average price of ordinary batteries sold by the Company in the new vehicle complementaries market and the ASP of those sold to Aima Technology and Yadea Holdings is due to the different proportions of their sales product structures. The Company did not overstate its revenue and profits.

- 9 -

Allegation No.3: Round-trip Dividends Distribution that Potentially Washes Fake Cash Balance

The Company's clarification: In the Announcements, the Company explained that it is reasonable for the dividends declared by Tianneng Battery to be higher than those paid by the Company to its Hong Kong shareholders, and that the cash balance of Tianneng Battery was not manipulated by such capital flows. The Company hereby further elucidates the amounts of the declared dividends and the impact of such dividend arrangements on the Group's net cash inflow/outflow.

1. Tianneng Battery mostly takes into account the Group's resource allocation and the stability of investment returns to shareholders when determining the amounts of its declared dividends

1. The differences between the amounts of dividends paid by Tianneng Battery and those distributed by the Company to its shareholders were mainly attributable to investments in the Group's other business.
   The details of the differences between the amounts of dividends paid by Tianneng Battery to the Company and those distributed by the Company to its shareholders from
   2017 to 2019 are as follows:

		Unit: RMB10,000
Breakdown	2019	2018	2017

Amount of dividend distribution by

  Tianneng Battery (a)104,266.83 144,076.88 25,400.47 Of which:

• Dividend distribution to Tianneng
• Holding Group Co., Ltd*
• （天能控股集團有限公司）/
• Tianneng Power (Hong Kong)
• Limited（天能動力（香港）

有限公司）

103,748.00 144,076.88 25,400.47

• Dividend distribution to Zhejiang
• Tianneng Investment
• Management Co., Ltd.*

	（浙江天能投資管理有限公司）	518.83	-	-
Dividend distribution by the
	Company to its shareholders (b)	37,625.07	34,076.88	25,400.47
Difference (a-b)	66,641.76	110,000.00	-

- 10 -

In 2018, the amount of dividend distributed by Tianneng Battery differed from that distributed by the Company to its shareholders by approximately RMB1.1 billion. The remaining amount not distributed by the Company to its shareholders was mainly used for the Group's investment in Zhejiang Tianneng Resource Recycling Technology Co., Ltd.* (浙江天能資源循環科技有限公司).

In 2019, the amount of dividend distributed by Tianneng Battery differed from that distributed by the Company to its shareholders by approximately RMB666.4176 million. Apart from approximately RMB260.6683 million to be paid, the remaining amount not distributed by the Company to its shareholders of approximately RMB405.7493 million was principally used for investment in the Group's other business to facilitate its development.

1. Stable investment returns to shareholders of the Company
   The Company strives to provide stable investment returns to its shareholders, with a dividend distributed to the Company's shareholders each year pursuant to the resolution passed at its shareholders' meeting. Since its listing, the Company has declared an aggregate of approximately HK$2,842.915 million in dividends. As at the date of this announcement, the Company has distributed dividends of approximately HK$2,403.4917 million, with unpaid dividends for the year 2019 to be distributed according to regulations.

2. Impact of such dividend arrangements on the Group's net cash inflow/outflow

In connection with the aforementioned capital allocation, some of the capital was used to invest in other business of the Group. Since the investees fall into the consolidation scope of the Company in respect of accounting, such investments will have no impact on the

Group's net cash inflow/outflow. Cash outflow of the Group only occurs when the Company distributes dividends to its shareholders pursuant to resolutions passed at its shareholders' meetings. As such, the Group's cash outflow amounted to approximately RMB254 million,

RMB341 million and RMB376 million in 2017, 2018 and 2019, respectively.

- 11 -

Allegation No.4: Remaining Group Transferred its Profitability to the STAR Board Applicant Tianneng Battery

The Company's clarification: In the Announcements, the Company explained that the transactions between the Remaining Group and Tianneng Battery were conducted with fair pricing, and the prices were consistent with related open market prices. The Announcements also disclosed that in 2019, the gross profit margin of the Remaining Group's business was about 8%, which approximated Huabo Technology, a company operating in the same industry. The Company hereby further elucidates how the transactions between the Remaining Group and Tianneng Battery were priced fairly.

Tianneng Battery purchases lead ingots and lead alloys from Power Materials and Puyang Renewable, and its pricing method follows industry practices, with particulars as follows:

Transaction Content	Pricing Method
Lead ingots	Determined based on the average price of electrolytic lead
	products quoted on the Shanghai Metals Market (上海有色金
	屬網) during the settlement period
Lead alloys	Determined on the basis of "amount calculated by the average
	price and content of each metal in the alloys quoted on the
	Shanghai Metals Market during the settlement period + the
	corresponding processing fee"

From 2016 to 2019, the changes in the average unit price of lead ingots and lead alloys purchased by Tianneng Battery from Power Materials and Puyang Renewables are consistent with the lead prices trend quoted on the Shanghai Metals Market, with particulars as follows:

Units: RMB/kg

22

20

18

16

14

12

10

8

6

2016		2017	Jan to Aug 2018 Sept to Dec 2018	2019
	Lead	Lead	Average price of electrolytic lead products quoted
	ingots	alloys	on the Shanghai Metals Market (excluding tax)

- 12 -

The lead ingots purchased by Tianneng Battery from Power Materials and Puyang Renewables are mainly refined lead while the lead alloys purchased are mainly lead-calcium alloy 1# (for the positive electrode of lead batteries) and lead-calcium alloy 2# (for the negative electrode of lead batteries). The relevant connected transaction price is basically the same as the price at which the subject company sells similar products to comparable third-party, with particulars as follows:

			Units: RMB/kg
		September to
Items	Units	December 2018	2019
Refined lead	Tianneng Battery	15.90	14.43
	Comparable third-party	16.08	14.49
	Difference	-1.12%	-0.41%
Lead-calcium alloy 1#	Tianneng Battery	18.35	16.73
	Comparable third-party	18.32	16.86
	Difference	0.16%	-0.77%
Lead-calcium alloy 2#	Tianneng Battery	16.81	15.30
	Comparable third-party	16.74	15.48
	Difference	0.42%	-1.16%

In light of the above, the pricing from the purchase of lead ingots, lead alloys and other products by Tianneng Battery from Power Materials and Puyang Renewables is generally fair, and there are no connected transactions that materially affect independence or are clearly unfair.

2. Sales of waste lead batteries

From 2016 to 2019, the average monthly sales of waste lead batteries by Tianneng Battery to Power Materials and Puyang Renewables are as follows:

Items	2016	2017	January to	September to	2019
			August 2018	December 2018
Volumes (tonnes)	7,093.21	9,279.91	10,089.09	8,122.73	8,934.95
Average unit price	6.71	8.18	8.77	8.54	7.90
(RMB/kg)

From 2016 to August 2018, the number of waste lead batteries sold by Tianneng Battery to Power Materials and Puyang Renewables continued to increase along with the growth of business scale. After September 2018, the sales of waste lead batteries by Tianneng Battery to Power Materials and Puyang Renewables have declined, which is mainly because Tianneng Battery has commissioned Puyang Renewables to process part of the waste lead batteries after August 2018.

- 13 -

The pricing method for the sales of waste lead batteries by Tianneng Battery to Power Materials and Puyang Renewables follows industry practices and is determined based on the average price of waste batteries quoted on the Shanghai Metals Market within a certain period. There was no change before and after the separation. The average price of the sales of waste lead batteries by Tianneng Battery to Power Materials and Puyang Renewables is consistent with the waste lead batteries prices trend quoted on the Shanghai Metals Market, with particulars as follows:

Units: RMB/kg

10.00

8.00

6.00

4.00

2.00

-

2016	2017	Jan to Aug 2018 Sept to Dec 2018	2019
	Average selling price of waste lead batteries by Tianneng Battery

(excluding tax)

Average price of waste lead batteries quoted on the Shanghai Metals Market (excluding tax)

The proportion of sales of waste lead batteries by Tianneng Battery to Power Materials and Puyang Renewables in the total purchases of both Power Materials and Puyang Renewables have shown an overall downward trend. It accounts for about 50% before the separation of the subject company and about 25% after the separation, which is mainly due to the significant increase in production capacity after the second phase project of Power Materials was put into production in June 2018, resulting a considerable increase in demand for raw materials. In order to meet the needs of business development, Power Materials enlarged the scale of purchasing waste lead batteries from third-parties.

- 14 -

The price of connected sales of waste lead batteries by Tianneng Battery to Power Materials and Puyang Renewables is basically the same as the price of similar products purchased by Tianneng Battery from comparable third-party, with particulars as follows:

			Units: RMB/kg
		September to
Items	Units	December 2018	2019
	Tianneng Battery	8.54	7.90
Waste lead batteries	Comparable third-party	8.47	7.92
	Difference	0.83%	-0.25%

In light of the above, the pricing from the sales of waste lead batteries products by Tianneng Battery to Power Materials and Puyang Renewables is generally fair, and there are no connected transactions that materially affect independence or are clearly unfair.

- 15 -

Allegation No.6: Professionally Designed Corporate Structure to Conceal Massive Connected Transactions

1. The Company's clarification: As disclosed in the Announcements, none of Shuyang Xintian, Zhejiang Changtong, Changxing Changshun or Mengzhou Zhixing is a connected person of the Company under the Listing Rules. The Company hereby details the relationships between each of them and the Company and its connected persons.
   1. Shuyang Xintian
   As shown in the following table, Shuyang Xintian has never been a connected person of the Company as specifically defined in the Listing Rules since the Company's listing in June 2007.

		Shareholding after the change	Relationship with
Business			Shareholding	the Company and its
registration date	Event	Name	percentage	connected persons
December 2005	Establishment	Yang Huiqiang	60%	Son of the elder sister of
				Zhang Aogen and Zhang
				Tianren
		Ni Danqing	40%	Spouse of the younger
				sister of Zhang Aogen
				and Zhang Tianren
July 2006	Equity transfer	Zhang Weihua	60%	No connected
				relationship
		Ni Danqing	40%	Spouse of the younger
				sister of Zhang Aogen
				and Zhang Tianren

- 16 -

		Shareholding after the change	Relationship with
Business			Shareholding	the Company and its
registration date	Event	Name	percentage	connected persons
August 2006	Equity transfer	Zhang Weihua	60%	No connected
				relationship
		Ni Danqing	28%	Spouse of the younger
				sister of Zhang Aogen
				and Zhang Tianren
		Zhou Hongqi	12%	No connected
				relationship
July 2009	Equity transfer	Zhang Weihua	60%	No connected
				relationship
		Ni Danqing	10%	Spouse of the younger
				sister of Zhang Aogen
				and Zhang Tianren
		Zhou Hongqi	30%	No connected
				relationship
July 2017	Equity transfer	Zhu Honghua	90%	No connected
				relationship
		Ni Danqing	10%	Spouse of the younger
				sister of Zhang Aogen
				and Zhang Tianren

- 17 -

2. Zhejiang Changtong

As shown in the following table, Zhejiang Changtong was/has been a connected person of the Company as specifically defined in the Listing Rules (i) from June 2007 (when the Company was listed) to June 2008 and (ii) since December 2019. From June 2008 to December 2019, Zhejiang Changtong was not a connected person of the Company as specifically defined in the Listing Rules.

		Shareholding after the change	Relationship with
Business			Shareholding	the Company and its
registration date	Event	Name	percentage	connected persons
April 2002	Establishment	Zhang Tianren	80%	A director of the
				Company
		Zhang Aogen	10%	A director of the
				Company
		Shi Borong	5%	A director of the
				Company
		Zhang Kaihong	5%	A director of the
				Company
November 2004	Equity transfer	Ni Danqing	80%	Spouse of the younger
				sister of Zhang Aogen
				and Zhang Tianren
		She Zhifu	20%	No connected
				relationship
June 2006	Increase of	Ni Danqing	88.08%	Spouse of the younger
	registered			sister of Zhang Aogen
	capital			and Zhang Tianren
		She Zhifu	11.92%	No connected
				relationship

- 18 -

		Shareholding after the change	Relationship with
Business			Shareholding	the Company and its
registration date	Event	Name	percentage	connected persons
June 2008	Equity transfer	She Zhifu	80%	No connected
				relationship
		Ni Danqing	20%	Spouse of the younger
				sister of Zhang Aogen
				and Zhang Tianren
August 2008	Equity transfer	She Zhifu	90%	No connected
				relationship
		Ni Danqing	10%	Spouse of the younger
				sister of Zhang Aogen
				and Zhang Tianren
December 2019	Equity transfer	Zhang Mei'e	90%	Younger sister of Zhang
				Aogen and Zhang Tianren
		Ni Danqing	10%	Spouse of the younger
				sister of Zhang Aogen
				and Zhang Tianren

- 19 -

3. Changxing Changshun

As shown in the following table, Changxing Changshun was a connected person of the Company as specifically defined in the Listing Rules from April 2011 to August 2011.

Changxing Changshun was not a connected person of the Company as specifically defined under the Listing Rules from June 2007 (when the Company was listed) to

April 2011 and has not been one since August 2011.

		Shareholding after the change	Relationship with
Business			Shareholding	the Company and its
registration date	Event	Name	percentage	connected persons
August 2006	Establishment	Yang Yaqin	40%	Younger sister of the
				spouse of Zhang Tianren
		Xu Wenjuan	20%	Niece of the spouse of
				Zhang Tianren
		Xu Changquan	40%	Brother-in-law of the
				spouse of Zhang Tianren
February 2007	Equity transfer	Xu Changquan	25%	Brother-in-law of the
				spouse of Zhang Tianren
		Liu Fang Yuen	75%	No connected
				relationship
April 2011	Equity transfer	Yang Yaqin	75%	Younger sister of the
				spouse of Zhang Tianren
		Xu Changquan	25%	Brother-in-law of the
				spouse of Zhang Tianren

- 20 -

		Shareholding after the change	Relationship with
Business			Shareholding	the Company and its
registration date	Event	Name	percentage	connected persons
August 2011	Equity transfer	Zhou Shourong	75%	No connected
				relationship
		Xu Changquan	25%	Brother-in-law of the
				spouse of Zhang Tianren
March 2013	Equity transfer	Xu Haifan	90%	Nephew of the spouse of
				Zhang Tianren
		Xu Changquan	10%	Brother-in-law of the
				spouse of Zhang Tianren

4. Mengzhou Zhixing

As shown in the following table, Mengzhou Zhixing has never been a connected person of the Company as specifically defined in the Listing Rules since its establishment in July 2018.

		Shareholding after the change	Relationship with
Business			Shareholding	the Company and its
registration date	Event	Name	percentage	connected persons
July 2018	Establishment	Xu Haifan	90%	Nephew of the spouse of
				Zhang Tianren
		Xu Changquan	10%	Brother-in-law of the
				spouse of Zhang Tianren

- 21 -

1. The Company's clarification: As stated in the First Report, since the equity transfer in December 2019, Zhejiang Changtong has been held as to 90% by Ms. Zhang Mei'e, a younger sister of Dr. Zhang Tianren who is chairman and an executive director of the Company. The change of business registration in respect of the above equity transfer was completed on 30 December 2019. Zhejiang Changtong has become a connected person of the Company since then. The Company shall disclose its transactions with Zhejiang Changtong since 1 January 2020 under the Listing Rules. The Company confirms that there is no such connected transactions required to be disclosed under the Listing Rules that has not been disclosed.

1. The Company's clarification: It is alleged in the First Report that the Company failed to disclose its continuing connected transactions with those companies mentioned in paragraph (I) above. The Company was not required to disclose the relevant transactions as those companies were not connected persons of the Company during the relevant periods of time or, in those cases where they were connected persons of the Company, the relevant transactions (if any) were de minimis connected transactions fully exempt from disclosure under the Listing Rules.
   The transactions between the Group and Shuyang Xintian (if any) are not required to be disclosed by the Company, as Shuyang Xintian has never been a connected person of the Company as specifically defined in the Listing Rules since the Company's listing in June 2007.
   Zhejiang Changtong was/has been a connected person of the Company under the Listing Rules (i) from June 2007 (when the Company was listed) to June 2008 and (ii) since December 2019. The Company confirms that, during these periods of time, there was no transaction with Zhejiang Changtong required to be disclosed under the Listing Rules that has not been disclosed. As Zhejiang Changtong was not a connected person of the Company from June 2008 to December 2019, the transactions between the Group and Zhejiang Changtong during that period of time (if any) were not required to be disclosed.

- 22 -

Changxing Changshun was a connected person of the Company from April 2011 to August 2011. During that period of time, the Group conducted a connected transaction with Changxing Changshun with a total transaction amount of approximately RMB1.25 million. However, the transaction constituted a de minimis connected transaction (i.e. it was fully exempt from shareholders' approval, annual review and all disclosure requirements) under Rule 14A.76 of the Listing Rules as it was conducted on normal or better commercial terms with all the applicable percentage ratios below 5% and a total consideration of less than HK$3 million. The Company confirms that, during the aforementioned period of time, there was no transaction with Changxing Changshun required to be disclosed under the Listing Rules that has not been disclosed. In addition, as Changxing Changshun was not a connected person of the Company from June 2007 (when the Company was listed) to April 2011, and has not been one since August 2011, the transactions between the Group and Changxing Changshun during these periods of time (if any) were not required to be disclosed.

The transactions between the Group and Mengzhou Zhixing (if any) are not required to be disclosed, as Mengzhou Zhixing has never been a connected person of the Company since its establishment in July 2018.

Accordingly, the Company confirms that it has met all disclosure requirements under the relevant Listing Rules and accounting standards in respect of its transactions (if any) with Shuyang Xintian, Zhejiang Changtong, Changxing Changshun and Mengzhou Zhixing. ZHONGHUI is also of the view that there is no material non-compliance in respect of the disclosure of connected transactions in the 2019 annual report of the Company.

(IV) The Company's clarification: The acquisition of Henan Jingneng Power Co., Ltd.* ( 河 南晶能電源有限公司) ("Henan Jingneng") by the Company can meet the production capacity and increase the economic benefits of the Group, and the consideration of RMB34 million is also a reasonable and fair price. The Company subsequently sold its minority interests, with the aim to bring in shareholders with sales experience and industry resources to subscribe for shares in Henan Jingneng, thus facilitating the long- term development of Henan Jingneng. Accordingly, the acquisition of Henan Jingneng and its subsequent transactions by the Company is in the interests of the Company and its shareholders as a whole.

1. Acquisition of Henan Jingneng

Henan Jingneng (formerly known as Henan Sanli Power Co., Ltd.* (河南三麗電源 有限公司)); date of establishment: 13 March 2009; operation period: from 13 March 2009 to 12 March 2039; scope of business: manufacturing, processing and sales of gel batteries and chargers; registered capital: RMB43.60 million.

- 23 -

At the time Tianneng Battery planned to acquire Henan Jingneng, Henan Jingneng (then Henan Sanli Power Co., Ltd.) had received the "Notice in relation to Henan Sanli Power Supply Co., Ltd.* ( 河南三麗電源股份有限公司)'s first phase (1.5 million KVAh) trial production of first-phaseworks (2.5 million KVAh) of the silicon gel lead battery project with annual production output of 5 million KVAh (Yuhuan Ping Shi [2015] No. 4) 《( 關於河南三麗電源股份有限公司年產500 萬KVAh 矽膠體鉛蓄 電池項目一期工程（250 萬KVAh）第一階段（150 萬KVAh）試生產的通知》( 豫環 評試[2015]4 號))" issued by the Department of Environmental Protection of Henan Province ( 河南省環境保護廳) and had started the trial production of batteries in the new plant.

Before the acquisition of Henan Jingneng by Tianneng Battery, as the Group's battery production capacity was not able to fully satisfy the market demand at that time, some products were completed by way of original equipment manufactures (OEM) every year. Through the acquisition of certain shares of Henan Jingneng by Tianneng Battery in 2017, not only can the Group meet its production capacity, but also increase its economic benefits. Therefore, the directors of the Company are of the view that the acquisition of Henan Jingneng by Tianneng Battery is in the interests of the Company and its shareholders as a whole.

In December 2017, Tianneng Battery completed the acquisition of Henan Jingneng by acquiring 81.67% equity interest in Henan Jingneng from a natural person Mr. Zhang Chongshun (張崇舜) for RMB34 million.

2. The reasonableness of RMB34 million

1. According to the appraisal report of shareholders' total equity value of proposed equity transfer project of Henan Jingneng Power Co., Ltd. (Hu Tian Ping Bao Zi [2017] No.

2. ( 湖天評報字[2017] 第177 號《河南晶能電源有限公司擬股權轉讓項目股東全 部權益價值評估報告》) issued by Huzhou Tianheng Assets Appraisal Firm (Limited
   Partnership) ( 湖州天衡資產評估事務所（有限合夥）), Henan Jingneng's appraised net asset value as of 30 November 2017 was approximately RMB53.8172 million, net asset carrying value was approximately RMB35.7109 million, with appraisal increment of approximately RMB18.1063 million, which was mainly land appreciation. The corresponding appraised net asset value for the 81.67% equity interest in Henan
   Jingneng was approximately RMB43.9525 million. After negotiations made between both parties, the final transaction price was agreed at RMB34 million. The price of such transaction is fair, and there is no premium purchase nor other circumstances that damage the interests of Tianneng Battery.

- 24 -

3. Non-trade dealings with controlling shareholder of major customer Jiangsu Xinri E-Vehicle Co., Ltd* ( 江蘇新日電動車股份有限公司) ("Xinri Corporation")

1. The composition of liabilities of Henan Jingneng at time of acquisition

At the time of the acquisition, book debts of Henan Jingneng were approximately RMB224 million, the composition of liabilities are as follows:

Item	Amount (RMB100 million)
Accounts payables	0.53
Receipts in advance	0.41
Salaries payables	0.04
Tax payables	0.03
Other payables	1.23
Total	2.24

Among the liabilities, the accounts payables, receipts in advance, salaries payables and tax payables were approximately RMB101 million in total, and they were generated from the daily operations of Henan Jingneng. Other payables primarily consist of Henan Jingneng's loans from Xinri (Wuxi) Development Co., Ltd.* (新日（無錫）發展有限公司) and Jiangsu Shunde Investment Co., Ltd.* (江蘇舜德投資有限公司), with a total amount of approximately RMB118.8 million.

Xinri (Wuxi) Development Co., Ltd. and Jiangsu Shunde Investment Co., Ltd. are both enterprises controlled by Mr. Zhang Chongshun, the former shareholder of Henan Jingneng.

1. Reasons for formation of Henan Jingneng's other payables and repayment arrangement
   The other payables of Henan Jingneng were formed before the acquisition, which was mainly used for the daily operations of Henan Jingneng, details are as follows:
   For the period from February 2013 to April 2016, Henan Jingneng was the holding subsidiary of Xinri Corporation. Henan Jingneng borrowed from its parent company Xinri Corporation for daily operations. The balance of other payables to parent company at the end of each year are as follows:

- 25 -

	The balance of other payables
	to Xinri Corporation
Date	(in RMB100 million)
31 December 2013	0.8
31 December 2014	1.37
31 December 2015	1.61
31 December 2016	0.2

In April 2016, Xinri Corporation transferred the equity interest in Henan Jingneng to a natural person Mr. Zhang Chongshun, the de facto controller of Xinri Corporation. After that, Henan Jingneng gradually repaid the provisional loans to Xinri Corporation in 2016 and turned to take out loans from the enterprise controlled by then shareholder Mr. Zhang Chongshun for its daily operations. For the period from October 2016 to April 2017, Henan Jingneng took out loans in a total amount of RMB140 million from the two companies (i.e. Xinri (Wuxi) Development Co., Ltd. and Jiangsu Shunde Investment Co., Ltd.) controlled by Mr. Zhang Chongshun. In June 2017, in order to increase capital, the borrower agreed with Henan Jingneng to convert the RMB21.20 million loan into capital reserve of Henan Jingneng. As of the acquisition in December 2017, the balance payable by Henan Jingneng to Xinri (Wuxi) Development Co., Ltd. and Jiangsu Shunde Investment Co., Ltd. was approximately RMB118.8 million.

At the time of acquisition in December 2017, Tianneng Battery and Mr. Zhang Chongshun reached an agreement that, Henan Jingneng shall repay the above loans in five years, with an annual repayment of not less than RMB25 million. As of 31 December 2019, the total amount of loans payable by Henan Jingneng is RMB68.80 million.

1. The usage of the provisional loans provided to Henan Jingneng by Tianneng Battery
   After the acquisition, the provisional loans provided by Tianneng Battery to Henan Jingneng are not used for repaying the above loans but are for the expansion of production capacity and daily operating capital turnover instead.

- 26 -

In order to expand production capacity after the acquisition, Henan Jingneng added new fixed asset investment of approximately RMB100 million. Moreover, the business scale of Henan Jingneng expanded rapidly, its income grew from approximately RMB180 million in 2017 to approximately RMB1,611 million in 2019, and the demand for daily operation working capital also increased accordingly. Therefore, Tianneng Battery has continually provided provisional loans to Henan Jingneng since January 2019. Such loans have reached a total of approximately RMB237 million so far and have been used for production capacity and daily operating capital turnover and not for repaying its loans.

After the acquisition, Henan Jingneng has normal production and is in sound business condition. The audited major financial information of Henan Jingneng in recent two years is as follows:

			Unit: RMB10,000
			Operating
Financial indicator	Total assets	Net assets	income	Net profit
Year 2019/
Ended 31 December 2019	67,579.40	5,915.62	161,054.21	1,895.47
Year 2018/
Ended 31 December 2018	55,154.79	4,039.62	121,258.35	2,877.74

4. Separation of Henan Jingneng

Henan Jingneng principally engages in the manufacturing, processing and sales of gel batteries and chargers. After acquiring Henan Jingneng, Tianneng Battery has replanned Henan Jingneng's original assets and has allocated such assets into more suitable businesses including rental, logistics and warehouse according to their locations, capacity and other features, so as to allow more effective use of such assets. Since the above businesses (including rental, logistics and warehouse) are not that relevant to the principal business (lead battery production) of Henan Jingneng, Tianneng Battery has decided to separate Henan Jingneng (for details, please refer to "Separation plan and progress of Henan Jingneng" below).

- 27 -

Since Henan Jingneng mainly separates the assets and liabilities that are not related to lead battery production, therefore, all assets related to lead battery production and the production capacity of lead battery of Henan Jingneng are retained. Moreover, the net assets separated only accounts for approximately 3.72% of Henan Jingneng's net assets before separation, therefore such separation will not have any material effect on the lead battery production business of Henan Jingneng.

1. Major considerations of selling part of Henan Jingneng's equity interests shortly after the acquisition
   Before Tianneng Battery acquired the 81.67% equity interest in Henan Jingneng, since the former controlling shareholder intended to sell the controlling stake in Henan Jingneng, therefore, although Henan Jingneng has relatively high battery production capacity, its production then was in fact partially suspended. After
   Tianneng Battery acquired Henan Jingneng, in order to boost corporate vitality and facilitate sales, Tianneng Battery brought in Huzhou Changtian Xinneng

Investment Partnership (Limited Partnership)* (湖州長天新能投資合夥企業 （有限合夥）) (a company established by Ms. Chen Dongqun (陳冬群) (who procured the acquisition and has sales experience and industry resources) and her relatives to invest in Henan Jingneng.

From February 2003 to November 2018, Ms. Chen Dongqun worked for Zhejiang Changxing Tianneng Power Supply Co., Ltd.* (浙江省長興天能 電源有限公司) ("Tianneng Power Supply") and was the key client account manager responsible for handling important customers of the Company. Through over 10 years of relevant sales work, Ms. Chen Dongqun has accumulated rich sales experience and industry resources. When the Group discovered in the market that Henan Jingneng (before the acquisition) could not give full play to its advantages, and the Group itself also had the need to expand production capacity, such led to the acquisition of part of Henan Jingneng's equity interest by Tianneng Battery.

Ms. Chen Dongqun left Tianneng Power Supply in November 2018 and resigned as employee of Tianneng Power Supply. After the acquisition of Henan Jingneng by Tianneng Battery, Ms. Chen Dongqun currently undertakes administrative work in Henan Jingneng as a partner of Huzhou Changtian Xinneng Investment Partnership (Limited Partnership).

Tianneng Battery sold its minority interest in Henan Jingneng after its acquisition, the purpose of which was to bring in shareholders with sales experience and industry resources to invest in Henan Jingneng, which is beneficial to the long- term development of Henan Jingneng.

- 28 -

1. Separation plan and progress of Henan Jingneng
   On 10 December 2019, all shareholders of Henan Jingneng signed the separation agreement and agreed that Henan Jingneng shall, by way of split-off, split out Changtian Logistics Company* (長天物流公司), while the qualification of Henan Jingneng as a subject will be retained. On the same day, Henan Jingneng held a shareholders' meeting to consider and approve the separation plan and agreement. As of the date of this announcement, the industrial and commercial registration for such separation was completed. After the separation, the lead battery production capacity of Henan Jingneng can still be retained, the shareholding of Tianneng Battery in Henan Jingneng will further increase to 64.17%, and the original governance structure of Henan Jingneng will remain unchanged, therefore, Tianneng Battery will not lose control of Henan Jingneng after the separation. Details of the separation plan are as follows:

		Before separation		After separation
Registered	Henan		RMB45 million	Henan		RMB43.60 million
capital	Jingneng			Jingneng
				Changtian		RMB1.40 million
				Logistics
				Company
Shareholding	Henan		① Tianneng Battery (60%)	Henan		Tianneng Battery (64.17%)
structure	Jingneng		②Huzhou Changtian	Jingneng		②Huzhou Changtian
			Xinneng Investment			Xinneng Investment
			Partnership (Limited			Partnership (Limited
			Partnership) (21.67%)			Partnership) (17.50%)
			③Chen Yuying (陳玉英)			③Chen Yuying (陳玉英)
			(18.33%)			(18.33%)
				Changtian		① The Company (10%)
				Logistics		②Huzhou Changtian
				Company		Xinneng Investment
						Partnership (Limited
						Partnership) (71.67%)
						③Chen Yuying (陳玉英)
						(18.33%)
Net assets	Henan		Approximately	Henan		Approximately
	Jingneng		RMB37.6594 million	Jingneng		RMB36.2594 million
				Changtian		Approximately RMB1.40
				Logistics		million
				Company

- 29 -

	Before separation		After separation
Audit and	① According to the "ZHONGHUI Review (2019) No. 5235 Audit Report (中匯會審（2019）
Assessment	5235號《審計報告》)" issued by ZHONGHUI, as of 30 June 2019, the audited net asset value
	of Henan Jingneng was approximately RMB37.6594 million;
	②According to the "Wanlong Ping Bao Zi (2019) No. 10534 The Asset Assessment Report
	of Henan Jingneng Power Co., Ltd. on Its Net Asset Value Involved in the Proposed Company
	S e p a r a t i o n ( 萬隆評報字（2019年）第10534號《河南晶能電源有限公司擬公司分立涉
	及的其淨資產價值資產評估報告》) " issued by Wanlong Valuation (萬隆評估), as of 30
	June 2019, the assessed net asset value of Henan Jingneng was approximately RMB44.2355
	million.
Division of	Assets and liabilities in the list of disposal assets are vested in Changtian Logistics Company,
assets and
while the others will be retained by Henan Jingneng.
liabilities
Separation of	After separation, Henan Jingneng continues to engage in its existing business and inherits the
business	original qualification permit; Changtian Logistics Company engages in businesses including
rental, logistics and warehouses.
Governance	The original governance structure of Henan Jingneng remains unchanged, Changtian Logistics
structure	Company re-establishes the relevant organization.

Details of the separation plan have already been disclosed in the "Report on the Response to the 'Letter of Inquiry Regarding the Application Documents Submitted by Tianneng Battery Group Co., Ltd. for Its Initial Public Offering and Listing of Shares on the STAR Market'".

Allegation No. 8: Fabricated Prepayments to Suppliers

The Company's clarification: As disclosed in the Announcements, Tianneng Battery's prepayment to Luoyang Yongning in 2019 included newly-added blockchain receivables of approximately RMB135 million. Regarding the allegation in the Second Report that the Company inflated its 2019 profits through such blockchain receivables, the Company hereby further elucidates the nature, basic concept and settlement of blockchain receivables.

1. Luoyang Yongning is a supplier of Tianneng Battery and there is no connected relationship between Luoyang Yongning and the Group

With a registered capital of RMB400 million, Luoyang Yongning principally engages in the production and sale of lead, gold, silver, and other metals. Since 2018, Luoyang Yongning has become a supplier of Tianneng Battery. Tianneng Battery procures mostly electrolytic lead from Luoyang Yongning as a raw material. There is no connected relationship between Luoyang Yongning and the Group.

- 30 -

1. It is normal business practice for Tianneng Battery to make prepayment to Luoyang
   Yongning
   In order to ensure the supply of raw materials, Tianneng Battery has entered into strategic cooperation with suppliers such as Luoyang Yongning, Anyang Minshan Nonferrous Metals
   Co., Ltd. and Guangxi Nandan Nanfang Metals Co., Ltd., all of which are conducted by way of prepayment.
2. The annual increase of prepayment to Luoyang Yongning is reasonable
   The prepayment to Luoyang Yongning increased each year because:
3. 1. Tianneng Battery amount of procurement from Luoyang Yongning increased each year. In 2018, 2019 and January to June 2020, Tianneng Battery's procurement from Luoyang Yongning amounted to approximately RMB225 million, RMB697 million and RMB448 million (tax inclusive) respectively.
   2. Tianneng Battery's prepayment to Luoyang Yongning included a procurement payment paid in advance amounting to RMB100 million. The prepayment (for procuring lead ingots in the amount of RMB100 million) was made to ensure that Luoyang Yongning should have sufficient capital to provide high-quality raw materials to Tianneng Battery, so that a stable supply of the Company's products could be further guaranteed. Meanwhile, in light of Tianneng Battery's cost of funds, it is agreed that Tianneng Battery charges Luoyang Yongning an 8% annual service charge, totalling RMB 8 million (tax inclusive) per year. In addition, in accordance with the agreement between the parties, Luoyang Yongning has to provide Tianneng Battery with lead ingots worth RMB100 million when the prepayment is due. Therefore, the transaction is based on a genuine procurement transaction background, and it is reasonable for Tianneng Battery to account for it as a prepayment. Tianneng Battery obtained a service charge from Luoyang Yongning when making a prepayment to Luoyang Yongning. Such a charge is, in essence, a cash discount occurring under a procurement transaction. According to the relevant requirements of applicable accounting standards, such a cash discount is included in financial expenses for the period in which it occurs, and Tianneng Battery thus charged it to financial expenses.

- 31 -

According to Article 6 of the Accounting Standards for Business Enterprises No. 14 - Revenue, if the sales of goods involve any cash discount (i.e. an amount deducted by the creditor from the debt provided by the creditor to the debtor by way of an incentive to ensure the timely payment of the debtor within the required period), the income arising from the sales of the goods shall be determined based on the amount before the cash discount. The cash discount is included in the profit or loss for the period in which it occurs.

For the purchaser, a cash discount is a reward received through paying in advance during the credit period of the payment. A prepayment made by a purchaser is equivalent to a loan provided by the purchaser to the seller for a term from the actual payment date to the required payment date, and the cash discount obtained by the purchaser is equivalent to the interest on such a loan received by the purchaser from the seller during the period. The cash discount received by the purchaser at the time of purchase shall be included in financial expenses in accordance with the requirements of relevant accounting standards.

1. In 2019, Tianneng Battery's prepayment to Luoyang Yongning included newly-added blockchain receivables of approximately RMB135 million. Blockchain receivables are a type of electronic payment settlement tool developed by banks based on blockchain technology, the nature of which is similar to that of bank acceptance. It is called "blockchain receivable", however, for purchasers, liability will arise after their issuance of blockchain receivables, whereas for sellers, asset will be formed upon their receipt of blockchain receivables issued by purchasers. The blockchain receivables issued by Tianneng Battery to Luoyang Yongning are issued and accepted by China Zheshang Bank, which constitute a liability confirmed by Tianneng Battery, and Tianneng Battery has no actual cash expenses at time of such issuance. After the issuance of blockchain receivables by Tianneng Battery, they will be confirmed as bills payables in the books and accounts payables will be written-off at the same time. When credit balance of accounts payables is insufficient for write-off, such amount will be confirmed as prepayments in the books.
   Similar to the use in endorsement transfer, discount, pledge etc. after receipt of bank acceptances, Luoyang Yongning, upon receipt of such blockchain receivables, can handle the payment, transfer and pledge of blockchain receivables in the receivable chain platform of China Zheshang Bank according to its own business needs, and Luoyang Yongning does not require Tianneng Battery to provide credit enhancement measures such as charge of asset, pledge and guarantee when handling such business.

- 32 -

1. The prepayment of Tianneng Battery is real and accurate
   At the end of 2018, the end of 2019 and the end of June 2020, Tianneng Battery's prepayment to Luoyang Yongning amounted to approximately RMB100 million, RMB251 million and RMB135 million respectively. The prepayment at the end of each year was subsequently and gradually transferred to inventory. The transactions did occur, as proved by the reconciliations of the amounts. Tianneng Battery's prepayment to Luoyang Yongning is real and accurate.
2. Accounting treatment
   According to the Company's understanding, blockchain receivables are based on actual and legal transactions of a company. Blockchain technology is used to record and confirm information including the payee and pages in a debtor-creditor relationship, amount, date of payment and interest of a debt formed by a contract, supporting electronic settlement and financing instruments for claims transfer.
   Blockchain receivables are similar to acceptance bills in nature and are a type of commitment for due payments. They can be classified as blockchain receivables confirmed by enterprises and blockchain receivables confirmed by banks, respectively, based on acceptors' differences. Blockchain receivables are a kind of financial instrument launched by banks. Tianneng Battery will use blockchain receivables according to bank regulations, and will apply the following accounting treatments according to the requirement:
3. • When Tianneng Battery issues blockchain receivable, it will apply the accounting treatment of "Debit: Accounts payables; Credit: Bills payables";
   • When payment is due, it will apply the accounting treatment of "Debit: Bills payables;
     Credit: Bank deposits".

Tianneng Battery has made payment to Luoyang Yongning in the form of blockchain receivable, and such payment was accounted for as bills payable, therefore, the accounting treatment is accurate. Tianneng Battery did not turn a liability item into an asset item, and the Company did not thereby inflate its profits.

- 33 -

6. The inaccuracies in the Reports

The Reports considered that "paying large amount of prepayment for a commodity product with abundant supply and daily price fluctuation is extremely unusual". For lead procurement, Tianneng Battery generally adopts a settlement model of delivery upon the receipt of payment with the suppliers according to industry practice. If, at the end date of the balance sheet, Tianneng Battery prepays to the supplier for procurement of lead but the supplier has not yet delivered the products, then prepayments will arise, and at the same time, accounts payables rarely occur under normal circumstances. Therefore, the views on prepayments as mentioned in the Reports are wrong.

The Reports subjectively believed that Tianneng Battery recorded the bills payable to Luoyang Yongning as prepayment - thus "turning a liability item into an asset item, and therefore inflated its 2019 profits", but the Reports did not provide any evidence and inference process to prove such conclusion. In fact, Tianneng Battery has made payment to Luoyang Yongning in the form of blockchain receivable, and such payment was accounted for as bills payable, therefore, the accounting treatment is accurate. Tianneng Battery did not turn a liability item into an asset item and therefore inflated its profits as described in the

Reports.

Allegation No. 11: Business Outlook and Research and Development (R&D) Expenses

The Company's clarification: The Company has a bright business outlook as the Company's businesses are all undergoing rapid development or have relatively huge room for development. Moreover, as the Company has been increasing its R&D investments in areas such as product design, material R&D, optimisation of structural design and upgrade of equipment, the Company is able to maintain its technological edge and the competitiveness of its products, thereby cementing its position as an industry leader.

1. Business outlook

Light electric vehicles such as electric two-wheeled vehicles, electric tricycles and micro electric vehicles have entered into a phase of rapid development, and lead batteries remain the most commonly used batteries for light vehicles such as electric bicycles, while lithium batteries have relatively huge room for development. As a result, the Company has a bright business outlook.

- 34 -

1. The electric bicycle industry grows steadily
   With the upgrade of the residents' consumption, the increasing rate of urbanisation in China, the increase of consumer groups comprising such as students and their parents, the emergence of new industries such as food delivery and logistics, the gradual construction of country roads and the expansion into the international market, it is expected that the electric bicycle industry in China will continue to grow steadily. In addition to electric two-wheeled vehicles such as electric bicycles, other light electric vehicles including electric tricycles and micro electric vehicles have also entered into a phase of rapid development.
2. Lead batteries remain the most commonly used batteries for light vehicles such as electric bicycles
   Lead batteries remain the most important type of power battery for light vehicles such as electric bicycles due to their high price-performance ratio, easy maintenance, safety and the high utilisation rate of their recycled and renewed products. Meanwhile, the annually increasing commuting distance of people drives up the demand for battery replacements, and the emergence of new industries, such as food delivery and logistics, increases the frequency of use of light electric vehicles and hence the replacement rate of the batteries used by them. As a result, there is a huge market for lead batteries.
   The market share of lithium batteries in the existing electric bicycle market remains relatively small. According to the information prepared by China Insights Consultancy in 2018, a total of 3.6 million lithium batteries-equipped electric bicycles were sold in China between 2013 and 2018. Given that the ownership volume of lithium batteries- equipped electric bicycles was approximately 9 million in 2019 and assuming that the lithium batteries-equipped electric bicycles sold in the five previous years had not been scrapped, even if the ownership volume of electric bicycles of 250 million in 2018 is used as the basis of calculation, the market penetration of lithium batteries-equipped electric bicycles will be a relatively small one, namely less than 5%.

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1. Lead batteries and lithium batteries will develop hand-in-hand in the field of power batteries for light electric vehicles
   Due to their different natures, lead batteries are mainly used by customers who attach great importance to purchase cost and safety, and are more for everyday life, delivery and commuting purposes, while lithium batteries are mostly used for low-frequency leisure purposes. In the future, lead batteries and lithium batteries will meet the differentiated needs of different consumer groups in the market and develop hand-in- hand in it.

2. R&D expenses

1. Purposes of R&D
   The Company has been increasing its R&D investments and expanding its R&D team, in order to cement its position as an industry leader and to maintain its technological edge and the competitiveness of its products. In each of 2018 and 2019, the Company's R&D expenses exceeded RMB1.1 billion.
   After the rapid development over the last few years, the Company has become an industry leader in the field of power batteries for light electric vehicles in China, possessing the most advanced technology for battery production in China and an R&D team with experience, solid knowledge as well as creativity.
   Focusing on battery materials, battery structures and production processes, the Company has established a complete and independent core technological system for enhancing the energy density and cycle life of lead batteries, their performance under undesirable conditions (such as low temperature) as well as production efficiency, and has succeeded in its industrialization. For lithium batteries, the Company has been actively investing in the R&D and industrialization of lithium battery technology. It has adopted multi-pronged technological paths including cylindrical and square aluminium shells and soft-pack batteries and has acquired a variety of high-performance positive electrode materials and high-safety diaphragm seals application technologies. By means of a rather mature technological system, it is able to effectively improve the energy density, charging and discharging rates and cycle life of lithium battery products.

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1. Major R&D projects
   The Company's R&D activities mainly consist of the design and R&D of new products, the R&D of new types of alloy materials, the optimisation of the proportioning of the use of materials and the structural design of products, the innovation of production processes as well as the upgrade of production equipment. In each of 2018 and 2019, the Company's R&D expenses exceeded RMB1.1 billion. The composition of the major R&D projects is as follows:
2. 1. 2019

		Unit: RMB10,000
No.	Project	Amount
1	Research on the Natural Curing Process of the	1,614.20
	Negative Plates of Power Batteries
2	Product Development of Explosion-Proof Batteries	1,433.03
	(6PZB630) for Electric Forklifts
3	Research on the Method of Temperature Control for	1,206.11
	Automatic Casting and Welding Machine Pots
4	Research on the Application of American Lignin in	1,201.62
	Negative Plates
5	Research on and Verification of the Negative	1,185.88
	Electrode Paste Formulation Process
6	Product Development of 2PZV210 Small Gel	1,173.73
	Batteries for Electric Forklifts
7	Research on the Influence of the Type of Roller Cloth	1,125.46
	on the Performance of Plates
8	Research on and Application of Automatic Casting	1,123.26
	and Welding Line Technology for Power Batteries

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No.	Project	Amount
9	Research on and Verification of the Temperature-	1,105.20
	controlled Charging Process of the DZF Series
10	Research on and Verification of the Automatic Cover	1,092.64
	Safety Valve Process
11	Research on the Effects of Higher-temperature Curing	1,090.29
	on Battery Performance
12	Research on and Verification of the 6DZF20J Tight	1,077.73
	Assembly Process
13	Development and Application of the New Cast-	1,073.02
	Welding Pole Group One-MachineFour-Mold
	Equipment
14	Research on and Application of Automatic Printing	1,057.74
	Technology for True Black Gold Trademarks
15	Construction Project of a Big Data Platform for the	1,048.58
	Green Manufacturing Industry of Power Batteries
16	Product Development of 6EVF52J Lead Batteries for	1,029.51
	Electric Road Vehicles
17	Research on and Application of the 6EVF52	1,026.84
	Intelligent Robotic Battery Assembly Process
18	Research on the Influence of Cooling Water	981.31
	Temperature Control on Battery Performance
19	Improvement on and Application of Time- and	964.54
	Temperature-controlled and Energy-Saving Casting
	and Welding Machines
20	Research on the Influence of Electrolyte Temperature	902.70
	Control on Battery Performance
21	Transformation Project of Energy-saving Equipment	848.01
	and Technology for Power Batteries
22	Product Development of 6EVF45J Lead Batteries for	831.78
	Electric Road Vehicles

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	No.	Project	Amount
	23	Research on and Application of Charge Matching	828.91
		Process
	24	Development of Automatic Sealing Assembly Line	817.43
		for Power Batteries
	25	Product Development of 6DZF12F Lead Batteries for	816.84
		Electric Mopeds
	26	Research on and Validation of Shimadzu Lead	809.85
		Powder Technology Used in Tubular Positive Plates
	27	New Product Development of 6DZF20.2 High-	798.71
		Energy Density Batteries for Electric Mopeds
	28	Research on the Two-Day Formation Process of	797.46
		Power Batteries
	29	Fully Automatic Casting and Welding Process	796.74
		of Batteries for Electric Mopeds and Process
		Optimization and Upgrading
	30	Application of the Continuous Casting and Ligating	795.65
		Process in the Production of Batteries for Electric
		Mopeds
		Total	30,654.77
2)	2018
			Unit: RMB10,000
	No.	Project	Amount
	1	Research on the Equipment of Polar Plate Separate	2,980.06
		Brush Machines
	2	Control on the Weight of Casting Gate of Power	1,564.53
		Battery Grids
	3	Research on the Softening Mechanism of Positive	1,556.35
		Active Materials

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No.	Project	Amount
4	Production Technology of Continuous Casting and	1,305.11
	Rolling of Lead Battery Plates
5	Research on and Verification of the Drying and	1,296.84
	Remixing Process of Waste Paste
6	Research on and Verification of the Residual Acid	1,241.88
	Filtration and Reuse Process
7	Application and Verification of New Grid Alloy	1,233.33
8	Research on and Verification of the Drying and	1,220.05
	Remixing Process of Waste Paste
9	Research on and Verification of the Crushing and	1,167.13
	Reusing Technology of Waste Plate
10	Reduction of the Scrap Rate of Polar Plates	1,145.56
11	Research on and Development of High-Energy	1,073.75
	Density Lead Carbon Batteries (6evf45 Batteries)
12	Product Development of 6dzm15 Lead Batteries for	1,051.77
	Electric Mopeds
13	Research on and Development of Composite Silica	1,043.96
	Sol 6evf32a Batteries
14	Design and Application of New Grid Structures	983.59
15	Design and Application of New Grid Structures	977.91
16	Research on and Verification of the Curing Process of	976.53
	Lamination Film
17	Research on and Verification of the Rapid Curing	948.17
	Process of Polar Plates
18	Development of a Type of Flux for Lead-Acid	940.42
	Batteries
19	Research on and Verification of Energy-Saving	921.47
	Charging Processes

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No.	Project	Amount
20	Research on the Key Quality Control Technology of a	919.26
	New Type of Power Battery Plate
21	Research on and Verification of the Auxiliary	916.69
	Mounting Ear Reflow Process
22	Research on the Reduction of the Repair Rate in	911.14
	Casting and Welding
23	Research on and Verification of the Drying and	896.54
	Remixing Process of Waste Paste
24	Research on and Development of High Temperature-	888.13
	Resistant Batteries for Mopeds
25	Research on and Verification of the Auxiliary	883.64
	Mounting Ear Reflow Process
26	Optimized Design of the Acid Leaching Lead Mud	881.72
	Process
27	Influence of Intermittent Pulses and Positive and	880.26
	Negative Pulses on Battery Performance
28	Research on and Verification of the Crushing and	880.04
	Reusing Technology of Waste Plate
29	Preparation Process and Application of Silica Sol	877.70
	Electrolyte
30	Research on a New Type of Corrosion-resistant Alloy	860.63
	Total	33,424.16

In 2018 and 2019, by means of the above major R&D projects, the Company acquired new and practical patents such as a self-cleaning polar plate receiving and pressing roller device, an automatic turning device for energy storage batteries, an anti-climbingglue-impregnated energy storage battery structure, a lead carbon battery process grid structure, while some of its production process were optimised. As a result, the R&D results have been transformed effectively into benefits.

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1. R&D results
   With the Company's continuous R&D investments, Tianneng Battery has become one of the National High-Tech Enterprises, National Exemplary Enterprises for Technological Innovation, National Superior Enterprises for Intellectual Property, Champion Exemplary Enterprises in the Manufacturing Category, Exemplary Enterprises for Green Industrial Product Design, and First Batch of Enterprises Participating in the Training Programme "Eagle Plan" in Zhejiang Province. Tianneng Battery has set up a Nationally Recognised Corporate Technological Centre, a National
   Exemplary Workstation for Academicians and Experts, a National Postdoctoral Scientific Research Workstation, a Light Industry Council's National Key Laboratory and a Chinese Light Industry Industrial Design Centre.
   As at the date of this announcement, the Company has won 4 provincial scientific technological advance awards, 3 provincial scientific technology awards, 1 provincial technological invention award (including 3 second class awards and 5 third class awards) as well as 9 technological awards from associations such as the Chinese
   Light Industry Council (including 1 first class award and 2 second class awards). The
   Company participated in the setting up of the first national standard on lead power batteries used by light vehicles and, in the last 5 years, participated in the setting up of 15 national standards, 5 industrial standards and 23 group standards used in the lead and lithium batteries industry. It is currently participating in the setting up of the international standard on "valve regulated sealed lead acid batteries used by light vehicles". All this has paved the way for, and helped to promote, the standardisation of the industry. As at 31 December 2019, the Group owned nearly 1,900 patents, 7 of which won national or provincial patent awards and 4 of which won the Chinese
   Patent Outstanding Award. The Company undertook independently or led to undertake
   15 projects for the National Torch Programme, 2 projects for the National Spark Programme, 1 project for the National Technological Support Programme, 1 project for the National Fund for the Development of Electronic Information and many other key provincial R&D projects. The technological achievements of more than 200 products and projects of the Company have already been verified.

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Shareholders and prospective investors are advised to exercise caution when dealing in the shares of the Company.

• The English name is a translation of its Chinese name and is included for identification purposes only.

By order of the Board

TIANNENG POWER INTERNATIONAL LIMITED

ZHANG Tianren

Chairman

Hong Kong, 3 August 2020

As at the date of this announcement, the executive directors of the Company are Dr. ZHANG Tianren, Mr. ZHANG Aogen, Mr. ZHANG Kaihong, Mr. SHI Borong and Mr. ZHOU Jianzhong; the independent non-executive directors of the Company are Mr. HUANG Dongliang, Mr. WU Feng and Mr. ZHANG Yong.

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