Results announcement for the year ended december 31, 2020

Important Notice

1. The Board, the Supervisory Committee and its Directors, Supervisors and senior management warrant that the information contained herein is true, accurate and complete and there are no false representations, misleading statements contained in or material omissions from this annual report, and severally and jointly accept legal liability.

1. All the Directors attended the Board meetings.

1. The 2020 annual financial report of the Company, prepared in accordance with the China Accounting Standards for Business Enterprises ("CASBE") and the International Financial Reporting Standards ("IFRS"), was audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu respectively, who each issued a standard unqualified audit report to the Company. Unless otherwise stated, all data included in this report are denominated in RMB.

1. The profit distribution proposal or proposal on transfer of capital reserve fund into share capital for the Reporting Period has been reviewed by the Board

The profit distribution proposal of the Company for 2020: Based on the total share capital of 6,993,655,803 Shares (A Shares and H Shares) as at the end of 2020, a cash dividend of RMB2.50 (inclusive of tax) for every 10 Shares will be distributed by the Company to A Shareholders and H Shareholders whose names appear on the register of members of the Company on the record date, with a total cash dividend of RMB1,748,413,950.75.

VI. Risk alerts regarding forward-looking statements

Forward-looking statements, including future plans and development strategies, may be contained in this report. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Neither the Company nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information. Investors are advised to pay attention to such investment risks involved and not place undue reliance on forward-looking statements.

VII. No appropriation of funds on a non-operating basis by the Company's controlling shareholders or their respective related parties has occurred during the Reporting Period.

VIII. The Company did not provide any external guarantee in violation of the decision-making procedures during the Reporting Period.

Important Notice

IX. There is no situation where more than half of the Directors of the Company are unable to guarantee the truthfulness, accuracy and completeness of the annual report disclosed by the Company.

1. Material risk warnings
   General economic and political conditions, such as macroeconomic and monetary policies, laws and regulations on the financial and securities industries, upward and downward trends in the market, business and financial sectors, currency and interest rate fluctuations, availability of short-term and long-term market funding sources and financing cost, could affect the business of the Company. As a securities firm, the business of the Company is directly affected by the inherent risks associated with the securities markets, including market volatility, changes in investment sentiment, fluctuations in trading volume, liquidity changes, and the creditworthiness or the perceived creditworthiness of the securities industry in the marketplace. Downturns in general economic conditions and adverse market conditions could materially and adversely affect the Company's business operation, business performance, financial conditions and development prospects in various ways, for example, the demand of its clients for securities trading could decrease, resulting in a decline in its revenue from the securities brokerage; the value and returns on financial assets the Company holds for securities trading and investment and the value of investment portfolio for the asset management products of the Company may be adversely affected by market volatility; the Company may face increased default risks that a client or counterparty may fail to perform his contractual obligations; the financing cost of the Company may increase due to the limited access to liquidity and the capital markets, and therefore restricting the Company's ability to raise funds to develop its business; the Company may not be able to effectively implement its business plans and strategies.
   In addition to the extensive competition in the securities industry in the PRC, the Company also faces great impact from other financial institutions, such as commercial banks, fund management companies, insurance companies, trust companies, futures companies and asset management companies. Some of the competitors of the Company may have certain competitive advantages over it, including greater financial resources, stronger brand recognition, broader product and service offerings and wider branch network coverage. If the Company fails to effectively compete, the business operation, financial conditions, business performance and development prospects of the Company would be materially and adversely affected.

Important Notice

The Company relies on bond issuances, banks and other external financing channels to fund the majority portion of its business operation. The financial conditions, liquidity and business operations of the Company will be adversely affected in the event that the Company is not able to service or repay its debts in a timely manner due to lack or unavailability of internal resources or inability to obtain alternative financing. Even if the Company is able to meet its debt service obligations, the amount of debt the Company borrows could also adversely affect it in a number of ways, for example, limiting the ability of the Company to obtain any necessary financing in the future for working capital, strategic investment, debt service requirement, or other purposes; rendering the Company lacking flexibility planning the business or reacting to business changes; placing the Company at a competitive disadvantage relative to its competitors who have lower levels of debt; affecting the credit ratings of the Company and increasing its financing cost; making the Company more vulnerable to a downturn in its business or the overall economy; subjecting the Company to the risk of being forced to refinance at higher interest rates.

The Company has described the risks such as market risk and credit risk in detail in this report. Please refer to the contents of the Potential Risks and Prevention Measures under the Discussion and Analysis on the Company's Future Development in the section entitled Report of the Board for details.

XI. Chinese and English versions of this report are provided by the Company. In the event of any discrepancy between the Chinese and English versions, the Chinese version shall prevail.

XII. Unless otherwise stated, all analysis and explanations contained in this report are prepared on a consolidated basis.

CONTENTS

Page

5 Section I Definitions

8 Section II Company Profile and Key Financial Indicators

28 Section III Summary of the Company's Business

36 Section IV Report of the Board

119 Section V Significant Events

158 Section VI Changes in Ordinary Shares and Information on Shareholders

174 Section VII Preference Shares

175 Section VIII Directors, Supervisors, Senior Management and Staff

229 Section IX Corporate Governance

271 Section X Corporate Bonds

1. Appendix I: Organizational Structure of the Company
2. Appendix II: Information on Securities Branches of the Company

297 Appendix III: Information on Futures Branches of the Company

299 Appendix IV: Information Disclosure Index

311 Independent Auditor's Report

1. Consolidated Statement of Profit or Loss
2. Consolidated Statement of Profit or Loss and Other Comprehensive Income
3. Consolidated Statement of Financial Position

1. Consolidated Statement of Changes in Equity

1. Consolidated Statement of Cash Flows

1. Notes to the Consolidated Financial Statements

Section I  Definitions

In this report, unless the context otherwise requires, the following terms shall have the following meanings:

Definitions of the frequently used terms

Section I Definitions

Section I Definitions

Section II  Company Profile and Key Financial Indicators

Note: The net capital as at the end of 2019 have been restated according to the requirements of the Calculation Basis

for Risk Control Indicators of Securities Companies as amended and issued by the CSRC in January 2020.

Business scope of the Company

Securities brokerage; margin financing and securities lending; securities investment advisory; financial advisory related to securities trading and securities investing activities; proprietary trading of securities; proxy sale of securities investment funds; intermediary introduction business for futures companies; proxy sale of financial products; securities underwriting (only including government bonds such as treasury bonds, local municipal bonds, financial bonds of policy banks, financing products governed by National Association of Financial Market Institutional Investors (including but not limited to debt financing instruments of non-financial institutions)); stock options market-making business and custodian business for securities investment funds.【For items subject to approval pursuant to laws, its operations could only be commenced upon approval by relevant authorities】

Section II Company Profile and Key Financial Indicators

Each individual business qualification of the Company

Section II Company Profile and Key Financial Indicators

Section II Company Profile and Key Financial Indicators

Section II Company Profile and Key Financial Indicators

Section II Company Profile and Key Financial Indicators

Section II Company Profile and Key Financial Indicators

In addition, the Company is a member of the Securities Association of China, SSE, Shenzhen Stock Exchange, National Debt Association of China and Shanghai Gold Exchange. It is also a clearing participant of CSDCC and a member of the Asset Management Association of China.

Section II Company Profile and Key Financial Indicators

1. CONTACT PERSONS AND CONTACT METHODS

IV. INFORMATION DISCLOSURE AND PLACE FOR INSPECTION

Section II Company Profile and Key Financial Indicators

1. BRIEF INFORMATION ON SHARES OF THE COMPANY

VI. OTHER INFORMATION OF THE COMPANY

1. History of the Company, mainly including its restructuring, capital increase and others in previous years
   On December 10, 1997, the Orient Securities Limited Liability Company ( 東 方 證 券 有 限 責 任 公 司 , hereinafter referred to as "Orient Securities Limited"), the Company's predecessor, was established in Shanghai, the PRC with a registered capital of RMB1.0 billion, at the same time, it obtained the business license with a registration number of 150050030000 issued by the Shanghai Administration for Industry and Commerce. On February 23, 1998, the People's Bank of China approved the establishment of Orient Securities Limited Liability Company and approved its Articles of Association by the Reply on the Establishment of Orient Securities Limited Liability Company (Yin Fu [1998] No. 52).
   On August 13, 2003, the Shanghai Municipal People's Government approved Orient Securities Limited to be restructured into a joint-stock limited company in accordance with the Reply on Approving the Establishment of 東 方 證 券 股 份 有 限 公 司 (Hu Fu Ti Gai Shen [2003] No. 004). On September 12, 2003, the CSRC approved Orient Securities Limited to be restructured into a joint-stock limited company in accordance with the Reply on Approving the Restructuring, Capital Increase and Change of Name by Orient Securities Limited Liability Company (Zheng Jian Ji Gou Zi [2003] No. 184). The original shareholders of Orient Securities Limited converted the audited net assets as of December 31, 2002 into shares based on a ratio of 1:1, meanwhile, ten of the new and existing shareholders, including Shenergy Group, Shanghai Tobacco Group Co., Ltd. ( 上 海 煙 草 ( 集 團 ) 公 司 ), and Wenhui-Xinmin Press Group, increased the capital in an amount of RMB1.0 billion by currency, as such, Orient Securities Limited was reorganized into a joint-stock limited company by way of overall alteration. Upon the completion of the overall alteration, the registered capital of the Company was RMB2,139,791,800.00. On October 8, 2003, the Company obtained an updated business license from the Shanghai Administration for Industry and Commerce.

Section II Company Profile and Key Financial Indicators

In order to further expand its scale, in May 2007, as approved by the document (Zheng Jian Ji Gou Zi [2007] No. 101) issued by the CSRC, the Company carried out a capital increase by placing shares to all of its shareholders in the proportion of 10:5. Upon the completion of such capital increase, the registered capital of the Company increased from RMB2,139,791,800.00 to RMB3,079,853,836.00.

In August 2007, as approved by the document (Zheng Jian Ji Gou Zi [2007] No. 187) issued by the CSRC, the Company implemented the profit distribution plan for 2006 on the basis of one bonus share for every ten shares. Upon the completion of the transfer of retained profits into share capital, the total share capital of the Company increased from RMB3,079,853,836.00 to RMB3,293,833,016.00.

In November 2011, as approved by the document (Zheng Jian Xu Ke [2011] No. 1769) issued by the CSRC, the Company increased its share capital through rights issue to its shareholders. Upon the completion of such rights issue, the registered capital of the Company increased from RMB3,293,833,016.00 to RMB4,281,742,921.00.

In March 2015, as approved by the document (Zheng Jian Xu Ke [2015] No. 305) issued by the CSRC, the Company was listed on the Main Board of the SSE. As such, the registered capital of the Company increased from RMB4,281,742,921.00 to RMB5,281,742,921.00.

In September 2015, the Proposal on Issue of H Shares and Listing in Hong Kong by the Company was considered and approved at the Company's first extraordinary general meeting for 2015. In May 2016, the CSRC approved the proposed issue of up to 1,000,000,000 shares of overseas listed foreign shares by the Company by the document (Zheng Jian Xu Ke [2016] No. 1026). On June 2, 2016, the Listing Committee of the Hong Kong Stock Exchange held a listing hearing to consider the application of the Company for its issue of up to 1 billion shares of overseas listed foreign shares and the listing on the Main Board of the Hong Kong Stock Exchange. On July 8, 2016, 870,000,000 H Shares under the IPO and 87,000,000 H Shares to be sold by the selling shareholders, which in total amounted to 957,000,000 overseas listed foreign shares (H Shares) of the Company, were listed and traded on the Main Board of the Hong Kong Stock Exchange. In July 2016, the over-allotment option was partially exercised by the joint global coordinators (on behalf of the international underwriters) and the Company was required to issue 63,709,090 additional H Shares and 6,370,910 H Shares to be sold as a result of the fulfillment of the obligations on the reduction of state-owned shares by the selling shareholders, which in total amounted to 70,080,000 H Shares listed and traded on the Main Board of the Hong Kong Stock Exchange on August 3, 2016. As such, the registered capital of the Company increased from RMB5,281,742,921.00 to RMB6,215,452,011.00.

In December 2017, as approved by the document (Zheng Jian Xu Ke [2017] No. 1940) issued by the CSRC, the Company completed the non-public issuance of 778,203,792 A Shares. Upon the completion of such non-public issuance, the registered capital of the Company increased from RMB6,215,452,011.00 to RMB6,993,655,803.00.

Section II Company Profile and Key Financial Indicators

1. Organizational structure of the Company
2. 1. Organizational structure of the Company
      The shareholders' general meeting shall be the source of authority of the Company; the Board shall be the institution for decision-making and is responsible for the shareholders' general meeting; the Board has established four special committees including the strategic development committee, the remuneration and nomination committee, the audit committee as well as the compliance and risk management committee. Each of the special committees shall be accountable to the Board. The Supervisory Committee shall be the internal supervisory institution of the Company, which is responsible for the shareholders' general meeting. The Supervisory Committee has established the office of the Supervisory Committee.
      The Company implements the president accountability system under the leadership of the Board; the president shall be appointed or dismissed by the Board and shall be accountable to the Board. The Board and the special committees have established the Board's office, strategic development department, audit department, risk management department as well as compliance and legal management department. The management has established business functional units including the office, party committee office, trade union office, office of discipline inspection, human resources management department, planning finance management department, capital management department, operation management department, system research and development department, system operation department, administration department, wealth management business department, fixed income business department, securities investment business department, securities research institute, securities financing business department, financial derivatives business department, OTC business department, custodian business department and internet financial business department.
      Please refer to "Appendix I" to this report for the detailed organizational structure of the Company.
   2. The wholly-owned subsidiaries and major investee companies of the Company
      As at the end of the Reporting Period, the Company's wholly-owned subsidiaries and major investee companies include Orient Futures Co., Ltd, Shanghai Orient Securities Capital Investment Co., Ltd., Orient Finance Holdings (Hong Kong) Limited, Shanghai Orient Securities Asset Management Co., Ltd., Shanghai Orient Securities Innovation Investment Co., Ltd., Orient Securities Investment Banking Co., Ltd. and China Universal Asset Management Company Limited.

Section II Company Profile and Key Financial Indicators

3. Briefings of the wholly-owned subsidiaries of the Company

1. Orient Futures Co., Ltd

1. Shanghai Orient Securities Capital Investment Co., Ltd.

1. Orient Finance Holdings (Hong Kong) Limited

Section II Company Profile and Key Financial Indicators

1. Shanghai Orient Securities Asset Management Co., Ltd.

1. Shanghai Orient Securities Innovation Investment Co., Ltd.

1. Orient Securities Investment Banking Co., Ltd.

Section II Company Profile and Key Financial Indicators

1. Number and distribution of securities branches of the Company

Hainan (1)

As at the end of the Reporting Period, the total number of the securities branches of the Company amounted to 177. (Please refer to "Appendix II" to this report for details)

1. Number and distribution of other branches
   During the Reporting Period, Orient Futures, a wholly-owned subsidiary of the Company, closed one futures branch. As at the end of the Reporting Period, the total number of the futures branches of the Company amounted to 32, including 3 in each of Shanghai City and Hangzhou City, Zhejiang Province, 2 in each of Beijing City and Ningbo City, Zhejiang Province, and 1 in each of Chongqing City, Tianjin City, Shenzhen City, Guangdong Province, Guangzhou City, Guangdong Province, Shantou City, Guangdong Province, Shenyang City, Liaoning Province, Dalian City, Liaoning Province, Zhengzhou City, Henan Province, Changsha City, Hunan Province, Suzhou City, Jiangsu Province, Wuxi City, Jiangsu Province, Changzhou City, Jiangsu Province, Nantong City, Jiangsu Province, Taiyuan City, Shanxi Province, Jinan City, Shandong Province, Qingdao City, Shandong Province, Dongying City, Shandong Province, Chengdu City, Sichuan Province, Xi'an City, Shaanxi Province, Xiamen City, Fujian Province, Quanzhou City, Fujian Province and Harbin City, Heilongjiang Province. (Please refer to "Appendix III" to this report for details)

Section II Company Profile and Key Financial Indicators

VII. OTHER RELEVANT INFORMATION

Section II Company Profile and Key Financial Indicators

VIII. KEY ACCOUNTING DATA AND FINANCIAL INDICATORS FOR THE RECENT THREE YEARS

Section II Company Profile and Key Financial Indicators

Note: Gearing ratio = (Total liabilities - Account payables to brokerage clients - Funds payable to securities issuers)/(Total assets - Account payables to brokerage clients - Funds payable to securities issuers)

Section II Company Profile and Key Financial Indicators

1. Key accounting data and key financial indicators for the recent five years
   1. Profit

Section II Company Profile and Key Financial Indicators

3. Key financial indicators

1. Net capital and risk control indicators of the Parent Company

Note: All data above have been calculated based on the financial information prepared in accordance with the CASBE, and the data of net capital and risk control indicators as at the end of 2019 in this report have been restated according to the requirements of the Calculation Basis for Risk Control Indicators of Securities Companies as amended and issued by the CSRC in January 2020.

Section II Company Profile and Key Financial Indicators

IX. DIFFERENCES BETWEEN IFRS AND CASBE

Net profits for January to December 2020 and January to December 2019, and net assets as at December 31, 2020 and December 31, 2019 as stated in the consolidated financial statements of the Group prepared in accordance with CASBE are consistent with those prepared in accordance with IFRS.

1. ITEMS MEASURED AT FAIR VALUE

4. Equity instruments at fair value through other comprehensive

Note: The effect on current profit includes: (1) net investment income and interest income acquired through holding and disposing of above-mentioned projects; (2) impairment loss from debt instruments at fair value through other comprehensive income. All amounts above-mentioned affecting the current profit are amounts before enterprise income tax.

Section III  Summary of the Company's Business

1. EXPLANATIONS ON THE PRINCIPAL BUSINESSES ENGAGED BY THE COMPANY, OPERATING MODELS AND INDUSTRIAL CONDITIONS DURING THE REPORTING PERIOD

The Company is a comprehensive securities company established under the CSRC's approval, which provides all-round,one-stop financial services covering securities, futures, asset management, investment banking, investment consultancy and securities research. After years of development, the Company has established a leading position in its competitive business sectors such as proprietary investment, asset management and securities research.

The Company primarily engages in the following five business sectors during the Reporting Period:

• Securities Sales and Trading
  The Company conducts securities sales and trading business with its own capital, including equity investment and trading business, fixed income investment and trading business, financial derivatives trading business, alternative investment and securities research services.
• • The Company engages in professional equity investment and trading business and fixed income investment and trading business, which includes various stocks, funds, bonds, derivatives and others. In the meantime, the Company actively expands FICC business.
  • The Company conducts financial derivatives trading business by flexibly utilizing derivatives and quantitative trading strategies to obtain absolute income with low risk exposure.
  • The Company engages in alternative investment business through Orient Securities Innovation Investment, a wholly-owned subsidiary of the Company, and its investment products include equity investment, special assets investment, quantitative investment etc.
  • The Company provides its institutional clients with research services. The clients allocate funds to the seats through the Company and, based on the quality of the research services, determine the lease of special unit trading seats from the Company and the allocation of trading volume.
• Investment Management
  The Company provides its clients with asset management schemes, publicly offered securities investment funds products and private equity investment funds management.
• • The Company conducts asset management business through Orient Securities Asset Management, a wholly-owned subsidiary of the Company, providing a complete product line of asset management business including collective asset management, single asset management, specialized asset management and publicly offered securities investment funds.

Section III Summary of the Company's Business

• • The Company conducts fund management business for its clients through China Universal, an associate in which the Company is the largest shareholder with a shareholding of 35.412%.
  • The Company engages in private equity investment fund management business through Orient Securities Capital Investment, a wholly-owned subsidiary of the Company.
• Brokerage and Securities Financing
  The Company conducts securities brokerage business and futures brokerage business, and provides its clients with such services as margin financing and securities lending business, collateralized stock repurchase business, OTC trading and custodian business.
• • The Company's securities brokerage business primarily focuses on trading stocks, funds and bonds by accepting entrustments or on behalf of the clients according to the instructions given to the authorized branches.
  • The Company conducts futures brokerage business through Orient Futures, a wholly-owned subsidiary of the Company, as well as a member of Shanghai Futures Exchange, Zhengzhou Commodity Exchange, Dalian Commodity Exchange, Shanghai International Energy Exchange and a full clearing member of China Financial Futures Exchange, who provides the clients with commodity futures brokerage, financial futures brokerage, futures investment consultancy, asset management and distribution of funds and other services.
  • The Company conducts risk management business through Orient Securities Runhe, a wholly-owned subsidiary of Orient Futures and facilitates companies to manage price risks during operations via warehouse receipt services, basis trade and OTC options in futures and spot markets.
  • The Company's margin financing and securities lending business mainly refers to a transaction in which an investor provides the Company with collateral to borrow funds and purchase securities (margin financing transaction) or borrow and sell securities (securities lending transaction).
  • The Company's collateralized stock repurchase transaction business refers to a transaction in which qualified borrowers pledge their stocks or other securities as collateral to obtain financing from the Company and agree to repay the funds on a future date to release such pledge.
  • The Company provides OTC financial products and also provides transfer, market making quotation and other services to its clients.

Section III Summary of the Company's Business

• • The custodian business of the Company mainly includes providing asset custody and fund services to private equity investment funds, publicly offered funds and various asset management institutions.
• Investment Banking
  The Company carries out investment banking business mainly through its fixed income business headquarters and Orient Investment Banking, a wholly-owned subsidiary of the Company.
• • The Company provides equity underwriting and sponsorship services, including underwriting and sponsorship services of IPOs, and refinancing projects including non-public offerings and rights issues.
  • The Company provides debt underwriting services, including underwriting services for corporate bonds, enterprise bonds, treasury bonds, financial bonds and others.
  • The Company provides financial advisory services in areas such as mergers and acquisitions and restructuring, NEEQ securities recommendation and listing as well as enterprise reform.
• Headquarters and Others
  The Company's headquarters and other businesses mainly include headquarters' treasury business and overseas business.
• • Headquarters' treasury business mainly includes the management of headquarters financing business and liquidity reserves.
  • The Company conducts internationalization business through Orient Finance Holdings, a wholly-owned subsidiary of the Company, with its business place in Hong Kong. Orient Finance Holdings conducts brokerage business, asset management business, investment banking business and margin financing business regulated by the SFC in accordance with the SFO through Orient Securities International, its wholly-owned subsidiary and various licensed companies.

Section III Summary of the Company's Business

In 2020, amid the COVID-19 pandemic and international trade friction, the domestic economy was exposed to numerous uncertainties and the stock market and bond market performed with significant fluctuation. During the Reporting Period, the securities industry realized operating income of RMB448.979 billion, increasing by 24.41% compared to the same period of last year. Net profit reached RMB157.534 billion, increasing by 27.98% compared to the same period of last year. In terms of operating income, the securities industry realized a net income of RMB116.110 billion (including seat rental income) from the securities agency business, increasing by 47.42% year-on-year. Net income from investment banking business was RMB67.211 billion, increasing by 39.26% year-on-year. Net income from asset management business was RMB29.960 billion, increasing by 8.88% year-on-year. In terms of the capital scale, capital strength of the securities industry improved steadily. As of the end of the Reporting Period, the total assets of the securities industry were RMB8.90 trillion and the net assets were RMB2.31 trillion increasing by 22.50% and 14.10%, respectively from the beginning of the year.

During the Reporting Period, the Company maintained stable overall strength and industry position and recorded sound financial condition. The Company actively seized market opportunities regarding its securities sales and trading business, kept its leading position in the industry in terms of investment management business, continued to deepen transformation of wealth management, and advanced with stability with respect to the investment banking, private equity investment and other businesses. The Company strictly adhered to the bottom line of risk control, and was rated as a Grade A, Category A company among brokers. It has been rated as a Grade AA, Category A or Grade A, Category A securities company for the twelfth consecutive year.

1. EXPLANATIONS ON MATERIAL CHANGE IN MAJOR ASSETS OF THE COMPANY DURING THE REPORTING PERIOD

Please refer to "Section IV, II. (iii) Analysis on principal components of consolidated statement of financial position" to this report for details.

In particular: offshore assets amounted to RMB18.808 billion, accounting for 6.46% of the total assets.

Section III Summary of the Company's Business

1. ANALYSIS ON CORE COMPETITIVENESS DURING THE REPORTING PERIOD

The core competitiveness of the Company lies in corporate governance, talents, advantageous business, compliance and risk control and party building culture.

1. Strong Support from Shareholders and Standardized Corporate Governance
   Since its establishment, the Company has maintained a stable base of shareholders which provides long-term and strong support to the Company in senior management optimization, market-oriented system reform, capital operation and other material matters. The Company has established a standardized governance structure in accordance with the requirements of relevant laws and regulations. In particular, since its listing, the Company has further established a comprehensive corporate governance system that fits the characteristics of financial enterprises and the requirements of the listing rules of A Shares and H Shares to give full play to the functions of the Company's party committee as leading core and political core and ensure that the general meeting, the Board, the Supervisory Committee and the management team perform their respective duties diligently, thereby forming a distinctive governance system. The Company also continuously improves corporate governance by making amendments to the Articles of Association according to the requirements of the latest party disciplines and regulations and continuously optimizing the governance structure, thereby ensuring the standardized operation of the Company.
   In 2020, the Board, the Supervisory Committee, and the management team performed their respective duties diligently to ensure that they did not neglect duty nor overstepped, thus safeguarding effective corporate governance and standardized operation of the Company.
2. United, Enterprising, Pragmatic and Efficient Senior Management Team and Business Team
   Being united, enterprising, pragmatic, professional, stable, inclusive and responsible, the Company's leaders have been serving the Company for a long period of time with their extensive industry experience and profound insight into the capital market and securities industry. With right view towards development and risk management and common values for corporate development, the Company's senior management team pursues truthfulness and practicality by acting based on the rules of relevant industries and markets. Under the common cause of facilitating the Company's development, instead of pursuing short-term benefits, the senior management team adopts long-term strategies with focus on high-quality development, holds fast to the bottom line of compliance and risk control, attaches great importance to party building and corporate culture construction, and pursues long-term and sustainable corporate development. The Company owns professional, high-quality and relatively stable business teams which have gathered rich market experience and outstanding professional abilities through years of operation. It also has a pool of steadily growing future leaders and talents to support the development of the Company.

Section III Summary of the Company's Business

In 2020, the Company further strengthened the construction of its talent pool. First of all, the Company enriched and adjusted the composition of the leaders and senior management team to build consensus, mobilize their initiative and focus their works on the Company's development. Secondly, the Company improved the management of its talent team, optimized the performance appraisal by including the new indicator of "industry culture construction", increased its efforts in recruiting rare and high-quality talents, made adjustments to the talent review system, revised the Cadre Management Rules and optimized the remuneration and incentive packages. Thirdly, the talent structure is further optimized to ensure a workforce of high-quality, youthfulness and professionalism, thereby striking a better balance among quantity, post competence, form of employment and labor costs.

3. Stable Growth of Advantageous Business of the Company with Increasingly Consolidated Market Position

The Company attaches great importance to the fostering of investment and research capacity. After years of intensive cultivation, the Company has established brand effect and competitive advantages in investment fields such as securities investment, fixed income, asset management, fund management, etc. The securities investment and asset management business adheres to the concept of value investment and has achieved excellent long-term and medium-term performance. The "Dong Fang Hong ( 東 方 紅 )" brand enjoys a sound reputation in the market. China Universal has exhibited excellent investment performance and leading innovation capacity, wining several Shanghai Financial Innovation Achievement Awards ( 上 海 市 金 融 創 新 成 果 ). Fixed income business achieved stable investment income, bond underwriting capacity has formed a good reputation, FICC business chain achieved a comprehensive layout, and operation results of private equity fund management business has long been in the forefront of the industry.

In 2020, the Company's advantageous business continued to consolidate and achieved further development. Orient Securities Asset Management maintained its leading position and ranked the first in the industry in terms of revenue from asset management business (based on the statistics published by the Securities Association of China). It also delivered excellent long-term performance for its products and won various awards including the "Golden Bull Award" by China Securities Journal, the "Yinghua Award" by China Fund Journal and the "Junding Award" by Securities Times. China Universal issued new funds with a total size of over RMB200 billion and topped the industry with ten funds having an issue size of RMB10 billion each, and ranked the second in terms of monthly average amount of non-monetary public funds under management. The total size of assets under its management exceeded RMB1 trillion, and its "Yangtze River Delta Integrated ETF Fund" received the Shanghai Financial Innovation Award. Proprietary bonds remained stable and garnered the "Bond Connect Outstanding Quotation Agency Award ( 債 券 通 優 秀 報 價 機 構 獎 )", and equity investment harvested sound absolute gains on the precondition of risk control.

Section III Summary of the Company's Business

4. Effective Protection from our Efforts in Compliance and Risk Control

Adhering to the concept of compliance creating value, the Company continuously promotes the construction of compliance and risk management culture, closely follows up the regulations and regulatory requirements, continuously improves the comprehensive risk management system, strengthens the integration of compliance management, risk management and internal control, values the application of financial technology in compliance and risk management. In recent years, the Company continuously strengthened the awareness of compliance and risk control among its staff, optimized the comprehensive risk management system and enhanced the effectiveness of compliance and risk management.

In 2020, the Company carried out compliance and risk management tasks according to the requirements of the new Securities Law, new regulations on risk control indicators and other latest regulations and rules, facilitated the culture construction of securities and fund industries, and improved the compliance and risk management systems. It also strictly implemented the compliance management at subsidiary level, strengthened the unified and vertical management and control of the Parent Company, facilitated the connection of risk control systems between the Parent Company and subsidiaries, and fully carried out risk management of the Group on a consolidated basis. The Company conducted audit works under risk-oriented approaches strengthened audit quality control and increased the efforts in supervision and rectification. With the effective operation of compliance and risk management system, the Company did not experience any major risk-related events or non-compliance with laws and regulations throughout the year and maintained the A rating of securities dealers for 12 consecutive years, which reflected that our efforts in compliance and risk control offered effective protection to the Company's innovative development.

Section III Summary of the Company's Business

5. Organic Integration of Excellent Party Building, Corporate Culture and Market-Oriented Mechanism

The Company attaches great importance to the construction of party building and corporate culture, and effectively integrates the requirements of industry culture construction with the strategic task of "party building and corporate culture are productive forces" implemented by the Company with solid progress and innovative exploration in order to find a path of party building and corporate culture construction with unique characteristics of DFZQ. Meanwhile, the Company pays respect to humanity in operational management, follows the regular rules of talent development, implements the market-oriented mechanism to keep pace with times, creates harmonious atmosphere with relentless efforts, and strives to create a happy life for its employees. The Company always focuses on facilitating the construction of market-oriented mechanisms with continuous optimization and innovation, persists in strengthening party building and establishing people-oriented corporate culture, and creates a good atmosphere that promotes hard work and entrepreneurship, thereby helping its employees to build material and spiritual civilization.

In 2020, the Company actively carried out party building works based on the rectification requirements from the inspection of municipal party committee, revised and improved the learning system of party committee center group of the Company, organized and conducted the assessment and election of advanced entities and outstanding individuals, deepened the education on the history of the party, the new China, the reform and opening up and the development of socialism through specific studies, and carried out the "Happy Home" theme practice activity for the year of 2020. The Company also formulated an implementation plans for corporate culture construction, optimized the appraisal standards for culture construction, organized the oriental culture heroes association, and carried out culture construction activities such as the 8th "Employees' Sport Games", annual labour competition of the trade union and the "Home of Employees". In addition, active progress was made in respect of the construction of market-oriented mechanism by implementing the H-share employee stock ownership plan for the listed company and continuously deepening the division-oriented reform of wealth management business at headquarter level.

Section IV  Report of the Board

1. DISCUSSION AND ANALYSIS OF OPERATION

In 2020, the COVID-19 pandemic rose to be the most significant variable to economic development and the capital market, which forced governments across the world to launch stimulus measures to respond to the recession derived therefrom, leading to loose liquidity around the globe and substantial fluctuations in the capital market. In particular, benefited from the strict epidemic control measures, economic recovery in the PRC gained sound momentum with the GDP recording a year-on-year growth of 2.3% after an asymmetrical V-shaped rebound throughout the year of 2020. During the Reporting Period, affected by the macro environment, economic growth and international relations, A-share market witnessed an upsurge after a decline with an overall positive trend, as shown by a 13.87% rise in the SSE Composite Index, a surge of 38.73% in the SZSE Component Index and a rise of 64.96% in GEM Index throughout the year. Trading activities also increased significantly where the average daily trading volume of the SSE and SZSE stocks reached RMB847.808 billion in 2020, representing a year-on-year increase of 63.05%. Meanwhile, the bond market curbed at a high level after an upsurge with slight change in the yield of 10-year treasury bonds and 0.16% decrease in the ChinaBond indicators.

Upholding the operation strategy of "growth stabilization, risk control and reform promotion", the Company pooled concerted efforts towards business operations in addition to pandemic prevention and control. Based on the changes in macroeconomic policies and the capital market, the Company continuously optimized its portfolio of assets and liabilities and achieved satisfactory yields for its major categories of assets. In terms of proprietary equity investment, the Company captured the market opportunities by leveraging its advantages in investment and research, and harvested sound absolute gains. For fixed income business, the Company maintained its core competitiveness with the dual drivers of investment and sales, further strengthened its investment and research capacity, and secured a leading position in the industry in terms of investment scale and performance. The Company obtained the qualification for foreign exchange settlement and sales business, established full coverage of the FICC business chain, and created synergy among market making, foreign exchange, capital intermediary and gold businesses in various aspects. The Company captured the opportunities from the IPO system reform, improved its ability to serve the real economy, and remained at the top of the industry in terms of underwriting of treasury bonds, CDB bonds, bonds of Agricultural Development Bank of China and other interest rate bonds with rapid growth in lead underwriting and distribution of credit bonds. For asset management business, the Company followed the trend and expanded the business scale with the assets under management of Orient Securities Asset Management rising to nearly RMB300 billion and the size of China Universal exceeding RMB1.1 trillion. Orient Investment Banking completed the IPO project of CICC, and cooperated with Orient Securities International to complete the H share listing of Tigermed, the largest pharmaceutical and healthcare IPO project in the Hong Kong Stock Exchange during the year. For wealth management business, leveraging the asset-end advantages, the Company secured remarkable progress in terms of agency sale of financial products, many of which broke the sales volume records of the Company and the industry. The customer equity scale of Orient Futures exceeded RMB40 billion, representing a year-on-year increase of 77.8%, with market share and trading volume remained first in the industry.

Section IV Report of the Board

During the Reporting Period, the Company was rated as a Grade A, Class A company among securities firms, and did not encounter any major compliance risk incidents. Under the leadership of the pandemic prevention and control leading group, the Company strictly followed the requirements of pandemic prevention and control in the process of organizational management, system development and control implementation, continuously carried out routine management in a strict and orderly manner, and cooperated with insurance companies to protect the benefits and welfare of its employees. The Company continued to improve corporate governance by comprehensively promoting the new Securities Law and its ancillary regulations. By increasing the investment in financial technology, the Company made steady progress in digital management, accelerated the technology empowered transformation, launched its first projects of information technology innovation and obtained its first national invention patent, and many of the projects won the Shanghai High-tech Application Awards. The Company also steadily optimized its systems and mechanism, continuously enhanced the management efficiency, strengthened the prevention and control of integrity risks, firmly carried out industry culture construction, successfully implemented the H Share employee stock ownership plan, increased its efforts in supervision of key tasks, facilitated poverty alleviation by supporting local industries and promoted ESG construction.

1. PRINCIPAL OPERATIONS DURING THE REPORTING PERIOD

As of the end of 2020, total assets of the Group reached RMB291.117 billion and equity attributable to owners of the Company amounted to RMB60.203 billion. In 2020, the Group realized revenue and other income of RMB27.647 billion, representing an increase of 13.54%, net profit attributable to owners of the Company of RMB2.723 billion, representing an increase of 11.82% and weighted average returns on net assets of 4.85%, representing a year-on-year increase of 0.24 percentage points.

The Company achieved revenue and other income of RMB27.647 billion, of which securities sales and trading business realized RMB5.985 billion, taking up 21.04% of the total; investment management business realized RMB3.375 billion, taking up 11.87% of the total; brokerage and securities financing business realized RMB14.488 billion, taking up 50.93% of the total; investment banking business realized RMB1.695 billion, taking up 5.96% of the total and headquarters and others realized RMB2.900 billion, taking up 10.20% of the total. (Calculation of segment operating income, segment expenditure and relevant proportions have not taken account of any consolidation and offsetting factor; the same approach is adopted below)

Section IV Report of the Board

1. Statement of the Principal Businesses of the Group and Its Analysis

1. Securities Sales and Trading
   The Company conducts securities sales and trading business with its own funds, including proprietary trading (equity investment and trading, fixed income investment and trading, financial derivatives trading business), innovative investment and securities research services. During the Reporting Period, the securities sales and trading business segment realized segment revenue and other income of RMB5.985 billion, accounting for 21.04% of the total income.
   Proprietary trading Market environment
   2020 saw significant fluctuation in capital market with great economic and social impact caused by the pandemic of COVID-19, and various countries all over the world adopted sharply accommodative monetary policies to combat the economic downturn. Meanwhile, a series of systematic innovation in the PRC such as the implementation of the new Securities Law, registration system reform of the ChiNext, launch of the Science and Technology Innovation Board 50 ETF and new rules on delisting helped improve the investment and financing functions of the capital market and facilitated healthy and orderly market development.

Section IV Report of the Board

During the Reporting Period, amid high volatility in the stock market, the SSE Composite Index increased by 13.87%, the Wind A Share Index grew by 25.62%, and the Hang Seng Index fell by 3.4% throughout the year. Affected by the measures on combating the pandemic, the first half of 2020 saw relevantly accommodative monetary policies, which returned to normal with the gradual recovery of economy in the second half of 2020. As at the end of the Reporting Period, the yields of 10-year treasury bonds and the 10-year CDB yields only changed slightly as compared to the end of last year, and the total price index of ChinaBond decreased by 0.16%.

Operation initiatives and business development

The following table sets forth the balance of the Group's proprietary trading business by asset class:

Note: Primarily include investment in asset management schemes and wealth management products using our own funds.

In terms of equity investment business, during the Reporting Period, leveraged on its traditional advantages, the Company deepened the study of the industry and individual stocks with focus on investment in leading listed companies with sound and solid financial position and high-quality management, and achieved sound absolute returns. Under the strict dynamic tracking and loss prevention mechanism, the Company maintained a well balance on yield and drawdown. In addition, the Company formulated the strategy of investment in designated companies with high dividends, and made investment in research on quantitative private equity FOF and quantitative strategy in order to enhance the yield stability through diversified investment.

In terms of NEEQ business, during the Reporting Period, the Company continuously optimized the portfolio of NEEQ stocks and promoted the IPO of high-quality enterprises and their listing application for the Premium New Third Board (PNTB), which effectively reduced the size of NEEQ business. As of the end of the Reporting Period, various NEEQ stocks held by the Company have passed the IPO review and are expected to make their initial public offering and listing in 2021.

Section IV Report of the Board

In terms of FICC business, the Company maintained its core competitiveness of dual growth drivers of investment and sales, improved the depth of investment research and strengthened system construction, thereby maintaining its leading position in the industry in terms of investment scale and business performance.

• For bond investment, the Company put more emphasis on trading while maintaining the conventional spread income. In view of the accommodative monetary policies and the low yields in the first half of 2020, the Company reduced its positions significantly to cash in on profits. With the economy recovering from the bottom and the gradual withdrawal of unconventional monetary policies, the Company made timely allocation based on its correct judgement on the trend of interest rates, thereby significantly outperforming the index throughout the year. During the Reporting Period, the trading volume of spot bonds in the inter-bank market increased by 69.4% year-on-year, and the trading scale ranked ahead among securities dealers. Meanwhile, in view of the credit risks of enterprises affected by the pandemic, the Company continuously strengthened the control of credit risks by reducing its holding of credit debts. During the Reporting Period, the Company won the titles of "Core Dealer", "Outstanding Dealer in Bond Market", "Outstanding Dealer in Derivatives Market" of the National Inter-bank Funding Center, the "Top 100 Settlement - Excellent Proprietary Institution Prize" of ChinaBond and other awards.
• For market-making business, during the Reporting Period, the trading volume of the market-making business for spot transaction of bonds in the inter-bank market increased by 58.9% year-on-year, remaining at the forefront of the attempting market-making institutions, and the trading volume through the Bond Connect also remained as one of the top three in the industry, which earned the Company the "Award for Contribution to Opening Up" by the National Inter-bank Funding Center, the title of "2020 Outstanding Market Marker in Inter-Bank Market" by the China Development Bank and other awards. The scale of market-making of treasury bond futures in CFFEX also continued to stand among the top three in the industry.
• For gold and bulk commodities business, the Company carried out various proprietary trading businesses, including arbitrage, trend, hedging, lending and options in several exchange markets and the overall business scale stood at the forefront of brokers. During the Reporting Period, the Company's gold inquiry transaction volume grew by 230.3% year-on-year. As of the end of the Reporting Period, the balance of gold borrowing and lending grew by 41.5% year-on-year. Also, the Company cooperated with banks to develop a new income certificate business model, which significantly reduced the cost of income certificate financing. During the Reporting Period, the Company won the "Outstanding Special Member Award ( 優 秀 特 別 會 員 獎 )" of Shanghai Gold Exchange in 2019.

Section IV Report of the Board

• For foreign exchange business, the Company successively obtained the membership of foreign exchange settlement and sales in the inter-bank foreign exchange market and membership of foreign currency lending in the inter-bank foreign exchange market, and completed the infrastructure construction of foreign exchange transactions. At present, it has routinely carried out spot and derivative transactions of proprietary foreign exchange settlement and sales, with a steady increase in transaction scale and gradually enriched trading strategies.
• The Company continued to facilitate the construction of fixed income trading system, and won the "Automatic Trading Innovation Award" and the "Best Technology Award" by the National Interbank Funding Center.

In terms of derivatives business, during the Reporting Period, the Company's Alpha trading, intelligent trading and OTC derivatives business maintained steady development and stable income, and secured a leading position in terms of return-to-drawdown ratio of private equity funds. In particular, the Alpha business made steady progress by quantitatively selecting stocks, allocating a sector-neutral portfolio and hedging against systemic risk, thereby achieving stable absolute income. For intelligent trading, the Company's high-frequencymarket-making business is diverse in varieties, and ranked at the top of the market in terms of market making for many varieties with satisfactory market making income. For over-the-counter derivatives, the Company conducted OTC options transactions with major financial institutions and actively applied for new licenses and qualifications to strengthen the profitability of its OTC derivatives business. During the Reporting Period, the company completed the construction of artificial intelligence big data platform and low latency trading system to realize financial technology empowered derivatives business.

Development plan and outlook

I n t e r m s o f e q u i t y i n v e s t m e n t b u s i n e s s , t h e C o m p a n y w i l l p u t m o r e e f f o r t s i n macro-environment research and prognosis while ensuring effective micro-fundamentals analysis, focus on flexible investment strategies, improve yield under the premise of strict risk control, and capture the opportunities in equity investment market.

In terms of NEEQ business, while improving and consolidating its investment research abilities, the Company will actively participate in the reform of the NEEQ market, make investment in the PNTB in an orderly manner, develop mixed market-making business, and strive to seize the opportunity of reform to improve investment returns.

In terms of FICC business, the Company will further broaden the investment scope, enhance its bond trading capabilities, improve its systematization, facilitate the transformation of fixed income business sales transactions and agency business, promote the improvement of FICC industrial chain and continuously improve the profitability.

Section IV Report of the Board

In terms of financial derivatives business. The Company will continue to improve its investment and research abilities and enhance the yields of different businesses. Relevant measures include improving the return and stability of the Alpha business; improving options market making, fund market making and commodity futures market making business to enhance the yield; and leveraging the synergy of the Company and actively exploring the OTC derivatives business. Meanwhile, with the gradual improvement of the capital market, the introduction of more derivative subjects will bring more opportunities for the Company's business.

Innovative investment

The Company engages in alternative investment business through Orient Securities Innovation Investment, a wholly-owned subsidiary of the Company. The business of Orient Securities Innovation Investment mainly involves special asset acquisition and disposal, equity investment and quantitative investment.

Market environment

For special asset business, both the supply and demand in the non-performing asset market are increasing, and prices on the asset side are expected to remain low. Market participants changed from "4+2" to "4+2+N" with debt-to-equity swap and other means disposal coming on stage, which attracted various well-known foreign institutions to the market. For equity investment, the opportunities and profit space of pure financial investment of Pre-IPO, which pursues investment returns by exploiting the price difference between primary and secondary markets, will decrease, while the influence of industrial capital will further increase. In addition, with the formation of multi-level capital market, the efficiency and channels of exit will continue to increase. In terms of quantitative investment, with the participation of outstanding foreign institutions of capital management and the emerge of domestic leaders in the quantitative sector, the industry has grown by leaps and bounds with the market scale soaring all the way up.

Operation initiatives and business development

Given that the investment terms of quantitative investment, special asset business and equity investment business are 0-1 year, 1-2 years and 3-5 years, respectively, with their respective risk levels ranging from low to high, Orient Securities Innovation Investment optimized the asset allocation of such three businesses and enhanced the stability of returns through portfolio allocation, achieving sound results during the Reporting Period.

Steadily promoting special asset acquisition and disposal business. During the Reporting Period, the new investment made by Orient Securities Innovation Investment in special asset projects amounted to RMB1,459 million. As of the end of the Reporting Period, Orient Securities Innovation Investment had 24 existing special asset projects with an investment scale of RMB2,721 million.

Section IV Report of the Board

Steadily carrying out equity investment business. As of the end of the Reporting Period, the Company had 41 existing equity investment projects with an investment scale of RMB1,326 million, and enhanced the risk management efficiency through the co-investment system. In addition, Orient Securities Innovation Investment proactively participated in the strategic placement on the Sci-Tech Innovation Board and made co-investment in 4 Sci-Tech Innovation Board projects with an investment scale of RMB159 million.

Expanding the investment in quantitative hedge funds. The Company cooperated with outstanding domestic and foreign quantitative institutions, allocated quantitative private equity funds with flexible position adjustment throughout the year, and tracked product performance to adjust investment plans in a timely manner. Meanwhile, it conducted research and due diligence on outstanding managers in the market to optimize investment results.

Development plan and outlook

In the future, with the completion of asset allocation, Orient Securities Innovation Investment will enter the stage of refining management and professional business operation.

For special asset business, Orient Securities Innovation Investment will develop its business from capital investment to asset disposal and operation to improve ROE and return on capital by improving disposal and operation capabilities, thus consolidating its core competitiveness. For equity investment, it will make asset allocation in areas strongly supported by national plans to contribute to the development of the real economy while carrying out co-investment in Science and Technology Innovation Board ("Sci-Tech Innovation Board") projects. For quantitative investment, the Company will strive to identify high-quality managers and reduce the correlation of product investment to lower portfolio risk and improve yield.

Securities research

Market environment

The Company always pays equal attention to external commissions and internal services, and has achieved sound results through persistence in the highly competitive commission compartment market. Meanwhile, it focuses on serving all business departments of the Company to build an internal collaborative layout.

Section IV Report of the Board

Operation initiatives and business development

During the Reporting Period, the Securities Research Institute carried out thorough research on fundamentals, and has built a mature and perfect research system of Sci-Tech Innovation Board. Furthermore, the Company continuously establishes and deepens strategic research, striving to cultivate new competitive advantages in related fields. As at the end of the Reporting Period, the Company's securities research business had a total of 80 researchers, including 67 with analyst qualifications and 24 with investment consultancy qualifications; and published a total of 2,212 research reports.

With respect to external commissions, the Company cultivated the public offering market and strived to improve the market share leveraging institutional customers. Besides, it expanded customer coverage and actively explored non-public offering customers. During the Reporting Period, the securities research institute realized commission income of RMB540 million, of which the public offering commissions (including special accounts, social security and annuity seats) accounted for RMB512 million, with a market share of 2.94% and improved ranking among customers of core public offering funds. At the same time, 4 public offering customers, 1 bank customer and 35 private placement and insurance customers were newly secured, comprehensively covering the new bank wealth management subsidiaries.

With respect to synergy within the Group, the securities research business carried out transformation actively to assist the Group to realize the provision of integrated financial services. The Company also explored the way of serving enterprise clients utilizing its core research capability, so as to provide service of high value to a broader industry capital. It also created and constantly deepened strategic research to develop new competitive edge in the relevant areas.

During the Reporting Period, in the "2020 Institutional Investor - Caixin Capital Market Analyst Achievement Awards", the Company won the second place for internet industry, the third place for technology/hardware industry and the third place for technology/IT service and software industry in mainland China category as well as the fifth place in the best analyst team award and the third place in the best sales team award in mainland China category.

Development plan and outlook

In the future, the Company's research business will firmly grasp the opportunity from the current market recovery, continuously consolidate and utilize its research capabilities and advantages to provide more comprehensive and in-depth research services for its customers, and facilitate the Group in providing comprehensive financial solutions for enterprises by leveraging its research capabilities.

Section IV Report of the Board

1. Investment Management
   The Company provided clients with asset management schemes, securities firms' publicly offered fund products for equity investment and private equity investment business. During the Reporting Period, the investment management business realized segment revenue and other income of RMB3.375 billion, accounting for 11.87% of the total income.
   Asset management
   The Company mainly engages in asset management business through Orient Securities Asset Management, a wholly-owned subsidiary of the Company.
   Market environment
   In 2020, due to the impact of the COVID-19 pandemic, the capital market experienced intensified fluctuations and equity market was subject to significant volatilities, forming a structural bull market with obvious differences across sectors. The bond market recovered from the significant wide-range volatilities with the yield of interest rate securities showing a "V" shaped trend of upward after downward. With the accelerated implementation of new regulations on asset management and the deepening of financial openness, the acceleration of transformation to net value products, the overall decline in wealth management yields and the policy environment of houses are for living in and not for speculative investment, the capital market has become an important place for asset allocation by the public, creating unprecedented opportunities for the rapid development of asset management institutions. On the other hand, in view of the increasingly intensive competition in asset management industry, the more prominent long-tail effect in the industry and the rapid growth in management scale of asset management institutions with first-mover advantage in discretionary management, how to improve core competitiveness to respond to the intense competition in the industry has become a challenge for long-term development.
   Operation initiatives and business development
   Orient Securities Asset Management has long been committed to the principle of putting the interests of customers first, firmly carried out the practice of long-term value investment, focused on improving the core competitiveness driven by both "professional investment research + professional services", and maintained the leading position in terms of the long-term investment performance. In order to better safeguard the interests of customers, Orient Securities Asset Management has conducted beneficial practices in delivering value investment ideas, introducing long-term funds and establishing long-term assessment mechanisms, in order to help the investors achieve long-term wealth preservation and appreciation and facilitate the healthy development and value creation of high-quality enterprises.

Section IV Report of the Board

As at the end of the Reporting Period, the entrusted assets under management of Orient Securities Asset Management reached RMB298.548 billion. In 2020, Orient Securities Asset Management ranked first in the industry in terms of the net income from entrusted asset management business (source: Securities Association of China). From 2005 to the end of the Reporting Period, the average annualized rate of return of equity products actively managed by Orient Securities Asset Management was 26.50%, while the average annualized rate of return of CSI 300 Index was 12.02% for the same period. The absolute rate of return of equity fund of Orient Securities Asset Management for the latest five years was 125.26%, and the absolute rate of return of fixed income fund for the latest five years was 27.60%, both ranking sixth in the industry (source: Financial Products Research Center of Haitong Securities Research Institute), and maintained a leading position in long-term performance.

The following table sets forth the scale of assets under management (AUM) of the Company by product type:

Section IV Report of the Board

As a bellwether in the asset management industry, Orient Securities Asset Management will always root itself in the asset management industry, continuously consolidate and upgrade its active equity and fixed-income businesses, give full play to its core business advantages, maintain its leading position in terms of long-term performance, continue to adhere to the development concept of putting the interests of customers first and build a professional service system. At the same time, it will expand the core competitiveness, speed up the layout in pension business, asset allocation products, index products and other fields, diversify the product portfolio, and further consolidate the "Dong Fang Hong" brand.

During the Reporting Period, Orient Securities Asset Management won 41 awards, including the Stock Investment Return Fund Management Company Award of the 17th "Golden Fund ( 金 基 金)" Award of Shanghai Securities News; the "Top Ten Star Fund Companies", the "Five-Year Sustainable Return Star Fund Company" and the "Active Equity Investment Star Fund Company" under the 15th Star Fund Award for Fund Industry in China by Securities Times; the "Best Wealth Management Securities Firm" and the "Best Wealth Management Securities Firm of Equity Investment" under the China Fund Industry Yinghua Award by the China Fund Journal; and the "Equity Investment Golden Bull Fund Company" under the 17th Fund Industry Golden Bull Award by China Securities Journal.

Development plan and outlook

In the future, the Company will actively seize the opportunities of industry development, utilize its active management advantages, uphold the idea of value investment, continue to strengthen the construction of its core competitiveness with the dual drivers of "professional investment research + professional services", maintain an open and evolutionary mindset, continuously consolidate its investment management capabilities, and pursue client-centered and sustainable development with focus on long-term performance. The Company will increase its efforts in diversified development layout. To this end, it will, on one hand, continue to improve the product line of the Company, and broaden the coverage of its investment research abilities to serve different investors, and on the other hand, further develop and consolidate the market, and continue to optimize the customer structure. In line with the Company's product layout and strategic development, the Company will enhance the visibility and reputation of its "Dong Fang Hong" brand. It will also accelerate the construction of an attractive and market competitive talent system to provide important support for business development. The Company will comprehensively increase investment in financial technology, create an information technology structure with dual drivers of "data + technology", and accelerate the transformation to online, digital and intelligent services. It will also strictly adhere to the bottom line of compliance and risk control to achieve mutual growth with the Company's high-quality business development.

Section IV Report of the Board

Fund management through China Universal

The Company mainly engages in fund management business through China Universal, an associate in which the Company is the largest shareholder with 35.412% equity interest.

Market environment

In 2020, with the Chinese economy showing strong toughness, the continuous deepening of capital market reform, the acceleration of opening up and the strong demand for wealth management from the public, the asset management industry saw tremendous opportunities for development, and publicly offered funds recorded explosive growth.

Operation initiatives and business development

During the Reporting Period, China Universal continuously implemented its business development strategies and fully strengthened its core competence on investment management, risk management, customer service and product innovation based on its 2020 operation plan and the initiative of "Capacity Enhancement Year". As of the end of the Reporting Period, the management scale of public offering funds of China Universal reached RMB835.2 billion, representing an increase of 61% from the beginning of the year, and RMB557.4 billion after excluding the monetary fund and short-term wealth management bonds, representing an increase of 93% from the beginning of the year. China Universal continued to improve its product layout, built a client-centeredmulti-strategy product system, worked on a number of active equity, "fixed income +" and pure debt products with market influence, achieved rapid development of passive business, and established the brand for fundamental hedging strategies. China Universal carried out comprehensive business development, further implemented the omni-channel strategy, continuously deepened its business cooperation with pension, banking, insurance, wealth management subsidiaries and other institutions, made significant development in its e-commerce business, continued to expand its international business, continued to promote the construction of the third-pillar pension system, ESG responsibility investment and other strategic businesses, and carried out pragmatic and effective compliance and risk management.

During the Reporting Period, China Universal maintained excellent performance in mid to long-term investment. China Universal Value Selection won the Seven-Year Open Hybrid Continuous Superior Golden Bull Fund by China Securities Journal. China Universal Blue Chip Stability won the Five-Year Open Hybrid Continuous Superior Golden Bull Fund by China Securities Journal and the Balance Hybrid Star Fund with Five-year Continuous Return by Securities Times. China Universal Consumer Industry won the Three-Year Open Hybrid Continuous Superior Golden Bull Fund by China Securities Journal and the Balance Hybrid Star Fund with Five-year Continuous Return by Securities Times. China Universal China-Hong Kong Strategy Fund won the Best Total Return - Greater China Equity (5 Year) in the 2020 Offshore China Fund Awards by Chinese Asset Management Association of Hong Kong and Bloomberg. China Universal Growth Focus won the Hybrid Star Fund with Ten-year Continuous Return by Securities Times.

Section IV Report of the Board

During the Reporting Period, China Universal received many industry honors such as the Best Investment Management Institution by the "China Pension Finance 50 People Forum" and the Junding Award for Culture Construction Fund by Securities Times. China Universal Yangtze River Delta Integrated ETF Fund won the 2019 Shanghai Financial Innovation Achievement Award by the Shanghai Municipal Government.

Development plan and outlook

In 2021, with the transformation and upgrading of China's economy, the structural performance of the capital market will continue and the competition in asset management industry will become more intense. Meanwhile, the accelerated release of people's needs of wealth management, the continuous reform and opening up of the capital market and the accelerated application of digital technology will all provide continuous momentum for the industry's development. In particular, the top asset management institutions with outstanding investment management ability and leading comprehensive strength will enjoy more advantages in the market competition.

In the future, China Universal will continue to adhere to the cultural construction ideas of "compliance, integrity, professionalism and stability" in the securities and fund industries, uphold the value of "customer first" and the business philosophy of "all for the long term", continue to refine and improve its four core capabilities of investment management, risk management, customer service and product innovation, consolidate the foundation, embrace reform and changes, and devote itself to building China's most recognized asset management brand.

Private equity investment

Market environment

In the first half of 2020, the private equity investment industry as a whole saw a decline in fundraising and investment in the context of the global pandemic and the sharp increase in downward economic pressure. In the second half of 2020, as the pandemic in China became effectively under control, the industry as a whole began to recover with increase in scale and number of fundraising projects as compared to the first half of the year, but overseas projects were still hampered. According to the data of Zero2IPO, despite the impact on the tourism, sports, food and culture, traditional education and training, and offline chain retail industries, the pandemic also brought development opportunities to the healthcare, online education, online retailing, big data and enterprise service industries. On this basis, the investment in healthcare, big data and corporate service industries increased significantly, and certain development opportunities can be seen for private equity investment business.

Section IV Report of the Board

Private equity investment ushered in a rising period of development. SSE launched the Sci-Tech Innovation Board in 2019, and the new Securities Law was promulgated in December 2019, which clearly provided that the registration system for securities issuance will be fully implemented. The new Securities Law became effective on March 1, 2020, and the Special Provisions on Shareholding Reduction by Venture Capital Fund Shareholders of Listed Companies was issued on March 6, 2020. The CSRC issued the Measures for the Administration of Registration of IPO Stocks on the ChiNext (for Trial Implementation) and other relevant rules on June 12, 2020. All of the above showed that the regulatory authorities wished the enterprises to strengthen direct financing and highlighted the key role of market-oriented approach in resource allocation, which strengthened the confidence of private equity funds in serving the real economy and provided more diversified methods and channels to exit the investment.

Operation initiatives and business development

As at the end of the Reporting Period, Orient Securities Capital Investment managed 48 funds with a scale of RMB16.055 billion. The total number of investment projects of Orient Securities Capital Investment and funds managed by it reached 191 with an accumulated investment of RMB25.83 billion. Among which, 54 projects have achieved investment exit, a total of 137 projects were under investment involving an investment amount of approximately RMB9.299 billion, and four projects were in the pipeline.

Orient Securities Capital Investment continuously monitored the impact of registration system of the Sci-Tech Innovation Board and the ChiNext on equity investment market. Since the launch of the Sci-Tech Innovation Board, 13 enterprises applied for IPO on the Sci-Tech Innovation Board (five new applicants in 2020), in which seven enterprises were successfully listed and two enterprises have passed the review by the listing committee. During the Reporting Period, seven target enterprises applied for IPO on the ChiNext, in which one enterprise was listed and three enterprises have passed the review by the listing committee.

During the Reporting Period, Orient Securities Capital Investment won the "Top 50 Best Private Equity Investment Institution in China ( 中 國 最 佳 私 募 股 權 投 資 機 構 TOP50)", "Top 30 Best Chinese-funded Private Equity Investment Institution in China ( 中 國 最 佳 中 資 私 募 股 權 投 資 機

Section IV Report of the Board

Development plan and outlook

In the future, in the context of normal and effective pandemic control and management in China and the recurrent waves of COVID-19 around the world, Orient Securities Capital Investment will actively strive to capture the opportunities from the third wave of science and technology and national strategies, identify high-quality enterprises, and strengthen the private equity fund management brand. Subject to applicable regulatory requirements, Orient Securities Capital Investment will further optimize operational management, strengthen its value discovery and investment capabilities and improve the post-investment management through continuous exploration with relentless efforts.

1. Brokerage and Securities Financing
   The Company's brokerage and securities financing segment primarily comprises securities brokerage business, futures brokerage business, bulk commodity trading and securities financing business including margin financing and securities lending and collateralized stock repurchase. During the Reporting Period, the brokerage and securities financing business achieved segment revenue and other income of RMB14.488 billion, accounting for 50.93% of the total income.
   Securities brokerage
   The brokerage business of the Company mainly relies on the wealth management business headquarters and its branches. As of the end of the Reporting Period, the Company had 177 securities branches, covering 87 cities and 31 provinces, autonomous regions and municipalities directly under the Central Government.
   Market environment
   In 2020, the asset allocation of the PRC residents ushered in an inflection point where people of different age groups and asset sizes released a clear demand for wealth management. During the Reporting Period, the trading activity in the stock market increased with trading volume of stocks and funds reaching RMB220.45 trillion, representing a year-on-year increase of 61%. Meanwhile, with the two-way opening of the financial market, the transformation of wealth management business of securities firms empowered by financial technology, and the improved professional level of investors, the scale of agency sale of wealth management products increased significantly.

Section IV Report of the Board

Operation initiatives and business development

During the Reporting Period, confronted with the complex external market environment, the Company actively prevented and controlled the pandemic and ensured the smooth operation of trading services. According to the monthly data of the Securities Industry Association, in 2020, the market share of the net income of the Company's securities brokerage business was 1.62%, ranking 20th in the industry, and the income of securities brokerage business recorded a year-on-year increase of 66%. The basic business was steadily consolidated. During the Reporting Period, the cumulative number of newly opened accounts amounted to 312 thousand, representing a year-on-year increase of 31%, and newly added assets amounted to RMB101.3 billion, representing a year-on-year increase of 133%. As of the end of the Reporting Period, the Company had 1.84 million customers, representing a year-on-year increase of 19.8%, and customers' assets under custody amounted to RMB730.1 billion, representing a year-on-year increase of 29%.

Taking advantage of the asset end of the Company, the financial products agency sales business has achieved remarkable progress, and several products broke the sales volume records of the Company and the industry. During the Reporting Period, affected by the recovery of the market and the profit-making effect of public offering funds, the proceeds raised by public offering funds exceeded RMB3 trillion. The Company focused on the favourable wealth management business, firmly established the direction of agency sale of discretionary equity products, broadened cooperation channels in addition to Orient Securities Asset Management and China Universal, and established deep cooperative relations with more high-quality managers in the industry. During the Reporting Period, the Company's sales volume of equity products amounted to RMB27.8 billion, representing a year-on-year of 256%, and the size of existing equity products amounted to RMB47.5 billion, representing a year-on-year of 100%. According to the monthly data of Securities Association of China, net income from agency sales of financial products amounted to RMB0.39 billion, representing

1. year-on-yearincrease of 269%, ranking 12th in the industry. In particular, the sales of the Jiangxin One-Year Fund ( 匠 心 一 年 持 有 期 基 金 ), which was tailor-made through cooperation with Rosefinch Fund reached RMB2,364 million, breaking several agency sales records.

Section IV Report of the Board

The following table sets forth the type and amount of all the financial products the Group distributed during the periods indicated, including over-the-counter (OTC) products:

The Company developed the innovative service model for high net worth customer and carried out private wealth management business. During the Reporting Period, the Company focused on customer stratification management, completed the preparation for the establishment of private wealth management centers in Shanghai and Hangzhou, officially launched the private wealth management services for high net worth customers, and provided high net worth customers with personalized comprehensive financial services such as financial planning, asset management, advisory and consulting, and family property inheritance to enhance the service stickiness and contribution of high net worth customers.

The Company focused on developing institutional business. On the one hand, the Company confirmed the positioning of institutional brokerage business with focus on quantitative trading, provided clients with a series of optimized supporting services from strategy formulation to trade execution and software and hardware configuration, and established a good reputation among key client groups of publicly offered fund, trust, banking, insurance and quantitative private equity businesses, and has become one of the major brokers in quantitative trading. On the other hand, with the two-way opening of the financial market, the Company focused on serving foreign institutions to meet their needs for information, investment research and trading matching, and has successfully secured WFOE clients such as BlackRock, William O'Neal, Aberdeen Standard, Neuberger Berman and Himalaya Capital.

Section IV Report of the Board

For Internet finance, during the Reporting Period, with the support of data analysis and financial technology, the Company continued to optimize the unified mobile portal Oriental Winners APP to enable online sales of high-end products in all categories, thereby facilitating customers' asset allocation and the Company's wealth management transformation. The Company launched the intelligent information service and upgraded the "Orient Tianji" intelligent service system to match the personalized needs of customers, which continuously improved the level of customer satisfaction. It also developed multiple professional service mobile terminals such as Oriental Winner Options and Oriental Private Banking to provide professional services for customers in options and global asset allocation. As of the end of the Reporting Period, the Company had more than 550,000 active brokerage customers on the Internet and mobile phone platforms with stock and fund trading volume of RMB4.17 trillion during the Reporting Period. The number of customers trading through the Internet and mobile terminals accounts for 98% of the total number of customers, the online transaction amount accounts for 85% of the total, and the number of newly opened online accounts takes up for 99% of all accounts opened in the same period.

During the Reporting Period, the Company was honored as the "National Investment and Education Base ( 國 家 級 投 教 基 地 )" by the CSRC, and was awarded the "All-round Securities Broker Junding Award ( 全 能 證 券 經 紀 商 君 鼎 獎 )", "Retail Securities Broker Junding Award ( 零 售 證 券 經 紀 商 君 鼎 獎 )" and "Securities Broker Team Junding Award ( 證 券 經 紀 人 團 隊 君 鼎 獎 )" in the PRC by Securities Times in 2020, and the "Securities Firm of the Year with Best Comprehensive Strength in Wealth Management ( 年 度 最 具 財 富 管 理 綜 合 實 力 券 商 )" under the 2020 Jinding Awards by National Business Daily. Oriental Winners APP was awarded the "Comprehensive Service APP Junding Award ( 綜 合 服 務 APP 君 鼎 獎 )" and "Wealth Management Service APP Junding Award ( 理 財 服 務 APP 君 鼎 獎 )" under the 2020 China Securities Industry Awards by Securities Times.

Development plan and outlook

In the future, the Company will boost its business vitality and potential through talent system, remuneration package, performance appraisal and other in-depth reform measures; firmly promote wealth management transformation and actively grasp opportunities from industry development and favourable policies to improve model advantages and brand value; promote private wealth management business, explore and implement ultra-high net worth customer service model; optimize institutional service system and expand the scope of cooperation; improve the buyside investment consultation and operation capacity and training system, so as to increase the comprehensive business income; strengthen the application of financial technology, optimize the construction of service platforms and establish the customer stratification management and service system, thereby facilitating the digital and intelligent transformation and development of wealth management business.

Section IV Report of the Board

Futures brokerage

The Company engages in futures brokerage business through Orient Futures, a wholly-owned subsidiary of the Company.

Market environment

In 2020, the international environment became increasingly complex due to the impact of the COVID-19 pandemic which intensified the volatility of the prices of bulk commodities and financial assets around the world. As a result, the risk management function of the futures market has become increasingly prominent, which boosted the rapid development of the market and accelerated the launch of new products. The number of derivatives in the whole market exceeded 90, and the size of customers' equity reached a record high of nearly RMB900 billion.

Operation initiatives and business development

During the Reporting Period, following the market development, the scale of deposits of Orient Futures reached a new high, its rating returned to Grade AA of Class A, and over ten business lines gradually achieved results. As of the end of the Reporting Period, the scale of interests of the Company's customers exceeded RMB40 billion, representing a year-on-year increase of 77.8%, the number of new institutional customers increased by 31.9% year-on-year, the scale of interests of institutional customers increased by 86.3% year-on-year, which accounted for 85% of the total interests of customers, and the market share and trading volume remained first in the industry. The scale of asset management business exceeded RMB10 billion, the sales of financial products increased steadily, the total amount of sales of publicly offered and private equity products increased by 151% as compared to the same period of last year, and the Oriental Winners Futures APP ranked among the top in the industry in terms of number of monthly active users.

According to the trading volume ranking data published on the official websites of the five major futures exchanges in China, Orient Futures topped the list with trading volume of 1.156 billion lots in 2020, representing a significant year-on-year increase of 69.8%, making it the only futures company in China with trading volume of over 1 billion lots. This result was attributable to the advantages accumulated by Orient Futures over the years through its dual core competitiveness of technology and research as well as its industry leading information technology system and research strength. Through years of operation and development of institution business, its brand image has been established and recognized gradually. During the Reporting Period, Orient Derivatives Research Institute completed the development of the integrated financial derivatives data management system and obtained computer software copyright. Meanwhile, in order to develop the Company's financial technology strength, Orient Futures made investment in Hangzhou Shuxing Technology Co., Ltd. in 2020 to provide further services to customers with excellent technologies in big data mining and analysis.

Section IV Report of the Board

Orient Futures carries out risk management business through Orient Securities Runhe, a wholly-owned subsidiary of Orient Futures to facilitate enterprises to manage operating price risks through warehouse receipt services, basis trade and OTC options in futures and spot markets. As of the end of the Reporting Period, Orient Securities Runhe obtained a total of 28 market-making qualifications for futures and options, including market-making for 21 futures and 7 options, and all such options ranked among the top three in Shanghai Futures Exchange in terms of market-making quality. During the Reporting Period, Orient Futures has completed the testing of spot trading business management system and OTC derivatives business management system.

During the Reporting Period, Orient Futures won the Outstanding Member Award granted by Shanghai Futures Exchange, Shanghai International Energy Exchange, Dalian Commodity Exchange, Zhengzhou Commodity Exchange and other institutions, and was awarded the "2020 Outstanding Futures Company in China - Junding Award (2020 中 國 優 秀 期 貨 公 司 君 鼎 獎 )" by Securities Times, the "Most Favored Futures Company ( 最 受 險 資 歡 迎 期 貨 公 司 )" recommended by IAMAC, the "Best Futures Company in China" by the 2020 China Futures Innovation and Development Forum and other awards.

Development plan and outlook

In the future, the futures market is expected to keep launching new products, the development characteristics of institutionalization of investors, diversification of business and acceleration of internationalization will become more and more prominent, and the overall ability of the market to serve the real economy will be further enhanced. Orient Futures will adhere to the idea of sound and stable operation and innovative development, follow the guideline of promoting the derivatives development with financial technology, build the two core competitive advantages of research and technology by leveraging financial technologies such as big data, cloud computing, artificial intelligence and block-chain, and move forward towards becoming a first-class derivative service provider by adopting the market-oriented, internationalized and collectivized development approach.

Securities financing

Market environment

The comprehensive in-depth reform of the capital market and favourable policies, coupled with monetary easing and significant increase in market activity, has brought new development opportunities for the margin financing and securities lending business. As of the end of the Reporting Period, the balance of margin financing and securities lending of the whole market totaled RMB1,619.008 billion, representing an increase of 58.84% over the beginning of the year, in which the balance of securities lending increased significantly from RMB13.780 billion at the beginning of the year to RMB136.984 billion, representing an increase of nearly 900%.

Section IV Report of the Board

During the Reporting Period, the market-wide balance of collateralized stock financing steadily contracted due to factors such as continued strict regulation, accelerated market liquidation under the new delisting regulations and restricted business liquidity under the new regulations on shareholding reduction. According to the statistics of Securities Association of China, as of the end of the Reporting Period, the scale of collateralized stock with proprietary funds in the whole market amounted to RMB300.921 billion, a decrease of 30.2% from the beginning of the year.

Operation initiatives and business development

In terms of the margin financing and securities lending business, the Company actively seized the opportunities to adjust and optimize the business structure and refine business management, leading to significant increase in business scale throughout the year. As of the end of the Reporting Period, the balance of margin financing and securities lending of the Company reached RMB22.564 billion, representing an increase of 75.56% as compared with the beginning of the year, which was 17 percentage points higher than the market growth, the market share increased from 1.26% at the beginning of the year to 1.39%, and the guarantee maintenance ratio remained higher than the market average level. In particular, the balance of margin financing amounted to RMB20.672 billion, an increase of 63.36% over the beginning of the year, and the balance of securities lending amounted to RMB1.892 billion, an increase of 855.56% over the beginning of the year. The Company actively expanded the source of securities for securities financing and developed good cooperative relationship with publicly offered funds, other securities firms, group entities, shareholder entities and other institutions.

In terms of the collateralized stock business, the Company adhered to the keynote of "risk control and scale reduction" and continued to carry out clearing up and risk mitigation. As of the end of the Reporting Period, the balance of the Company's collateralized stock business amounted to RMB15.362 billion, all of which were contributed with proprietary funds, and the business scale reduced by over RMB5 billion throughout the year with the risks effectively released.

Development plan and outlook

In the future, the Company will seize the opportunities from the comprehensive in-depth reform of the capital market and actively develop its advantageous business. On the one hand, it will create new profit points and development advantages in margin financing and securities lending business by expanding the reserve of high-quality securities, optimizing the client structure and improving the layered service system. On the other hand, it will strengthen the risk awareness in business development and further improve the risk management level to facilitate steady business growth.

Section IV Report of the Board

Other business

OTC business

In 2020, given the intensified market volatility, prevention of systemic financial risks remained as the keynote of regulation throughout the year. In the OTC market, under the uncertain market environment, the focus of regulation continued to fall on risk prevention and control, thus imposing significant restriction on business scope and product type.

The Company's OTC business closely followed the changes in regulatory policies and market environment and fully utilized the functional advantages of OTC market platform to empower the wealth management business of the Company. During the Reporting Period, the Company deepened product research, enriched and optimized the OTC product system and strengthened product selection and risk tracking; expanded and strengthened the trading business to serve and meet multi-level needs of customers; leveraged the functions of OTC market, deepened system construction, and strengthened intra-group cooperation and the services of sales branches. During the Reporting Period, the cumulative total amount of the Company's OTC business amounted to RMB44.752 billion, of which the scale of issuance and sales (including subscription) reached RMB43.097 billion, representing an increase of 49.22% year-on-year; and the transaction business totaled RMB422 million, up 85.09% year-on-year. Meanwhile, the Company developed its OTC business based on OTC platform and actively facilitated the incubation of business innovation, including implementing the employee stock ownership plan and exploring new wealth management products.

Looking forward, by adhering to the "middle platform strategy" of "consolidating foundation, strengthening middle platform and constructing an ecosystem", the Company's OTC business will strengthen middle platform product management, deepen group collaboration and support the wealth management business.

Custody business

During the Reporting Period, the asset management industry achieved steady progress with continuous growth in total size of publicly offered funds and private equity funds, which was beneficial to the development of custody industry. At the same time, the CSRC approved the qualification of several domestic and foreign institutions to carry out publicly offered fund custody business, increasing the number of institutions qualified for public fund custody to 56, which intensified the industry competition and led to more prominent Matthew effect.

Section IV Report of the Board

During the Reporting Period, the Company continued to promote the construction of the "smart custody" operational management and service system, effectively enriched the content of customer services and enhanced operational efficiency; further strengthened the services for key customers, and established a variety of service systems for publicly offered funds, inter-bank bond trading, trust outsourcing, futures asset management and quantitative private equity, thereby supporting both custodian and brokerage settlement modes for custody products. During the Reporting Period, the Company's business scale, product quantity and customer base increased by 68.00%, 44.58% and 23.97%. respectively, reaching a new level of business development. During the Reporting Period, the Company was awarded the "Best Private Equity Fund Service Organization in 2019 (2019 年 度 最 佳 私 募 基 金 服 務 機 構 )" by Shanghai Equity Investment Association and the "2020 Most Influential Securities Firm for Custody Service (2020 年 度 最 具 影 響 力 託 管 券 商 )" under the 2020 China Jinding Award by National Business Daily.

In the future, with a customer-oriented approach, the Company will strengthen system construction, optimize service processes, enhance its brand value and deepen group collaboration in order to provide more integrated, comprehensive and high-quality services to institutional customers.

1. Investment Banking
   The Company mainly engages in investment banking business through Orient Investment Banking, a wholly-owned subsidiary of the Company, and the Fixed Income Business Department. The principal businesses of Orient Investment Banking are stocks and corporate bonds underwriting and sponsoring, enterprise bonds and asset-backed securities underwriting, financial advisory services relating to M&A and restructuring, listing on NEEQ and enterprise reform. The Fixed Income Business Department is principally engaged in underwriting services for treasury bonds and financial bonds. During the Reporting Period, investment banking business realized segment revenue and other income of RMB1.695 billion, accounting for 5.96% of the total income.
   Stock underwriting Market environment
   During the Reporting Period, the implementation of the new Securities Law brought new opportunities for the equity capital market. The registration system of Sci-Tech Innovation Board became more mature, the registration system of ChiNext was officially implemented, and the new regulations on refinancing brought more opportunities to business entities for financing in capital market. According to the date of Wind, the overall size of IPO financing amounted to RMB469.963 billion in 2020 with 396 newly listed companies, representing a significant year-on-year increase of 95.07%. The size of financing through issuance of additional shares (including asset portion) amounted to RMB832.762 billion with 361 issuers, representing a year-on-year increase of 43.82%.

Section IV Report of the Board

Operation initiatives and business development

In 2020, Citi Orient Securities Co., Ltd. ("Citi Orient") completed the change of its shareholding and changed its name to Orient Investment Banking, and became a wholly-owned subsidiary of DFZQ. During the Reporting Period, Orient Investment Banking seized the good opportunities from the implementation of registration system of Sci-Tech Innovation Board and ChiNext, leveraged the experience from years of operation and development of Sino-foreign joint venture, and fully utilized the Group's resource advantages, thereby quickly achieving good results in IPO and other sectors. During the Reporting Period, Orient Investment Banking completed 21 equity financing projects, representing a year-on-year increase of 90.91%, with lead underwriting amount of RMB17.082 billion, representing a year-on-year increase of 57.04%.

The Company participated in 11 IPO projects as underwriter, representing a year-on-year increase of 266.67%, with total underwriting amount of RMB10.235 billion, representing a year-on-year increase of over 500%. Flagship projects with market influence such as CICC, Sanyou Medical and Lion Electronics were widely recognized by the industry, and the number of projects in reserve and filed for Sci-Tech Innovation Board and ChiNext also showed good growth momentum. For secondary offering, the Company participated in ten refinancing projects in 2020 with underwriting amount of RMB6.847 billion, including several representative projects such as Bank of Ningbo, Wingtech Technology and Joyson Electronics.

Moreover, Orient Investment Banking strictly implemented quality control and risk control on the projects. In 2020, 16 IPO projects sponsored by the Company passed the administrative review, with an approval rate of 100%, of which 15 projects passed the administrative review in the second half of the year, and there was no cancellation of review or suspension of voting, making it one of the only five sponsors with over 15 reviewed projects that met the above conditions.

During the Reporting Period, Orient Investment Banking won the "2020 China Growth Enterprise Market Investment Bank Junding Award (2020 中 國 區 創 業 板 投 行 君 鼎 獎 ), the "2020 China Asset Securitization Team Junding Award (2020 中 國 區 資 產 證 券 化 團 隊 君 鼎 獎 )" and the "2020 China Growth Enterprise Market Project Junding Award (for Pharmaron IPO Project) (2020 中 國 區 創 業 板 項 目 君 鼎 獎 ( 康 龍 化 成 IPO 項 目 ))" by Securities Times and the "2020 Top 10 Up-and-Coming Investment Bank" by China Business Network.

Section IV Report of the Board

The table below sets forth the breakdown of equity financing transactions with the Company acting as lead underwriter:

Development plan and outlook

In 2021, Orient Investment Banking will actively grasp the opportunities from the market and policies to help more business entities to get access to direct financing channels; diligently implement the requirements of relevant rules, effectively fulfill the responsibilities as an intermediary, perform the function of "gatekeeper" of the capital market, and contribute to facilitating the high-quality development of the whole industry. Moreover, in response to the reform of registration system, Orient Investment Banking will strengthen the building of dedicated teams for pharmaceutical and medical, Internet services, electronics, high-end equipment manufacturing and other relevant industries, thereby developing industry-based customer coverage and project execution capabilities and promoting cooperation with primary and secondary resources of DFZQ.

Section IV Report of the Board

Bond underwriting Market environment

In 2020, affected by the pandemic of COVID-19, the global economy experienced downturn which led to accommodative monetary policies, and the yield of China's 10-year treasury bond hit a 10-year low before a V-shaped reversal. In this context, the overall yield of the bond market showed a V-shaped pattern in 2020. In particular, from January to April 2020, more accommodative monetary policies were implemented to hedge against the impact of the pandemic, leading to continuous decrease in bond yield; as the monetary policies gradually returned to neutral position in May 2020, the bond market experienced a bull-to-bear transition during which the yield of credit bonds generally followed the fluctuation of market liquidity, and the "Yongcheng Coal Default" at the end of the year drove down the market sentiment, significantly widening the credit spread which was still in repairing process.

In the primary market, the size of bond issuance increased significantly with a total of RMB56.80 trillion of bonds issued in 2020, representing a year-on-year increase of 25%, and a total of RMB19.06 trillion of credit bonds were issued, representing an increase of 28%. Affected by the fiscal deficit, the growth rate of interest rate bonds issued in 2020 far exceeded that of last year with a total of RMB7 trillion of treasury bonds issued during the year, including RMB1 trillion of special treasury bonds for combating the pandemic of COVID-19.

Operation initiatives and business development

During the Reporting Period, the Company conducted 184 lead underwriting projects, with a total underwritten amount of RMB132.202 billion.

During the Reporting Period, Orient Investment Banking put great efforts in recruiting underwriting talents for its bond business, adopted the business strategy of further developing the advantageous areas and strengthening the cultivation in new areas, and achieved growth in scale and income of bond underwriting business. It also provided services to more high-quality customers, including Pudong Development Bank, Bank of Communications, Shanghai Land, Shanghai State-owned Assets Management, AVIC Leasing, Zhuhai Huafa and Xiamen Port Holdings, underwrote the first tourism-specific corporate bond in the market, and successfully issued REITS, RMBS, pandemic prevention and control bonds and other innovative bonds to fully support the development of real economy. In 2020, despite the increase in default cases in the bond market, Orient Investment Banking maintained "zero default" in bond underwriting projects. During the Reporting Period, Orient Investment Banking won the "Sponsoring and Underwriting Service Award" in the member appraisal campaign of Shanghai Stock Exchange.

Section IV Report of the Board

During the Reporting Period, the Company's sales of interest rate bonds continued to consolidate its advantages in the industry, and the credit bond distribution business achieved steady progress. Book-entry treasury bond underwriting, CDB financial bond underwriting and Agricultural Development Bank financial bond underwriting stood among the top two brokers in the industry. The Company also actively participated in the underwriting of local government bonds, and continued to rank second in the industry in terms of underwriting amount of local government bonds on SSE and Shenzhen Stock Exchange. The Company was awarded the "Outstanding Underwriter" and "Non-bank Underwriter of Local Government Bonds with Outstanding Contribution" in the China bond market by China Central Depository and Clearing Co., Ltd.; the "Outstanding Underwriter in Interbank Market" and "Outstanding Underwriter in Stock Exchanges" in financial bonds underwriting category by China Development Bank; the "Outstanding Underwriter" in financial bond category and "outstanding Underwriter of Financial Bonds in Stock Exchanges" by Agricultural Development Bank of China.

In 2020, the debt financing instruments underwritten by the Company as lead underwriter amounted to RMB27.549 billion, representing a year-on-yearincrease of 80%. In 2020, the Company ranked 10th in the industry for its debt financing business. In particular, the Company achieved good results in underwriting of poverty alleviation notes, green debt financing instruments and asset-backedcommercial paper, which ranked 4th, 5th and 6th among the securities firms. The Company's debt financing business also won the "2020 China Bond Financing Team Junding Award (2020 年 中 國 區 債 券 融 資 團 隊 君 鼎 獎 )" and "2020 China Bond Project Junding Award (2020 年 中 國 區 債 券 項 目 君 鼎 獎 )".

Section IV Report of the Board

The table below sets forth the breakdown of bonds underwritten by the Company as lead underwriter:

Section IV Report of the Board

Development plan and outlook

In the future, the Company will seize the strategic opportunities from capital market reform and development and the construction of an international financial center in Shanghai, adhere to the business strategy of "growth stabilization, risk control and reform promotion", and strive to secure a leading position in terms of bond underwriting scale.

To deepen group collaboration, the Company will further consolidate the intra-group cooperation, leverage the Group's license resources and extensive branch network to create synergy and secure more customers, thereby increasing the scale and income of underwriting of corporate debentures, corporate bonds, ABS, USD bonds, financial bonds, non-financial corporate debt financing instruments and other products.

The Company will strengthen the innovation of bond varieties, and increase its efforts in developing innovative products such as special corporate bonds, fund bonds, public REITs and the business of transformation from non-standard assets to standard assets in order to increase the underwriting scale of innovative bonds.

To strengthen regional development and innovative service, the Company will make full use of the existing government resources in each region of the bond business, leverage the Group's strengths to strengthen regional development, and serve local governments and state-owned enterprises by providing innovative, diversified and comprehensive products including bonds, equity, asset management, direct investment and funds in order to increase income sources and scale.

Financial advisory services

Market environment

In 2020, the M&A and restructuring business generally showed a trend of low passing rate and tightening requirements of administrative review. In particular, various travel restrictions and quarantine policies caused by the pandemic made the execution of cross-border M&A projects more difficult, and the business performance dampened by the pandemic also affected enterprises' ability and willingness to carry out M&A, thus increasing the uncertainty of the transactions.

Section IV Report of the Board

Operation initiatives and business development

In 2020, Orient Investment Banking carried out M&A business in an orderly manner, and completed four merger and asset reorganization projects with total amount of approximately RMB2,724,363,000. The Company completed three merger and reorganization projects subject to administrative review (Bosun, Ninestar and Shanghai Phoenix) and one cross-border acquisition project (acquisition of 80% equity interest in ficonTEC by Feikong Taike). Orient Investment Banking has outstanding execution capability as an independent financial advisor in M&A and restructuring transactions that are subject to administrative review, and continued to maintain a 100% passing rate for its M&A and restructuring projects in 2020, ranking 7th in the industry in terms of number of projects passing administrative review and 13th in the industry in terms of amount of such projects.

Development plan and outlook

In the future, Orient Investment Banking will focus on leading enterprises with advantages in communications and semiconductors, advanced manufacturing, automotive, medical and consumer products sectors, attach importance to internal collaboration within the Group and actively pursuing potential M&A projects. At the same time, in view of the scarcity of high-quality targets and high premiums in China, Orient Investment Banking will proactively encourage buyers to look for overseas targets and put great efforts in developing cross-border M&A business.

1. Headquarters and Others
   Headquarters and others business of the Company mainly include the headquarters' treasury business, overseas business and financial technology business. During the Reporting Period, the headquarters and others business realized segment revenue and other income of RMB2.900 billion, accounting for 10.20% of the total.
   Treasury business Market environment
   In 2020, the monetary market of China was in a counter-cyclical adjustment phase for "growth stabilization" in the first half of the year, and subsequently shifted to margin tightening of total liquidity and stable and neutral phase for "precise guidance". As a result of the margin tightening of policies, the liquidity stratification began to emerge as reflected in the repurchase interest rate. Credit bond defaults further divided the liquidity between banks and non-bank institutions, posing a greater challenge for liquidity management of securities firms.

Section IV Report of the Board

Operation initiatives and business development

During the Reporting Period, the Company continued to optimize the reserve asset structure to enhance the safety margin of liquidity with the goal of improving the liquidity risk management system and strengthening the refine management of financing, thereby achieving an effective unity of capital safety, liquidity and profitability. Amid the intensified fluctuation in the monetary market, the Company managed to stabilize its capital to ensure that liquidity indicators continue to meet regulatory requirements. As of the end of the Reporting Period, the liquidity coverage ratio and net stable capital ratio of the Parent Company were 245.56% and 151.06%, respectively, much higher than the regulatory warning line of 120%.

Development plan and outlook

In the future, the Company will continue to improve the liquidity management system, optimize internal fund transfer pricing, and strengthen the overall liquidity management framework of the Group. It will also steadily promote the centralized and overall management of corporate debt financing tools, continuously improve the debt structure and focus on both safety margin of liquidity and economic benefits.

Overseas business Market environment

In 2020, in the complex and ever-changing international political and economic situation, the Hong Kong financial market was impacted by the combined effects of the COVID-19 pandemic, the oil price disputes, the China-United States trade war and other factors, which weighed down the Hang Seng Index by 3% during the year and caused significant impact on market sentiment and business operation.

Section IV Report of the Board

Operation initiatives and business development

The Company engages in overseas business through Orient Finance Holdings and Orient Securities International, wholly-owned subsidiaries of the Company, and their subsidiaries. In particular, as the Group's international business platform, Orient Securities International conducts securities brokerage, futures brokerage, asset management, investment banking, margin financing and securities lending and other businesses through wholly-owned subsidiaries licensed by the SFC. In face of the complex external environment, Orient Securities International steadily carried out business operation and management, effectively prevented and resolved major risks, stabilized its fundamentals, and enhanced its capital strength, thereby further consolidating the foundation for long-term development of its international business.

For brokerage business, Orient Securities International launched the Orient Global Fortune APP, facilitated the transformation of wealth management with financial technology, and basically established the "Trinity" institutional trading ecosystem. As of the end of the Reporting Period, the total number of customers exceeded 230,000, representing a year-on-year increase of 760%, and ranked 26th on the Hong Kong Stock Exchange. For asset management business, Orient Securities International developed diverse product lines and hit a new high in terms of management scale. As of the end of the Reporting Period, the total size of assets under management of the Company amounted to approximately RMB14.6 billion, standing among the top three China-based securities firms with operation in Hong Kong and representing a year-on-year increase of approximately 51%. During the Reporting Period, the Company successfully launched the first product under Dong Fang Hong Mingye Equity Fund and completed the first round of fund raising, continuously strengthening the presence of the Dong Fang Hong brand in overseas market. For fixed income business, through strict risk management and active market operations, Orient Securities International effectively resolved the liquidity crisis in international financial market at the beginning of the year and steadily improved investment returns. During the Reporting Period, Orient Securities International gradually improved the strength of its investment banking business, and ranked third among China-based securities firms with operation in Hong Kong in terms of underwriting amount of high-yield USD bonds issued by China-based companies, and participated in the Hong Kong listing of GDS and the IPO of Tigermed.

During the Reporting Period, Orient Securities International won the "Best China-based Securities Firm" under the 10th China Securities Golden Bauhinia Awards, the "Best Investment Institution of G3 Bonds in Asia" by the "The Asset" and other awards. "Dong Fang Hong Profit Increment Fund" won the "Best Offshore RMB Fund (5-Year) Award" by Insight & Mandate. In the 2020 Offshore China Fund Awards organized by Bloomberg and China Asset Management Association of Hong Kong, "Global Superior Choice Series Fund One SP" was awarded the "Winner of Best Total Return - Greater China Equity (1 Year)", and "Bosera-Orient Sun Rise Greater China Bond Fund" was awarded the "1st Runner-up of Best Total Return - Greater China Fixed Income (1 Year)"

Section IV Report of the Board

Development plan and outlook

In the future, by adhering to the general keynote of stabilizing growth, controlling risks, bolstering areas of weakness and promoting reforms, Orient Securities International will expand and strengthen its advantageous businesses, focus on developing potential businesses and improve areas of weakness. It will also maintain the advantage of buyside business, expand the scale of asset management, accelerate the wealth management transformation of brokerage business, and enrich the "trinity" institutional trading ecosystem; strengthen the close collaboration between direct investment, investment banking and equity capital market, strengthen the sellside bond financing business, and improve the investment banking business chain; expand the business in note market, and explore market making and strategic trading businesses.

Financial technology

Market environment

"Finance + Technology" has transformed from a technological revolution to a strategic engine that drives high-quality business development and systematic services, and has become a key tool to enhance the core competitiveness of securities firms through digital transformation and technology driven approach. Currently, securities firms are actively responding to the wave of financial technology to seize the opportunities of a new era by leveraging their own advantages to promote fintech-empowered business development and deepen digital transformation.

Operation initiatives and business development

The Company attaches great importance to the layout in the field of financial technology, and leverages cloud computing, big data and artificial intelligence to extend the digital integrated financial service experience to all customers and employees, so as to cover all business needs such as customer service, investment decision-making and risk control decision-making.

The Company actively promotes the independent research and development of financial technology products to enhance its core competitiveness in all aspects. During the Reporting Period, the Company introduced the brand of Dong Fang Rui series and launched a new generation of distributed high-speed institutional trading system, and recorded significant increase in number of users and trading volume; independently developed the Super Investment Management Platform, and continuously expanded the scope of business access and application; continued to optimize the Orient Winners APP and achieved great results in facilitating product sales, wealth management transformation and consolidation of basic services; developed and improved the Orient Business Platform to promote the digital transformation of business branches; created the DFZQ artificial intelligence platform - Orient Brain, and built an overall structure comprising the AI foundation platform, the middle platform and the application layer to support the intelligent transformation of business operation.

Section IV Report of the Board

The Company explored and carried out digital transformation by applying financial technology to all business lines. It continued to build several competence centers, established the financial data middle platform, facilitated the construction of a group-level risk control system, and launched the IT digital management project to promote the implementation of digital transformation. It also launched the intelligent operation collaboration platform, the "Operation Cloud" platform and the intelligent fund settlement platform to further strengthen the application of big data in business operation.

During the Reporting Period, the Company won the Shanghai High-tech Achievement Transformation Award in 2020 for its development achievements in artificial intelligence and arbitrage system, the project of "Abnormal Securities Transaction Monitoring and Identification" was awarded the first prize of the 2019 Securities and Futures Industry Financial Technology Research and Development Center (Shenzhen), "A New Generation of Institutional Trading Service Platform based on Distributed Architecture" won the third prize under the 7th Securities and Futures Science and Technology Awards, and the "FICC Business Intelligent Trading Platform" won the award of excellence under the 7th Securities and Futures Science and Technology Awards.

Development plan and outlook

In the future, the Company will continue to increase its efforts in financial technology innovation and strengthen its abilities in artificial intelligence and other innovative technologies to support the Company's digital and intelligent applications; put more efforts into independent research and development to form the dual drivers of technology and business with deep integration; continuously carry out data management, build a group-level data center and promote the construction of the Group's risk control system; facilitate IT digital management, implement a shared middle platform and promote structural transformation; build a smart operation and maintenance system and develop the capability of integrated information security protection.

Section IV Report of the Board

1. Major items in consolidated statement of profit or loss
   1. Revenue and other income
   During the Reporting Period, the Group realized revenue and other income of RMB27.647 billion, up by RMB3.296 billion or 13.54% over the same period of last year. The change in revenue and other income was mainly attributable to the year-on-year increase in revenue from main businesses of proprietary trading of securities, securities brokerage, asset management and investment banking as well as the investment income from China Universal. Details were as follows:
   Commission and fee income amounted to RMB7.954 billion, accounting for 28.77% of the total and representing an increase of 57.48%, which was primarily attributable to the increase in fee income from brokerage business, asset management business and investment banking business of the Company.
   Interest income amounted to RMB5.538 billion, accounting for 20.03% of the total and representing a decrease of 9.00%, which was primarily attributable to the decrease in interest income from collateralized stock repurchase.
   Net investment gains amounted to RMB5.175 billion, accounting for 18.72% of the total and representing an increase of 37.62%, which was primarily attributable to the increase in gains from disposal of financial assets at fair value through profit or loss and gains from change in fair value of financial liabilities at fair value through profit or loss.
   Other revenue and income amounted to RMB8.980 billion, accounting for 32.48% of the total and representing a decrease of 5.01%, which was primarily attributable to the decrease in revenue from sales of bulk commodity business of subsidiaries.

Section IV Report of the Board

Components of the Group's revenue and other income for the Reporting Period are set out below:

2. Total expenses

During the Reporting Period, total expenses of the Group reached RMB26.073 billion, up by RMB3.986 billion or 18.05% year-on-year, which was mainly attributable to the increase in revenue which led to corresponding increase in major operating costs related to revenue; and the increase in provision for impairment after the Company prudently assessed the expected credit risks of collateralized stock projects. Details were as follows:

Staff costs were RMB5.063 billion, up by 38.54%, which was mainly attributable to the increase in accrued salary expenses related to business income.

Interest expenses were RMB4.759 billion, down by 8.39%, which was mainly attributable to the decrease in payment of interest expense of financial assets sold under repurchase agreements.

Commission and fee expenses were RMB832 million, up by 55.57%, which was mainly attributable to an increase in fee expenses from agency securities sales business.

Depreciation and amortization expenses were RMB662 million, up by 19.41%, which was mainly attributable to the increase in depreciation of fixed assets and right-of-use assets and amortization of intangible assets.

Other expenses, including operation expenses, and tax and surcharges, were totally RMB10.871 billion, down by 2.09%, which was mainly attributable to the decrease in sales cost of bulk commodities trading conducted by subsidiaries.

Section IV Report of the Board

Impairment losses were RMB3.885 billion, representing an increase of 271.98%, which was mainly attributable to an increase in expected credit impairment loss accrued for stock pledge repurchase business.

The components of total expenses of the Group during the Reporting Period are set out as follows:

Section IV Report of the Board

1. Contribution to social welfare
   In 2020, the Group invested a total of RMB35.1169 million in charitable donations and other public welfare activities.
2. Cash flow
   During the Reporting Period, the Company recorded RMB1.189 billion net decrease in cash and cash equivalents, including:
3. 1. Net cash from operating activities amounted to RMB1.714 billion, which was mainly attributable to:
   2. 1. RMB26.463 billion of net cash inflow was attributable to increase in account payables to brokerage clients;
      2. RMB5.473 billion of net cash inflow was attributable to profit before income tax;
      3. RMB2.153 billion of net cash inflow was attributable to increase in financial liabilities at fair value through profit or loss and derivative financial liabilities;
      4. RMB26.393 billion of net cash outflow was attributable to increase in restricted cash or cash held on behalf of clients and clearing settlement funds.
   3. Net cash from investment activities was RMB3.462 billion, which was primarily attributable to net cash inflow of RMB3.853 billion as a result of receipt of investment dividend and interest.

Section IV Report of the Board

1. 1. Net cash used in financing activities amounted to RMB6.366 billion, which was mainly attributable to
   2. 1. net cash outflow of RMB3.331 billion as a result of payment of interests of bonds, short-term payables and borrowings;
      2. net cash outflow of RMB1.170 billion as a result of issuance, borrowing and repayment of bonds, short-term financing bills payables and borrowings.
2. Analysis on principal components of consolidated statement of financial position
   1. Overview of consolidated statement of financial position
   As at the end of the Reporting Period, the Group achieved total assets of RMB291.117 billion, total liabilities of RMB230.886 billion and total equity of RMB60.231 billion. Analysis on items of consolidated statement of financial position is set out below:

Section IV Report of the Board

Section IV Report of the Board

Note: Percentages for assets and liabilities refer to the share in total assets and the share in total liabilities respectively.

Section IV Report of the Board

1. Assets
   As at the end of the Reporting Period, the Group's total assets reached RMB291.117 billion, an increase of RMB28.146 billion or 10.70% from the end of last year, which was mainly attributable to an increase in bank balances, clearing settlement funds and advance to financing customers. In the Group's assets, currencies, clearing settlement funds, deposits with exchanges and non-bank financial institutions amounted to RMB89.340 billion, an increase of RMB25.512 billion from the end of last year, accounting for 30.69% of total assets. Financial investment and derivative financial assets amounted to RMB152.684 billion, an increase of RMB2.251 billion from the end of last year, accounting for 52.45% of total assets. Advance to financing customers, financial assets held under resale agreements and account receivables amounted to RMB36.506 billion, a decrease of RMB1.934 billion from the end of last year, accounting for 12.54% of total assets. Long-term equity investment, fixed assets and others amounted to RMB12.587 billion, an increase of RMB2.317 billion from the end of last year, accounting for 4.32% of total assets. During the Reporting Period, the Company maintained stable asset scale with rational structure and sufficient liquidity.
2. Liabilities
   As at the end of the Reporting Period, the Group's total liabilities reached RMB230.886 billion, an increase of RMB21.926 billion or 10.49% from the end of last year. The gearing ratio, net of account payables to brokerage clients and funds payable to securities issuers, was 73.13%, a decrease of 2.62 percentage points from the end of last year. In the Group's liabilities, borrowings, short-term financing bills payables, funds due to banks and other financial institutions, bond payables and financial assets sold under repurchase agreements amounted to RMB141.632 billion, a decrease of RMB6.294 billion from the end of last year, accounting for 61.34% of total liabilities. Financial liabilities held for trading and derivative financial liabilities amounted to RMB15.081 billion, a decrease of RMB0.193 billion from the end of last year, accounting for 6.53% of total liabilities. Account payables to brokerage clients amounted to RMB66.643 billion, an increase of RMB26.463 billion from the end of last year, accounting for 28.86% of total liabilities. Accrued staff cost, current tax liabilities, contractual liabilities and others amounted to RMB7.530 billion, an increase of RMB1.950 billion from the end of previous year, accounting for 3.27% of total liabilities.

Section IV Report of the Board

4. Borrowings and bond financing

As at the end of the Reporting Period, the Company's total borrowings and bond financing were RMB88.771 billion. Set out below is the breakdown of borrowings and bond financing of the Company as at the end of the Reporting Period:

For details of interest rate and maturity profiles of borrowings and bonds financing, please refer to Notes 40, 41, 47 and 49 to the consolidated financial statements herein.

Except for the liabilities disclosed in this report, as at the end of the Reporting Period, the Company had no outstanding mortgage, charges, bonds, other debt capital, liabilities under acceptance or other similar indebtedness, lease purchase and finance lease commitment, guarantee or other material contingent liabilities.

1. Explanations on change in the scope of consolidation of the statements
2. 1. As compared with the end of last year, the Group added eight entities into its scope of consolidation, which included three, three and two structured entities newly consolidated by Orient Securities Capital Investment, Orient Securities Innovation Investment and Orient Finance Holdings, respectively.
   2. As compared with the end of last year, the Group did not exclude any entities from its scope of consolidation during the year.

Section IV Report of the Board

1. Analysis on industrial operations
   1. New establishment and disposal of the Company's securities branches and subsidiaries during the Reporting Period
2. 1. Capital increase in subsidiaries
   2. • During the Reporting Period, the Company contributed additional capital of RMB800 million to Orient Securities Innovation Investment, a wholly-owned subsidiary, and completed the industrial and commercial registration of change of registered capital from RMB5 billion to RMB5.8 billion. This capital increase has been considered and approved at the president working meeting of the Company.

1. • During the Reporting Period, the Company contributed additional capital of RMB500 million (equivalent to HKD554,078,015.00 calculated based on the exchange rate between RMB and HKD at the time of actual payment of capital contribution) to Orient Finance Holdings, a wholly-owned subsidiary, and completed the change of share capital information with the Companies Registry of Hong Kong, and the paid-in capital of Orient Finance Holdings was increased from HKD2.2 billion to HKD2,754,078,015.00. This capital increase has been considered and approved at the president working meeting of the Company.
2. New securities branches established by the Company
   During the Reporting Period, the Company established 9 securities branches, and the total number of securities branches of the Company reached 177 branches. Details of the newly established branches are set out in the table below:

Section IV Report of the Board

Section IV Report of the Board

1. Relocation of the Company's securities branches
2. 1. DFZQ Beijing Anyuan Road Securities Branch was relocated within the same city. The branch was relocated from No.5 Xiaoguan North Road, Anyuan Road, Chaoyang District, Beijing, the PRC to No.202 and No.203, 2/F and No.301, 3/ F, Building 27, No.8 Beichen East Road, Chaoyang District, Beijing, the PRC. The name of the branch was changed to DFZQ Beijing Anli Road Securities Branch.
   2. DFZQ Shenyang Huigong Street Securities Branch was relocated within the same city. The branch was relocated from 1-3/F, Block CD, No. 167 Huigong Street, Shenhe District, Shenyang, Liaoning, the PRC to Gates 2 and 3, No.423 Shifu Road, Shenhe District, Shenyang, Liaoning, the PRC. The name of the branch was changed to DFZQ Shenyang Shifu Road Securities Branch.
   3. DFZQ Zhengzhou Commercial Park Securities Branch was relocated within the same city. The branch was relocated from No. 1801, 18/F, Building 1, No. 2 Commercial Central Park, Zhengdong New District, Zhengzhou, Henan, the PRC to No.109 Courtyard, Huanghe Road, Jinshui District, Zhengzhou, Henan, the PRC. The name of the branch was changed to DFZQ Zhengzhou Huanghe Road Securities Branch.
   4. DFZQ Putian Licheng Middle Avenue Securities Branch was relocated within the same city. The branch was relocated from 1-3/F, No. 2299 Licheng Middle Avenue, Longqiao Street, Chengxiang District, Putian, Fujian, the PRC to 1-2/ F, No.1102 and No.1106 Shengli North Street, Zhenhai Street, Licheng District, Putian, Fujian, the PRC. The name of the branch was changed to DFZQ Putian Shengli North Street Securities Branch.
   5. DFZQ Lhasa Jinzhu West Road Securities Branch was relocated within the same city. The branch was relocated from No.158 Jinzhu West Road, Lhasa, Tibet Autonomous Region, the PRC to No.123 Jinzhu West Road, Lhasa, Tibet Autonomous Region, the PRC. The name of the branch remains unchanged.
   6. DFZQ Shanghai Minhang District Gulong Road Securities Branch was relocated within the same city. The branch was relocated from No.218 Gulong Road, Minhang District, Shanghai, the PRC to Unit 201, 2/F, Building 85, No.700 Yishan Road, Xuhui District, Shanghai, the PRC. The name of the branch was changed to DFZQ Shanghai Xuhui District Yishan Road Securities Branch.

Section IV Report of the Board

1. DFZQ Shanghai Pudong New Area Yaohua Road Securities Branch was relocated within the same city. The branch was relocated from 1/F and 4-6/F, No.58 Yaohua Road, Pudong New Area, Shanghai, the PRC to Room 107, 1/F and 16/F, No.488 Yaohua Road, Pudong New Area, Shanghai, the PRC. The name of the branch remains unchanged.
2. DFZQ Nanchong Wenhua Road Securities Branch was relocated within the same city. The branch was relocated from No.501, 5/F, Universal House Hotel, No.1 Wenhua Road, Shunqing District, Nanchong, Sichuan, the PRC to 1/F and 3/F, No.83 Hongguang Road, Shunqing District, Nanchong, Sichuan, the PRC. The name of the branch was changed to DFZQ Nanchong Hongguang Road Securities Branch.
3. DFZQ Shanghai Changning District Zunyi Road Securities Branch was relocated within the same city. The branch was relocated from No. 567 Zunyi Road, Changning District, Shanghai, the PRC to Room 101, No. 88 Zunyi South Road, Changning District, Shanghai, the PRC. The name of the branch remains unchanged.
4. DFZQ Shanghai Pudong New Area Fute West Third Road Securities Branch was relocated within the same city. The branch was relocated from Room 936, Block 10, No. 77 Fute West Third Road, Waigaoqiao Free Trade Zone, Pudong New Area, Shanghai, the PRC to Room 1517, Block B, South Building, No. 515 Qifan Road, Pudong New Area, Shanghai, the PRC. The name of the branch was changed to DFZQ Shanghai Pudong New Area Qifan Road Securities Branch.
5. DFZQ Shanghai Qingpu District Huaxu Highway Securities Branch was relocated within the same city. The branch was relocated from No. 999 Huaxu Highway, Qingpu District, Shanghai, the PRC to Rooms 109 and 206, No. 29 and 33 Suhong Road, Minhang District, Shanghai, the PRC. The name of the branch was changed to DFZQ Shanghai Minhang District Suhong Road Securities Branch.
6. DFZQ Shanghai Songjiang District Huting North Road Securities Branch was relocated within the same city. The branch was relocated from Rooms 901-8,901-9 and 901-10, No. 1, Lane 199 Huting North Road, Songjiang District, Shanghai, the PRC to Rooms 901-8,901-9 and 901-10 of No. 1 and Room 127 of No. 5, Lane 199 Huting North Road, Songjiang District, Shanghai, the PRC. The name of the branch remains unchanged.

Section IV Report of the Board

1. 1. DFZQ Yantai Yingchun Street Securities Branch was relocated within the same city. The branch was relocated from 18/F, Jinmao Center, No. 170 Yingchun Street, Laishan District, Yantai, Shandong Province, the PRC to Inner No.102, No. 171 Yingchun Street, Laishan District, Yantai, Shandong Province, the PRC. The name of the branch remains unchanged.
2. Relocation of the Company's futures branches
3. 1. Shanghai Xinzha Road Branch of Orient Futures Co., Ltd was relocated within the same city. The branch was relocated from Room 407, Block 1, No. 1418 Xinzha Road, Jing'an District, Shanghai, the PRC to Room 1107, No. 458 Fushan Road, China (Shanghai) Pilot Free Trade Zone. The name of the branch was changed to Shanghai Fushan Road Branch of Orient Futures Co., Ltd.
   2. Beijing Anyuan Road Branch of Orient Futures Co., Ltd was relocated within the same city. The branch was relocated from 6/F, Building 5, Century Jiayuan, No. 45 Xiaoguan North Lane, Chaoyang District, Beijing, the PRC to 302 and 303, 3/F, Building No. 27, Courtyard No. 8, Beichen East Road, Chaoyang District, Beijing, the PRC. The name of the branch was changed to Beijing Anli Road Branch of Orient Futures Co., Ltd.
   3. Guangzhou Branch of Orient Futures Co., Ltd was relocated within the same city. The branch was relocated from Room 2721 & 2722, Tower B, Sinopec Building, No. 191 Tiyuxi Road, Tianhe District, Guangzhou, Guangdong Province, the PRC to Room 2304, No. 365-1, Tianhe North Road, Tianhe District, Guangzhou, the PRC. The name of the branch remains unchanged.
   4. Dongying Branch of Orient Futures Co., Ltd was relocated within the same city. The branch was relocated from Room 902, Block 1, No. 53 Fuqian Street, Dongying District, Dongying, Shandong Province, the PRC to Room 903, Block 1, Guomao Building, No. 53 Fuqian Street, Dongying District, Dongying, Shandong Province, the PRC. The name of the branch remains unchanged.
   5. Chongqing Branch of Orient Futures Co., Ltd was relocated within the same city. The branch was relocated from 26-5, Jiafa Center Office Building, No. 36 Nanping West Road, Nan'an District, Chongqing, the PRC to 4-3, No. 2 Qingyun Road, Jiangbei District, Chongqing, the PRC. The name of the branch remains unchanged.

Section IV Report of the Board

1. Specific explanation on account standardization
   In strict compliance with the relevant requirements on account management by the CSRC and China Securities Depository and Clearing Corporation Limited, the Company further optimized its long-term account management mechanism, and made further clean-up to the unqualified accounts, small-amount-dormant accounts and dormant accounts without risk management which had been put in separated reserve category. In 2020, the Company has totally cleaned up 27 unqualified capital accounts, 14 unqualified securities accounts; 1,997 activated small-amount-dormant capital accounts, 3,567 activated small-amount-dormant securities accounts; 33 activated dormant capital accounts without risk management, and 34 activated dormant securities accounts without risk management, all of which have been put in separated reserve category.
   As at the end of the Reporting Period, the Company had 2,335,603 capital accounts and 3,898,569 securities accounts, of which 1,841,366 and 3,321,747 were qualified capital accounts and qualified securities accounts respectively, 10,285 and 1,211 were unqualified capital accounts and unqualified securities accounts respectively, 450,314 and 561,224 were small-amount-dormant capital accounts and small-amount-dormant securities accounts respectively, and 33,638 and 14,387 were dormant capital accounts without risk management and dormant securities accounts without risk management.
2. Development of innovative business and its risk control
3. 1. Analysis on development of innovative business
      The Company has always attached much importance to innovative business and considers the "proportion of innovative income" as an important indicator for strategic planning. In 2020, the Company further developed its innovative business and has achieved satisfactory results as follows:
   2. 1. The "proportion of innovative income" of the Company remained at high level. After years of cultivation, the innovative business has developed new revenue sources and profit drivers for the Company. In 2020, the "proportion of innovative income" of the Company was 32.3%, which continuously met the requirement of the strategic planning and also provided strong support for the Company's performance growth during the year.

Section IV Report of the Board

1. 1. The Company continued to obtain awards for its innovative business. In 2020, the Company received various awards for its innovative business. In particular, "China Universal Yangtze River Delta Integrated ETF Fund - Financial Innovation Serving National Strategy" won the third prize of the Shanghai Financial Innovation Achievement Award. Five projects of the Company were successfully selected in the 2020 "Financial Industry Serving National Strategy" case collection campaign organized by Shanghai SASAC. In the Shanghai Financial Industry Reform and Development Outstanding Research Achievements campaign organized by Shanghai Financial Association, one project won the third prize and two projects were shortlisted for the awards. In the "2020 Shanghai Enterprise Management Modernization and Innovation Achievements" campaign, three projects of the Company won the second prize and two projects won the third prize.
   2. The Company further expanded its qualifications for innovative business. As a comprehensive securities firm, the Company has a complete set of business qualifications and licenses, and enjoys first-mover advantages in certain innovative business sectors. In 2020, the Company obtained the operation qualification of settlement and sale of foreign exchange business, the qualification for Sci-Tech Innovation Board securities refinancing business and other qualifications for innovative business, which further expanded the qualifications for innovative business and broadened the space for innovative development of the Company.
2. Risk control for innovative business
   With the promotion of the Company's development strategies, its innovative businesses maintained a steady development during the Reporting Period. Based on the actual conditions, the Company closely kept up with business innovation and placed emphasis on strengthening business risk verification mainly by adopting the following measures:
3. 1. In terms of organizational structure, the Risk Management Department strengthened the communications with the business departments, kept track of and monitored innovative business, and also actively conducted risk identification and assessment. To prevent business risk jointly with various departments, the Company's business department, branches and subsidiaries served as the first defense line, the risk management function departments served as the second defense line, and the risk supervision and management departments served as the third defense line.

Section IV Report of the Board

1. In terms of management procedures, the Company further improved the synchronous risk management system of innovative business, and closely kept up with the compliance and risk management of its innovative business. The Company also established a new assessment and verification mechanism of innovative business to keep track of the entire process of framework design, innovation declaration and business development of innovative business.
2. In terms of risk identification and assessment, the Company earnestly performed its duties for risk verification of innovative products, and formulated independent professional risk verification opinions on the option pricing, hedging strategies and testing results for products including income certificates of OTC options and embedded options. The Company also constantly improved the stress testing mechanism so as to ensure the smooth development of complicated financial derivatives business.
3. In terms of risk reports, the Company integrated the risk measurement and the progress of innovative business into the overall risk management report system to earnestly summarize risk management experience in innovative business.
4. In terms of system building, the Company considered innovative business in building an overall risk management system. The Company steadily conducted its innovative business with risk exposures being measurable, controllable and tolerable.

Section IV Report of the Board

4. Risk control indicators and establishment of net capital replenishment mechanism of the Company

1. Establishment of dynamic monitoring mechanism of risk control indicators
   Based on the regulatory requirements and for the purpose of its own risk management, the Company has established a sound mechanism for monitoring, pre-warning and reporting mechanism of risk control indicators to effectively ensure the business operation with risk exposures being measurable, controllable and tolerable. In addition, based on changes in market, business development, technology and regulatory environment, the Company constantly optimizes the risk control indicator system and improve the dynamic monitoring system with a view to synchronously cover various business activities conducted by the Company. In early 2020, the CSRC issued the Regulations on Standards for Calculation of Risk Control Indicators for Securities Firms (Revised in 2020), which came into effect on June 1, 2020. In response, the Company promptly formulated and implemented the transition plan for the new regulations, completed the upgrade and improvement of the dynamic monitoring system and other supporting work for the implementation of the new regulations ahead of schedule in order to continuously ensure the timely and accurate reporting of risk control indicators. At the same time, we also assessed the potential impact of the new regulations on various businesses and made appropriate adjustments to the business structure to ensure a smooth transition of the risk control indicators.
   The Company has set risk monitoring positions for all business lines and its overall indicators. Each of the positions has been allocated with explicit works and clear duties. With the monitoring system for various businesses and the dynamic monitoring mechanism for risk control indicators as its working platform, the Company has conducted dynamic monitoring and pre-warning on unusual changes and triggering issues of relevant risk control indicators, prepared risk management reports on a regular and irregular basis and kept track of the rectifications of the risks involved.
2. Capital replenishment mechanism
   Based on the risk control requirements of regulatory authorities and its own risk tolerance, the Company has established the capital replenishment mechanism to make dynamic adjustments to the scale and structure of various business sectors, while replenishing or increasing net capital according to its business development as and when appropriate.

Section IV Report of the Board

The Company formulates plans in respect of allocation of assets and liabilities as well as risk appetite and limitation at the beginning of each year, and the relevant functional departments such as the Risk Management Department are responsible for the monitoring and reporting of risk control indicators. Once any risk control indicator reaches the triggering standard, the Company will adopt risk handling measures according to the alert level, including strictly controlling investment products with relatively high risk exposures and capital consumption or its business scale, adjusting structure of financial assets investment, reducing risk exposures with risk hedging instruments and replenishing its net capital in a timely manner through various financing channels including issuance of long-term subordinated bonds.

1. Establishment of stress testing mechanism
   The Company has established the stress testing mechanism to ensure its risks are measurable, controllable and tolerable in various stress scenarios, so as to ensure the sustainable operation of the Company. The Company has specified in the rules and regulations that a special or comprehensive stress test is required to be conducted when the risk control indicators such as net capital and liquidity may experience material adverse changes or may approach the triggering level due to major external investment or acquisition, major external guarantee, major fixed asset investment, profit distribution or other capital expenditure, negative adjustment to the ratings of securities firms, concentrated maturity or redemption of liabilities or other relevant activities, or when the Company needs to determine the scale of significant business or commence significant innovative business. Furthermore, suggestions on adjustment to business scale based on the analysis of testing results should be provided for the reference of the management when making decisions.
   During the Reporting Period, according to the requirements under the Guideline on Stress Testing of Securities Companies 《( 證 券 公 司 壓 力 測 試 指 引 》) issued by the Securities Association of China, based on market environment changes and business development of the Company, it constantly optimized the stress testing mechanism in terms of organizational guarantee, system establishment and system support. The Company carried out a number of comprehensive and special stress tests throughout the year to enhance its response capacity as to extreme situations and events. The comprehensive stress test was targeted at risk control indicators and overall financial indicators including but not limited to net capital and liquidity, and the targets of the special stress test varied depending on the purposes of the test.
2. Attainment of risk control indicators during the Reporting Period
   During the Reporting Period, the key risk control indicators related to net capital and liquidity of the Company were kept in continuous compliance with the regulatory standards under the Administrative Measures for the Risk Control Indicators of Securities Companies and its implementation rules with certain margin of safety.

Section IV Report of the Board

5. Explanations on financing

1. Financing channels of the Company
   In terms of financing method, the Company's financing channels usually include equity financing and debt financing. In terms of financing term, the Company generally satisfies its short-term capital needs through money lending, bonds repurchase, issue of short-term financing bills, issue of short-term income certificates, short-term financing of usufruct right, and margin and securities refinancing, and satisfies its medium-term and long-term capital needs through issue of or borrowing long-term subordinated bonds, issue of corporate bonds, issue of long-term income certificates, long-term financing of usufruct right and equity financing.
2. Analysis on financing capability
   With its proper operation in compliance with laws and regulations, good reputation, strong financing capability and solvency as well as sound cooperation relationship with major financial institutions, the Company is able to obtain financing by various ways as registered with, approved by or filed with competent authorities.
   During the Reporting Period, the Company has adopted many forms of debt financing, including credit lending, bonds repurchase, income certificates, short-term financing bills, subordinated bonds and corporate bonds. For details of the issuance of various debt financial instruments by the Company, please refer to "Section VI, II, Issuance and Listing of Securities".
3. The Company's liabilities structure
   Please refer to "Section IV, (iii) Analysis on principal components of consolidated statement of financial position".
4. Measures adopted by the Company for liquidity and the relevant management policies By adhering to the unified capital management and operation, the Company continuously strengthens the establishment of capital management system through collectivized management of the allocation of funds. Meanwhile, it conducts a layered allocation of liquidity assets based on its realization ability to constantly improve its capability to withstand various liquidity impacts.
   The Company strictly implements a centralized capital management and collective decision-making procedures. As a functional department for liquidity risk, the Fund Management Department is responsible for planning, financing, allocation, investment and pricing for its own capital to optimize the efficiency and gains of the Company's capital use on the premise of preventing liquidity risk.

Section IV Report of the Board

During the Reporting Period, the Company actively broadened short-term and long-term financing channels, strengthened the liabilities management, and enhanced the diversification of internal and external liabilities types, terms, financing market, counterparty and financing collaterals. The Company constantly optimized its debt structure to meet the capital needs of daily operations and reduce financing costs. The Company attached much importance to maintaining sound cooperation relationship with its financing counterparties including major commercial banks, and had in place abundant bank facilities with strong short-term and middle-to-long term financing capability.

The Company continuously improved its liquidity risk management monitoring system and strengthened the monitoring approaches in terms of risk exposure and cash flow so as to increase the effectiveness of daily monitoring and enable front-end management of liquidity risk coverage ratio and net stable funding ratio. The Company put emphasis on strengthening intraday liquidity risk management to guarantee sufficient intraday liquidity position and meet the payment and settlement requirements under normal and stress scenarios. During the Reporting Period, the Company maintained sufficient liquidity assets reserves and continuously complied with relevant requirements regarding liquidity risk regulatory indicators.

1. Analysis on investments
   1. Overall analysis on external equity investments
   As at the end of the Reporting Period, investment in associates of the Group amounted to RMB5.771 billion, representing an increase of RMB1.317 billion, or 29.58%, from the end of last year. During the Reporting Period, external investment of subsidiaries recorded net increase of RMB0.540 billion, cash dividend or profit declared by associates amounted to RMB0.470 billion, change in investment gains and other income recognized under the equity method amounted to RMB1.247 billion. For details of investment in subsidiaries, please refer to Note 37 to the consolidated financial statements herein.

Section IV Report of the Board

1. Material equity investments

Notes: Profit or loss during the Reporting Period refers to effects of the investment on net profit of the Company during the Reporting Period.

Changes in owners' equity during the Reporting Period exclude effects on profit or loss during the Reporting Period.

1. Significant non-equity investments
   During the Reporting Period, the Company had no significant non-equity investments.

Section IV Report of the Board

1. Financial assets at fair value

2. Debt instruments at fair value through other comprehensive

1. Material assets and equity disposal
   During the Reporting Period, the Company had no material disposal of assets and equity.
2. Analysis on major subsidiaries and associates
3. 1. Orient Futures Co., Ltd, with a registered capital of RMB2.3 billion, is 100% owned by the Company. As at December 31, 2020, total assets of Orient Futures amounted to RMB45,158,939.5 thousand, and its net assets amounted to RMB3,348,142.5 thousand. In 2020, its operating income and net profit amounted to RMB9,583,529.2 thousand and RMB191,793.6 thousand, respectively.
      Its principal businesses are commodity futures brokerage, financial futures brokerage, futures investment consultancy, asset management and fund sales.
   2. Orient Securities Capital Investment Co., Ltd., with a registered capital of RMB4.0 billion, is 100% owned by the Company. As at December 31, 2020, total assets of Orient Securities Capital Investment amounted to RMB4,975,773.8 thousand, and its net assets amounted to RMB4,800,695.6 thousand. In 2020, its operating income (income from principal business ) amounted to RMB614,976.8 thousand, the profit from principal business amounted to RMB414,432.6 thousand, and the net profit amounted to RMB360,645.3 thousand.

Section IV Report of the Board

Its principal businesses are establishment of direct investment funds, equity investments of enterprises, or investment of other funds related to equity investment, the provision of financial advisory services to clients in respect of equity investment and other businesses permitted by the CSRC.

1. Shanghai Orient Securities Asset Management Co., Ltd., with a registered capital of RMB0.3 billion, is 100% owned by the Company. As at December 31, 2020, total assets of Orient Securities Asset Management amounted to RMB4,317,935.4 thousand, and its net assets amounted to RMB2,524,515.7 thousand. In 2020, its operating income (income from principal businesses), the profit from principal businesses and net profit amounted to RMB2,861,571.5 thousand, RMB1,017,753.6 thousand and RMB809,923.7 thousand, respectively.
   Its principal businesses are securities asset management and management of publicly offered securities investment funds.
2. Orient Securities Investment Banking Co., Ltd., with a registered capital of RMB0.8 billion, is 100% owned by the Company. As at December 31, 2020, total assets of Orient Investment Banking amounted to RMB2,599,190.8 thousand, and its net assets amounted to RMB1,551,083.2 thousand. In 2020, its operating income and net profit amounted to RMB1,036,175.7 thousand and RMB79,402.3 thousand, respectively.
   Its principal businesses are securities underwriting and sponsorship business (other than government bonds such as treasury bonds and local government bonds, financial bonds of policy banks, financing products governed by National Association of Financial Market Institutional Investors (including but not limited to debt financing instruments of non-financial institutions)); other businesses permitted by the CSRC.
3. Shanghai Orient Securities Innovation Investment Co., Ltd. has a registered capital of RMB5.8 billion and was 100% owned by the Company. As at December 31, 2020, total assets of Orient Securities Innovation Investment amounted to RMB6,387,988.0 thousand, and its net assets amounted to RMB6,056,727.4 thousand. In 2020, its operating income and net profit amounted to RMB361,694.0 thousand and RMB206,136.2 thousand, respectively.
   Its principal businesses are venture capital, financial products investment, investment management and investment consultancy.

Section IV Report of the Board

1. 1. Orient Finance Holdings (Hong Kong) Limited has a registered capital of HKD2,754,078.015 thousand and was 100% owned by the Company. As at December 31, 2020, total assets of Orient Finance Holdings amounted to HKD18,980,569.8 thousand, and its net assets amounted to HKD2,519,826.9 thousand. In 2020, its operating income and net profit amounted to HKD533,281.1 thousand and HKD234,813.8 thousand, respectively.
      Its principal businesses are investment holding, and operation of securities brokerage business, futures brokerage business, asset management business, investment banking and margin financing business as regulated by the SFC pursuant to SFO through establishment of various subsidiaries and licensed sub-subsidiaries.
   2. China Universal Asset Management Company Limited has a registered capital of RMB132,724.224 thousand and its 35.412% equity interests is held by the Company. As at December 31, 2020, total assets of China Universal amounted to RMB10,980,067.1 thousand, and its net assets amounted to RMB7,448,989.9 thousand. In 2020, its operating income (income from principal businesses) amounted to RMB6,643,037.6 thousand, the profit from principal businesses and net profit was RMB3,321,238.5 thousand and RMB2,566,382.8 thousand, respectively.
      Its principal businesses are fund raising, fund sales, asset management and other businesses permitted by the CSRC.
2. Structured Entities Controlled by the Company
   When determining whether to consolidate structured entities, the Company considers total variable returns from such structured entities attributable to the companies within the consolidation scope, the risk exposures and other factors, and has incorporated 24 structured entities into the consolidation scope, including eight structured entities newly consolidated during the year.

Section IV Report of the Board

Details of structured entities incorporated into the consolidation scope during the period:

The accounting data of the above-mentioned structured entities are based on the CASBE.

1. Capital raising
   As approved by the CSRC, the Company issued the overseas listed foreign shares (H Shares) in the Hong Kong Stock Exchange on July 8, 2016, and exercised the over-allotment option on August 3, 2016. Deloitte Touche Tohmatsu CPA LLP has verified the proceeds from this offering of H Shares by issuance of the capital verification report (De Shi Bao (Yan) Zi (16) No. 1082). Based on this capital verification report, it was noted that the Company made a public offering of 933,709,090 overseas listed foreign shares (H Shares) and the selling shareholders sold 93,370,910 H Shares, representing a total listing of 1,027,080,000 H Shares. Since the issue price of H Shares was HKD8.15 per share with a nominal value of RMB1 each, the total proceeds from this offering amounted to HKD8,370,702,000.00 which shall be paid in cash in Hong Kong dollars. After deduction of the transaction expense and other related expenses of HKD145,045,025.30 in aggregate, the remaining HKD8,225,656,974.70 has been deposited with the H Share proceeds account and converted into RMB7,083,154,510.65 (including the interest income received) based on the median exchange rate for conversion from HKD into RMB as published by the People's Bank of China on the date when the proceeds were actually remitted into the aforesaid account. The net proceeds from this offering of H Shares by the Company was HKD7,417,133,357.56 after deduction of such proceeds as transferred to the National Council for Social Security Fund and other expenses related to the issuance.

Section IV Report of the Board

As at the end of the Reporting Period, the details relating to utilization of the proceeds from the offering of H Shares by the Company are set out below: HKD2.56 billion was used to further develop the Company's brokerage and securities financing business, HKD2.225 billion for developing the Company's foreign operation, HKD1.097 billion for expansion of the Company's investment management business, HKD0.732 billion for developing our securities sales and trading business, HKD0.240 billion for capital expenditure, and HKD0.416 billion for working capital and others. The Company utilized a cumulative of HKD7.270 billion of proceeds raised through H shares. Save for the above use of funds, approximately HKD0.154 billion (including the interests and exchange gains or losses thereof) of the proceeds remains unused. The Company will use the remaining proceeds for capital expenditure in line with the Company's development strategy and actual requirements in the next three years. (The exchange rate of utilized raised funds through issuance of H shares denominated in Renminbi has been calculated according to the actual exchange settlement rate, while the exchange rate of unutilized raised funds through issuance of H shares denominated in Renminbi has been calculated according to the final exchange rate.)

As at the end of the Reporting Period, there was no change in the above planned use of the proceeds as compared to that as disclosed in the Company's prospectus, related announcements and circulars. The Company will arrange utilization of such proceeds in due course based on the actual operation needs to maximize the shareholders' interests.

1. DISCUSSION AND ANALYSIS ON THE COMPANY'S FUTURE DEVELOPMENT
2. 1. Industrial layout and trend
      Increased concentration
      The financial industry is a capital-intensive industry, which has long been considered as "too big to fail". The leading players have strong competitive advantages and risk resistance capacity, which can significantly enhance their appeal to customer resources, outstanding talents and high-quality capital. The domestic securities industry has become significantly more concentrated in recent years with intensifying competition and more prominent long-tail effect, and the market share in China will continue to be concentrated in leading large-scale securities firms in the future. In terms of regulatory guidance, the regulatory authorities have clearly proposed to actively promote the creation of "aircraft-carrier-class" securities firms to improve and strengthen the industry and enhance the international competitiveness of the industry. The top securities firms will receive more regulatory support in terms of license acquisition, approval for new business, capital expansion, talent attraction and brand building, and large and medium-sized securities firms will strive to become bigger and stronger and compete for a leading position in the industry.