Shandong International Trust : 2020 INTERIM REPORT

CONTENT

Company Profile	2
Basic Corporate Information	3
Major Financial Data	5
Management Discussion and Analysis	6
Changes in Share Capital and Shareholdings of
Substantial Shareholders	57
Details of Directors, Supervisors and Senior
Management	60
Significant Events	61
Report on Review of Interim Financial Information	72
Definitions	129
Glossary of Technical Terms	132

COMPANY PROFILE

Shandong International Trust Co., Ltd., currently a director member of the China Trustee Association, was established as a non-banking financial institution in March 1987, with the approval of PBOC and the People's Government of Shandong Province. In December 2017, the Company was listed on the Hong Kong Stock Exchange (stock code: 1697), being the first domestic trust company listed on international capital market. In January 2019, the Company's registered capital increased to RMB4,658,850,000, with a constantly increasing capital strength.

The Company has always achieved progress and quality improvement while maintaining stability, served economic and social development by utilising various financial instruments, promote effective interconnection between the monetary market, capital market with real economy, and established the development pattern of "taking root in Shandong, spreading to the whole country and establishing international presence". Being rated as "Class A" (the highest rating attainable) in the national industry-wide rating and the highest AAA rating in the comprehensive assessment of local financial institutions in Shandong Province for many times, the Company has been developed into an integrated financial and wealth management service provider with a leading comprehensive strength and sound brand reputation.

In the field of trust business, to facilitate the set-up of investment and financing service platform and wealth management platform, the Company formed an all-around and multi-level trust product line covering trust of industrial and commercial enterprises, infrastructure trust, real estate trusts, securities investment trusts, integrated financial service trusts of listed companies, family trusts and charitable trusts. We have built a series of trust brands including "Xinyuan Minsheng" (信元民 生), "Xiongxin Anxin" (雄心安心), "De Shan Qi Jia" (德善齊家), "Guozi Huinong" (國資惠農), "Zilan Culture" (兹蘭文化), "Urban Development" (城市發展), "Tian Xi Ying" (天禧盈),"Rongyi" (融易) and "Increase in Interest of Bonds" (債券增利) leading to increasingly higher popularity and reputation.

In respect of long-term equity investment, the Company paid close attention to financial industry policies, and is devoted to building an integrated financial service platform. We mainly participated in financial institutions such as in First-Trust Fund Management Co., Ltd. (泰信基金管理有限公司), Fullgoal Fund Management Co., Ltd. (富國基金管理有限公司), Minsheng Securities Co., Ltd. (民生證券股份有限公司), Taishan Property & Casualty Insurance Co., Ltd. (泰山財產保險股份有限公司) and Shandong HOWO Auto Finance Co., Ltd. (山東豪沃汽車金融有限公司). Meanwhile, the Company is actively researching and seeking strategic opportunities for overseas financial equity investment by utilising its advantage as a Hong Kong listed company.

The growth of the Company in recent years have been recognised and praised by different sectors in the society, and evidenced by numerous awards, such as "Most Valuable Financial Stock in the 2018 Golden Hong Kong Stocks Awards", "Best IPO Award of the Year of 2017", "Shandong Charitable Award • the Most Influential Charity", "Integrity Trust - Excellent Company Award", "Integrity Trust - Management Team Award", "Integrity Trust - Leading Innovation Award", "Best Innovative Trust Company", "Best Socially Responsible Trust Company Award", "Best Financial Service Entity Award", "Excellent Risk Control Award", "Best Corporate Governance Award" and "Best Information Disclosure Award for Hong Kong Listed Companies" As a state-owned enterprise based in Shandong, the Company received high recognition in the province for its development and was awarded with the honorary title of "Advanced Company Contributing to Financial Development of Shandong Province" by the government of Shandong Province. Also, the Company has won the "Financial Innovation Award of Shandong Province" for three consecutive years.

The Company excels at seizing opportunities and audaciously meeting the challenges. The Company provided multi-type,all-around quality investment and financing services that cover the whole industry chain for the development of national and local economy and provided institutional investors and individual investors with professional, differentiated, personalised and integrated financial services. By holding firmly to the guideline "product specialisation, service integration, and business standardisation", the Company will adopt innovative industrial and financial integration, access to global resources, facilitate the building of better life, and create greater values for domestic and international investors.

Where there is any inconsistency between the Chinese version and the English version of this interim report (except for the report on review of interim financial information and the unaudited interim condensed consolidated financial statements), the Chinese version shall prevail.

2 INTERIM REPORT 2020

BASIC CORPORATE INFORMATION

Legal name in Chinese	山東省國際信託股份有限公司
Abbreviation in Chinese	山東國信
Legal name in English	Shandong International Trust Co., Ltd.
Abbreviation in English	SITC
Legal representative	Wan Zhong (萬眾)
Authorised representatives	Wan Zhong (萬眾)
	Lee Kwok Fai, Kenneth (李國輝)
Secretary to the Board	He Chuangye (賀創業)
Joint company secretaries	He Chuangye (賀創業)
	Lee Kwok Fai, Kenneth (李國輝)
Registered office	No. 166 Jiefang Road, Lixia District
	Jinan, Shandong Province
	PRC
Postal code	250013
Head office in the PRC	No. 166 Jiefang Road, Lixia District
	Jinan, Shandong Province
	PRC
Postal code	250013
E-mail address	[e-mail]
Internet website	http://www.sitic.com.cn
Principal place of business	31/F, Tower Two, Times Square
in Hong Kong	1 Matheson Street
	Causeway Bay
	Hong Kong, PRC
Website of Hong Kong Stock Exchange	www.hkexnews.hk
for publishing the interim report for H
Shares
Place for maintaining interim report	No. 166 Jiefang Road, Lixia District
	Jinan, Shandong Province
	PRC

Shandong International Trust Co., Ltd. 3

BASIC CORPORATE INFORMATION

Place of listing of H Shares	The Stock Exchange of Hong Kong Limited
Stock name	SDITC
Stock code	1697
H Share Registrar	Computershare Hong Kong Investor Services Limited
	Shops 1712-1716, 17th Floor, Hopewell Centre
	183 Queen's Road East
	Wanchai, Hong Kong
	PRC
Legal Advisor (as to PRC laws)	Fangda Partners
Place of business	24/F, HKRI Centre Two, HKRI Taikoo Hui
	288 Shi Men Yi Road
	Shanghai, PRC
Legal Advisor (as to Hong Kong laws)	Fangda Partners
Place of business	26th Floor, One Exchange Square
	8 Connaught Place
	Central, Hong Kong
	PRC
International Auditor	PricewaterhouseCoopers
Place of business	Certified Public Accountants
	22/F, Prince's Building
	Central, Hong Kong
	PRC
PRC Auditor	PricewaterhouseCoopers Zhong Tian LLP
Place of business	PricewaterhouseCoopers Center, 2 Corporate Avenue
	202 Hu Bin Road, Huangpu District
	Shanghai, PRC
Name of the undersigned accountant	Lee Chung Bor (李松波)
Principal Bank	China Citic Bank
	Quancheng Road Sub-branch
	No.166 Jiefang Road, Lixia District
	Jinan, Shandong Province
	PRC

4 INTERIM REPORT 2020

MAJOR FINANCIAL DATA

	As at and for the six months	As at and for the year ended 31 December
	ended 30 June			(Audited)
	2020		2019	2019	2018	2017	2016
Data at the end of the Reporting
Period (RMB in millions)
Total assets	16,068		13,659	14,572	13,612	12,902	8,648
Fee and commission income	571		477	1,038	891	1,130	828
Interest income	387		244	530	648	491	455
Total operating income	1,137		858	1,887	1,695	1,648	1,327
Change in net asset attributable
to other holders of consolidated
structured entities	(25)		(11)	(0.5)	(20)	2	1
Total operating expenses	627		489	1,133	700	696	389
Operating profit before income tax	650		431	878	1,127	1,119	1,077
Segment assets
Proprietary business	14,792		12,157	13,241	12,372	11,655	7,557
Trust business	1,134		1,467	997	1,214	1,202	912
Unallocated assets(1)	142		35	334	26	45	179
Segment liabilities
Proprietary business	5,874		4,136	4,678	3,989	3,715	2,220
Trust business	24		72	71	67	38	852
Unallocated liabilities(1)	101		13	13	15	2	623

Note:

1. It refers to the assets and liabilities shared by the proprietary business and trust business.

Shandong International Trust Co., Ltd. 5

MANAGEMENT DISCUSSION AND ANALYSIS

ENVIRONMENT REVIEW

In the first half of 2020, as the COVID-19 pandemic continued spreading, the global economy was severely affected, the downward economic pressure intensified, the international financial market grew volatile, and trade protectionism rose - factors of uncertainties and instability notably increased. Under the exceptionally complicated and severe domestic and overseas circumstances impacted by the pandemic, China continued to accelerate its counter-cycle adjustment efforts and carried out measures for the "stability on six fronts1" and "security in six areas2" campaigns while displaying strong resistance in its economy, which went from stable to expanding, leading the globe in epidemic control and prevention as well as economic recovery.

In the face of the huge impact from the pandemic, China's financial industry fully implemented the decisions and plans of the Central People's Government and State Council by promoting epidemic prevention and control as well as socioeconomic development in a coordinated manner and guiding funds towards further increasing support for key areas and weak links of the national economy, in order to help reduce social financing costs and precisely and effectively support epidemic prevention and control as well as work and production resumption resumption, in an effort to minimise the effects of the pandemic on the economy and create an appropriate financial environment for winning the battle against COVID-19 and achieving the "stability on six fronts".

Following the eruption of the COVID-19 pandemic, China's trust industry, in a bid to achieve triumph in the battle for epidemic control and prevention, took full advantage of its strength of flexible financial functions, actively raised funds to support work and production resumption in the real economy, and initiated to establish charitable trusts to assist epidemic prevention and control. The trust industry actively complied with regulatory guidelines by persistently serving the real economy and offering support for people's good living, accelerating the adjustment of their business structure and largely promoting the trust culture, so as to resolutely safeguard the red lines for compliance and vigorously promote high quality development in the industry. As of the end of the first quarter in 2020, the balance of trust assets under the management of China's trust industry totalled RMB21.33 trillion with the scale of trust assets continuing its downward trend, while further improvement of the sector's asset structure has led to significant enhancement in its business quality and efficiency. At the same time, the CBIRC issued an announcement on the Interim Measures for Administration on the Funds Trust of Trust Companies (Exposure Draft) 《( 信託公司資金信託管理暫行辦法（徵求意見稿）》), which further clarified the direction of trust industry transformation and innovation development.

BUSINESS OVERVIEW

As a trust company regulated by the CBIRC, the Company is permitted to conduct businesses across a number of markets, such as the real economy, capital markets and money markets. The Company follows a market-oriented approach, closely monitors changes of the economic and market conditions in the PRC to identify market opportunities, and has timely and adeptly adjusted its development strategies to proactively grow its business and achieve the "dual drivers" for the trust business and the proprietary business.

Note:

1. "Six fronts" are employment, finance, foreign trade, foreign investment, domestic investment and market expectation.
2. "Six areas" are job security, basic living needs, operations of market entities, food and energy security, stable industrial and supply chains and the normal functioning of primary-level governments.

6 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

In the first half of 2020, the Company continued to optimise its governance capability, resolutely revisited its existing businesses, accelerated the switch from old to new growth drivers, strived to prevent and resolve risks, promoted the construction of the trust culture and maintained overall steady and healthy operation. First of all, the Company's active management capability led to its core competitiveness. The Company's conventional businesses generated "new engines" and its "equity + debt" real estate projects were more stable and mature, which became the "ballast stone" of business transformation and innovation of the Company; its innovative business generated "new growth drivers", its standardised businesses including cash management and bonds were fully rolled out, the scale of its inclusive finance business such as the consumer trusts continued to increase, and its investor education on "fixed income+" products has been initiated; the quality and efficiency of its inherent capital operation steadily improved, and its key shareholder First-Trust Fund Management Co., Ltd. appointed new senior management to introduce a market remuneration and incentive system, taking concrete steps towards transformative development. Secondly, the Company equally stressed its financial management capability building and brand building. The Company continuously enhanced its capabilities for self-marketing and expanding its product system, channel system and financial planner team, simultaneously made "online + offline" efforts, which led to a noticeably increased ratio in the signing of online contracts; it vigorously promoted wealth account management business and actively pushed for wealth management transformation; the influence of the Company's family trust brand "De Shan Qi Jia" 「( 德善齊家」) continuously grew, its standardised and self-managed products were launched earlier, and the use of technology made its family trust business increasingly advanced. Thirdly, the Company pushed forward with the construction of a comprehensive risk management and compliance system. The Company strengthened its internal management, insisted upon "compliance-oriented practices" and largely promoted compliance cultures; adhering to the principle of risks being "detectable, controllable and bearable", the Company carried out strict project introduction management by launching regular comprehensive risk investigations and strengthened temporary project risk management, so as to ensure risks are early "detected, warned and handled", and carefully maintain the line of defence of comprehensive risk management. We will stand by our role as a trustee, promote trust culture, and push forward the construction of trust culture in depth by regular sharing of legal briefing, organising online classes and public lectures, playing promotional videos in the elevator room, etc.

In the first half of 2020, the Group achieved operating income with an amount of RMB1,137.1 million, representing a year- on-year increase of 32.5%. Meanwhile, the net profit attributable to Shareholders of the Company was RMB514.3 million, representing a year-on-year increase of 56.7%, mainly due to a year-on-year increase of fee and commission income, interest income, and share of profit of investments accounted for using the equity method, and partially offset by a year-on- year decrease in net changes in fair value on financial assets at FVPL and investment in associates measured at fair value and a year-on-year increase in interest expenses.

The Group's business segments are (i) trust business and (ii) proprietary business. Trust business is the Group's main business. As the trustee, the Group accepts entrustment of funds and/or property from its trustor clients and manages such entrusted funds and/or property to satisfy its trustor clients' investment and wealth management needs, as well as its counterparty clients' financing needs. The Group's proprietary business focuses on allocating its proprietary assets into different asset classes and investing in businesses with strategic value to its trust business in order to maintain and increase the value of its proprietary assets.

Shandong International Trust Co., Ltd. 7

MANAGEMENT DISCUSSION AND ANALYSIS

The following table sets forth the Group's segment income and its main components for the periods indicated:

		Six months ended 30 June
			2019
	2020
	Amount	%	Amount	%
		(RMB in thousands, apart from %)
Trust business
Operating income	571,716	44.76%	477,558	51.92%
Segment income	571,716	44.76%	477,558	51.92%
Proprietary business
Operating income	565,350	44.26%	380,457	41.36%
Share of profit of investments accounted
for using the equity method	140,148	10.98%	61,833	6.72%
Segment income	705,498	55.24%	442,290	48.08%
Total	1,277,214	100.00%	919,848	100.00%

In the first half of 2020, the income from the trust business and proprietary business of the Group accounted for 44.8% and 55.2% of the total revenue of the Group, respectively.

Trust Business

In the first half of 2020, the Company actively responded to the impacts brought by the pandemic, domestic economic circumstances and regulatory policy environment changes; faced with downward pressure on the trust scale against the backdrop of tight regulation, the Company continued to optimise its trust business structure, resolutely revisited its existing businesses and sped the development of its innovative business, actively cultivating new business growth points. Firstly, the Company continuously optimised the commercial models of its conventional businesses and vigorously pushed for trust business with improved quality and effectiveness. With deep cultivation and improvement of "equity + debts" business, the Company's administrative management business was reduced in an orderly fashion, and trust business and income structures continuously optimised. Secondly, the Company increased research and development input in its existing products and accelerated the launch of standardised products to continuously increase its channels for its existing business industries. Taking advantage of its leading strengths, the Company explored the increase of sources for the main assets in its existing businesses to bolster its asset allocation capability; it actively pushed for upgrades of the dedicated family trust business system to increase management efficiency; it also continuously increased contacts for expanding its existing businesses by consolidating its existing business channels and sped up the forging of new institutional partnerships. Thirdly, the Company ramped up input in its innovative business for continuous expansion. The Company vigorously extended its standardised business, strengthened the construction of its investment and research system to enhance its capability for asset allocation, actively increase the number of sources for clients for cash management products, and promote partnerships with financial institutional agents; it explored innovative business models for consumer trusts and transaction structures, whereby progressively improving its active management; it bolstered the acquisition of institutional clients and further increased the scale of bond trusts, leading to continuous enhancement in its

8 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

active management capability. Fourthly, the Company's marketing capability steadily improved and wealth management transformation accelerated. The Company added an institutional wealth management team and deeply investigated the growth potential of its institutional clients; it persisted in conducting double-wheel-driven "online + offline" sales by insisting on full marketing, an effective response to the pandemic; it actively promoted wealth account management business and continuously pushed for wealth management transformation.

In the first half of 2020, the Company constantly improved its active management capability, and accelerated the pace of the trust industry to revisit the fundamentals. In the first half of 2020, the trust assets under management ("AUM") recorded

1. year-on-yeardecrease, while the income from trust business of the Company recorded a year-on-year increase, and the income from actively managed trust in proportion of the fee and commission income of the total income from trust business maintained a steady growth. The AUM of the Company decreased from RMB247,290 million as at 30 June 2019 to RMB232,525 million as at 30 June 2020, and the total number of trusts were 1,203 and 1,130, respectively, as at the respective dates. As at 30 June 2020, the AUM of actively managed trust was RMB101,360 million, accounting for 43.6% of the total AUM and indicating a year-on-year fall of 0.5 percentage points. During the Reporting Period, revenue from the actively managed trust amounted to RMB462 million, accounting for 80.9% of the fee and commission income of the total income from trust business and indicating a year-on-year growth of 3.8 percentage points.

Classification of trusts

With the flexible trust arrangements under PRC laws, advantages of mixed operations under the Company's trust license and strong active management capability, the Company has been continuously developing trust products with new structures and investment channels, in order to capture market opportunities emerging at different times and satisfy the changing needs of its clients. The Company offers and manages a range of trusts to satisfy the financing, investment and wealth management needs of its various types of clients.

The Company's rights to manage and use trust assets come from the trustors' entrustment. While the rights granted to the Company by the trustors vary from one trust to another, the Company has classified its trusts into administrative management trusts and actively managed trusts based on the differences of the Company's roles and responsibilities regarding the management and use of trust assets. The actively managed trusts can be further subdivided into financing trusts and investment trusts.

1. Financing trusts: Under this type of trusts, in addition to providing trust administration services for the capital end, the Company is actively involved in the ongoing management and disposal of the trust assets in the asset end, and focused on satisfying the financing needs of its counterparties. The Company's financing trusts provide flexible financing solutions for real estate development projects, infrastructure projects and other various types of enterprises.
2. Investment Trusts: The Company is responsible for or participates in the selection of assets or projects in which the trust assets will be invested in, and the Company performs its own due diligence on the assets or projects as well as the counterparties that hold the assets or projects. In addition to providing trust administration services for the trusts, the Company is actively involved in the ongoing management and disposal of the trust assets, and focuses on satisfying the investment, wealth management and succession needs of its trustor clients. The Company's investment trusts include a variety of equity investment trusts, such as securities investment trusts, indirect investment trusts, family trusts and discretionary wealth management trusts with different risk-return profiles that can satisfy the investment and wealth management needs of different trustor clients.

Shandong International Trust Co., Ltd. 9

MANAGEMENT DISCUSSION AND ANALYSIS

1. Administrative management trusts: In an administrative management trust, the trustors have the discretion on the management, use and disposal of the trust assets. Trustors are responsible for seeking counterparties to the transactions for the proposed trust, performing their own due diligence, selecting the assets or projects in which the trust assets will be invested, and in charge of project management after the establishment of the trust. The Company's roles in administrative management trusts are limited to providing trust administration services and accepting entrustment of trust assets from trustors to provide financing for or invest in projects or enterprises designated by the trustors.

The following table sets forth the Company's total numbers of trusts and AUM of each type of our trusts as at the dates indicated:

		As at 30 June
					2019
		2020
	Number	AUM		Number	AUM
		(AUM: RMB in millions)
Financing trusts	131	32,586		143	40,889
Investment trusts	651	68,774		647	68,270
Administrative management trusts	348	131,165		413	138,131
Total	1,130	232,525		1,203	247,290

The following table sets forth the revenue generated from each type of the Company's trusts as at the periods indicated (in absolute amount and as percentage of the fee and commission income accounted for in the total income from trust business):

		Six months ended 30 June
				2019
		2020
	Revenue	%	Revenue	%
		(Revenue: RMB in millions)
Financing trusts	164	28.72	220	46.12
Investment trusts	298	52.19	148	31.03
Administrative management trusts	109	19.09	109	22.85
Total	571	100.00	477	100.00

10 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Financing Trusts

Through financing trusts, the Company mainly provides private equity investment banking services to various types of enterprises and institutions in China, and offers flexible and diversified financing plans. Based on the industry segments, the financing trusts of the Company during the Reporting Period can be categorised as real estate trusts, infrastructure trust, industrial and commercial enterprises trusts.

1. Real Estate Trusts: The Company's real estate trusts focus on arranging debt financing and equity financing for real estate development projects located in China which are undertaken by top Chinese real estate developers. During the Reporting Period, the Company continued to promote the shift of real estate trusts from debt financing to "equity + debt" and equity financing. Through methods such as sending onsite managers and engaging third-party professional institutions to be in charge of management, the Company continued to enhance its active management capability and risk control for real estate projects and enhanced cooperation with counterparties.
2. Infrastructure Trusts: The infrastructure trusts mainly focus on arranging debt financing for infrastructure development projects located in the PRC that are undertaken by various enterprises.
3. Industrial and Commercial Enterprises Trusts: The Company's industrial and commercial enterprises trusts focus on arranging various forms of financing for companies to satisfy their working capital needs in the general industrial and commercial sectors in the PRC. In the first half of 2020, the Company offered support to industrial and commercial sectors via industry investment funds and equity investments, which diversified the instruments available for the industrial and commercial sectors.

As at 30 June 2019 and 30 June 2020, the Company had managed 143 and 131 financing trusts, respectively, and the AUM decreased by 20.3% from RMB40,889 million as at 30 June 2019 to RMB32,586 million as at 30 June 2020. The revenue from financing trusts for the first half of 2020 decreased by 25.5% to RMB164 million as compared to the first half of 2019.

Investment Trusts

With investment trusts, the Company provides asset and wealth management services to institutional investors and HNWI to satisfy their investment needs. Rapid accumulation of wealth in the PRC has resulted in diversified demands for various forms of investment. As the traditional asset management industry in the PRC is dominated by securities investment fund companies and securities firms, which mainly invest in standardised financial products in capital markets, such as the money market, publicly traded stocks and bonds, the Company believes the flexibility of the trusts and the business scope of the trust license enable the Company to offer financial products with unique value to institutional investors and HNWI.

Shandong International Trust Co., Ltd. 11

MANAGEMENT DISCUSSION AND ANALYSIS

Based on the subject distribution by investment, investment trusts can be further categorised into equity investment trusts, securities investment trusts, indirect investment trusts, family trusts, discretionary wealth management trusts and other types of investment trusts.

1. Equity Investment Trusts: The Company's equity investment trusts mainly invest in the equity of unlisted enterprises or trust business of other equity which may be invested as approved by the CBIRC with the funds of trust under the trust schemes.
2. Securities Investment Trusts: The Company's securities investment trusts mainly invest in entrusted funds in combinations of publicly traded securities, including equity securities traded on the Shanghai Stock Exchange, the Shenzhen Stock Exchange and inter-bank bond market throughout the country, closed-end and open-end securities investment funds, enterprise bonds, treasury notes and related derivative products. The Company offers three major types of securities investment trusts: (i) management securities investment trusts, (ii) structured securities investment trusts, and (iii) bond markets trusts.
3. Indirect Investment Trusts: The Company's indirect investment trusts do not directly invest in any particular class of assets (such as listed securities). Instead, such trusts subscribe to an asset management scheme initiated by a security firm or other financial institutions or limited partner interests in a limited partnership. The target asset management scheme or limited partnership then provide funding to counterparties in the form of the equity investment.
4. Family Trusts: The Company can assist individual clients to achieve goals on wealth succession through the Company's family trusts. The Company's clients may entrust funds as well as other types of properties, such as real properties, equity interests, right to claim insurance benefits and financial products, to the Company and utilise the institutional advantages of trust arrangements under PRC laws to secure realisation of wealth succession. As people in the PRC are becoming wealthier and the group of ultra-high-net-worth individuals ("UHNWI") has rapidly expanded, family trusts became widely recognised by UHNWIs due to advantage of family trusts in wealth succession, family affairs management, family risk management, family tradition succession and tax planning. During the Reporting Period, the family trust business continued to grow rapidly. As at 30 June 2020, the Company's family trust business has signed in aggregate a contract amount of RMB11.594 billion, of which the trust assets that have actually been delivered amounted to RMB11.179 billion, representing a year-on-year increase of 36.73%, thus continuing to secure a leading position in the industry. Since 2020, the Company actively researched and developed standard family trust products, so that we will become the first mover in developing standard family trust. The Company identified target customers and enhanced customer cohesiveness to expand its customer base and cultivate new profit growth engines for long-term stability of the Company. The Company's "De Shan Qi Jia Family Trust" (德善齊家系列家族信託) was awarded "Top 10 Family Trust Management Innovation Award by Securities" (十 佳家族信託管理創新獎) by The Banker 《( 銀行家》), representing that the Company has been fully recognised by the market for its active exploration, research and development and innovation in the family trust business, and its wealth management and financial service abilities, and has been leading the industry. The Company will continue to expand the family trusts product portfolio and strengthen the development of information system to provide clients with high-quality, efficient professional and customised family trust services.

12 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

1. Discretionary Wealth Management Trusts: Other than the family trust business, the Company is also developing private and corporate wealth management business. The Company has established certain individual trusts whereby the trustor clients entrust their funds to the Company and allow the Company to allocate the funds into different trust products chosen for them by the Company based on their respective investment needs. The trust agreements normally set forth the general scope of investment as set by the trustors, and the Company is granted with full discretion on allocation of the trust assets. During the Reporting Period, the Company continued to exert effort on developing customer base for the discretionary wealth management trusts and to improve asset allocation, thus helping customers to realise higher yields. As at 30 June 2020, the Company managed 10 discretionary wealth management trusts, with the AUM reaching approximately RMB1.877 billion.
2. Other Trusts: In addition to the above investment trusts, the Company also established other types of investment trusts, such as charitable trusts, which are manifestations of the Company's active performance for its corporate social responsibility. The Company's charitable trusts has gradually upgraded to a branded business model syndicating with the Company's family trust business. As at 30 June 2020, the Company managed six charitable trusts, with the AUM reaching approximately RMB65.2481 million.

As at 30 June 2019 and 30 June 2020, the Company had managed 647 and 651 investment trusts, respectively, with AUM increasing by 0.7% from RMB68,270 million as at 30 June 2019 to RMB68,774 million as at 30 June 2020. Revenue from investment trusts for the first half of 2020 amounted to RMB298 million, representing an increase of 101.4% as compared to the first half of 2019.

Administrative Management Trusts

Through the administrative management trusts, the Company provides administrative services to the trustors, whilst at the same time aiming at satisfying the investment needs of trustor clients on the one hand and the financing needs of the clients' counterparties on the other hand. The Company established administrative management trusts pursuant to the instructions of trustors and provided financing and investments for real estate development projects, infrastructure projects, and various industrial and commercial enterprises chosen by those trustors. For this type of trusts, the Company merely provides trust administration-related services and accepts entrustment of trust assets from trustors and uses such trust assets to provide financing for or make investments in the projects or enterprises designated by the trustors.

As at 30 June 2019 and 30 June 2020, the Company had managed 413 and 348 administrative management trusts, respectively, with the AUM decreasing by 5.0% from RMB138,131 million as at 30 June 2019 to RMB131,165 million as at 30 June 2020. In the first half of 2020, the income of the Company from administrative management trusts was RMB109 million, representing a flat as compared to the first half of 2019.

Shandong International Trust Co., Ltd. 13

MANAGEMENT DISCUSSION AND ANALYSIS

Proprietary Business

In the first half of 2020, in order to reasonably optimise the allocation of its own funds, expand the strategic planning layout of oversea business, and improve the operation quality and efficiency of its own funds, the Company insisted on the strategy of combining long-term,mid-term and short-term assets, and proactively made investments with its own funds. Firstly, the Company fully utilised the synergy between the proprietary business and the trust business, actively implemented the investment and loan linkage mechanism, and provided great support for the transformation and innovation of the "equity + debts" trust business. Secondly, the Company deeply participated in the establishment of venture capital fund, and proactively supported the Shandong's regional economic development and replacement of old growth drivers with new ones in a bid to seek proprietary business transformation and development, and foster new profit growth point. Thirdly, with a full awareness of the situation, the Company actively pushed forward the transformation for First-Trust Fund Management Co. Ltd. (泰信基金管理有限公司), the Company accelerated the withdrawal of financial equity such as Sinotruk Finance Co., Ltd. (中國重汽財務有限公司) and optimised the layout of the financial equity investment. Fourthly, with liquidity being assured, short term operations such as diversified investment, government bonds purchased under agreements to resell with liquidity, purchase of monetary fund and cash management trust schemes were actively carried out to improve utilisation efficiency of domestic and overseas capitals. Fifthly, the Company further strengthened exchanges and communication with financial enterprises in Hong Kong, actively explored plans to open up domestic and overseas asset allocation channels, and laid a solid foundation for overseas businesses. The Company recorded the segment income of RMB705.5 million from its proprietary business in the first half of 2020, representing a year-on-year increase of 59.5%, mainly due to (i) an increase in interest income from RMB243.2 million in the first half 2019 to RMB386.3 million in the first half of 2020; (ii) an increase in investment income from RMB3.1 million in the first half of 2019 to RMB42.5 million in the first half of 2020; (iii) net gains on disposal of investment in associates of RMB54.9 million was recorded in the first half of 2020, no such gains was recorded in the first half of 2019; (iv) an increase in other operating income from RMB0.3 million in the first half 2019 to RMB27.2 million in the first half of 2020, and (v) an increase in share of profit of investments accounted for using the equity method from RMB61.8 million in the first half of 2019 to RMB140.1 million in the first half of 2020. The interest income, investment income, net gains on disposal of investment in associates, other operating income and share of profit of investments accounted for using the equity method are partially offset by the decrease in net changes in fair value on financial assets at FVPL and investment in associates measured at fair value from RMB133.9 million in the first half of 2019 to RMB54.4 million in the first half of 2020.

Allocation of Proprietary Assets

Pursuant to the Administrative Measures on Trust Companies 《( 信託公司管理辦法》) issued by the CBRC in January 2007, trust companies may engage in the following proprietary businesses: (i) deposits at banks and other financial institutions,

1. loans, (iii) leasing and (iv) investments, which include equity investments in financial institutions, investments in financial products and investments in fixed assets for self-use.

In conducting the Company's proprietary business, the Company allocates the Company's proprietary assets into different asset classes and invests in businesses with strategic value for the Company's trust business in order to maintain and increase the value of the Company's proprietary assets. The Company manages and invests its proprietary assets according to the Company's annual assets allocation plans, which are formulated by the management of the Company and approved by the Board. The Company makes strategic long-term investments in a number of financial institutions, which helps to establish stronger business relationships with these financial institutions and create synergies for the Company's operations. The Company also invests the Company's proprietary assets in various types of equity products, such as listed shares and mutual funds, as well as wealth management products. The Company keeps a reasonable amount of its proprietary assets in highly liquid form, such as deposits at banks and other financial institutions and government bonds in order to maintain the Company's liquidity and satisfy capital requirement for the expansion of its trust business.

14 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

The following table sets forth the allocation of our proprietary assets managed by the Company as our proprietary business as at the dates indicated:

	As at 30 June	As at 31 December
	2020		2019
			(Audited)
	(RMB in thousands)
Investments in monetary assets	330,610		875,904
Deposit at banks	180,810		866,904
Government bonds purchased under agreements to resell	149,800		9,000
Securities Investments	7,168,804		6,177,811
Investment in equity products	739,869		645,436
Listed shares classified as:
- financial assets at FVPL	102,944		47,007
Subtotal	102,944		47,007
Mutual funds classified as:
- financial assets at FVPL	636,925		555,880
Subtotal	636,925		555,880
Equity investment in unlisted entities classified as financial assets at FVPL	-		42,549
Investment in wealth management products
Investments in consolidated trust schemes	4,637,090		5,098,350
Investments in unconsolidated trust schemes and classified as financial
investments measured at amortised cost	966,553		1,027
Investment in unconsolidated trust schemes classified as financial assets at
FVPL	662,187		258,863
Asset management products	163,105		174,135
Long-Term Equity Investments	1,606,882		1,488,410
Investment accounted for using the equity method	1,415,562		1,309,906
Investment in financial assets classified as financial assets at FVPL	191,320		178,504
Proprietary Loans	1,091,973		1,295,271
Trust Industry Protection Fund	100,070		95,668
Total	10,298,339		9,933,064

Shandong International Trust Co., Ltd. 15

MANAGEMENT DISCUSSION AND ANALYSIS

Monetary Assets

This is the safest and most liquid type of proprietary investment of the Company. The balance of the Company's investments in monetary assets and the Company's investment return (in terms of interest income generated) at the indicated periods are summarised below:

	As at 30 June	As at 31 December
	2020		2019
			(Audited)
	(RMB in thousands)
Investments in monetary assets
- Deposit at banks	180,810		866,904
- Government bonds purchased under agreements to resell	149,800		9,000
Total	330,610		875,904
	Six months ended 30 June
			2019
	2020
			(Audited)
	(RMB in thousands)
Interest income generated from:
- Deposit at banks	1,251		2,719
- Government bonds purchased under agreements to resell	2,425		3,941
Total	3,676		6,660

Average investment return of the Company's monetary assets (calculated as the total of investment income (in terms of interest income received), annualised as a percentage of average investment balance in such monetary assets, where appropriate) was 1.4% and 1.2% for the six months ended 30 June 2019 and 30 June 2020, respectively. The decrease in average investment return was attributable to the decrease in average investment amount of government bonds purchased under agreements to resell and fixed deposits placed in overseas banks of the Company in the first half of 2020.

16 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Securities Investments

Under the annual assets allocation plan of the Company, a certain percentage of the Company's proprietary assets would be allocated to securities investments including listed shares and mutual funds, as well as wealth management products, including investments in the Company's consolidated and unconsolidated trust schemes and asset management products.

The following table sets forth the risk category of the underlying investments and average investment balance of the Company's securities investments for the periods indicated:

	Six months ended	Year ended
	30 June	31 December
	2020	2019
		(Audited)
	(RMB in millions, except risk category)
Risk category of underlying investments
- Equity products	High	High
- Trust schemes	Medium	Medium
- Asset management products	Medium	Medium
Average investment balance(1)
- Equity products	692.7	526.0
- Trust schemes	5,812.0	5,730.7
- Asset management products	168.6	153.8

Note:

1. Average of the beginning balance and the ending balance of each category of investments held by the Company for the year/period indicated, before consolidation of the consolidated structured entities.

The Company contemporaneously adjusted the allocation of its proprietary assets in securities investment according to market conditions. During the Reporting Period, the average balance of the Company's investments in equity products increased by 31.7% from RMB526.0 million in 2019 to RMB692.7 million in the first half of 2020; the average balance of investments in trust schemes increased by 1.4% from RMB5,730.7 million in 2019 to RMB5,812.0 million in the first half of 2020; and the average balance of the Company's investments in asset management products increased by 9.6% from RMB153.8 million in 2019 to RMB168.6 million in the first half of 2020.

Shandong International Trust Co., Ltd. 17

MANAGEMENT DISCUSSION AND ANALYSIS

Long-Term Equity Investments

The Company has made strategic long-term investments in a number of financial institutions, which helped the Company to establish stronger business relationships with these financial institutions and created synergies for its business operations. The following table sets forth the major equity investments of the Company in financial institutions as at 30 June 2020, including their main businesses, the Company's proportionate equity interests in them, whether the Company held any board seat, the date of the Company's first investment, and the relevant accounting treatment of each investment.

		Equity interest
Name	Main business	as at 30 June 2020	Board seat	First investment date	Accounting treatment
First-Trust Fund	Management of securities	45.00%	Yes	May 2003	investments accounted for
Management Co., Ltd.	investment funds				using the equity method
(泰信基金管理有限公司)
Shandong HOWO Auto	Automobile financing	10.00%	Yes	September 2015	Investments accounted for
Finance Co., Ltd. (山東					using the equity method
豪沃汽車金融有限公司)
Fullgoal Fund	Management of securities	16.68%	Yes	April 1999	Investments accounted for
Management Co., Ltd.	investment funds				using the equity method
(富國基金管理有限公司)
Taishan Property &	Insurance products and	9.85%	Yes	December 2010	Investments accounted for
Casualty Insurance	services				using the equity method
Co., Ltd. (泰山財產保險
股份有限公司)
Dezhou Bank Co., Ltd.	Commercial banking	2.37%	Yes	November 2009	Investments accounted for
(德州銀行股份有限公司)	services				using the equity method
Minsheng Securities Co.,	Securities brokerage,	1.16%	No	January 1999	Financial assets at FVPL
Ltd. (民生證券股份有限	securities asset
公司)	management and
	proprietary trading

18 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

The Company uses the equity method to account for some of its long-term equity interests in companies that constituted associates of the Company under IFRSs, and account for the Company's long-term equity investments in other companies as financial assets at FVPL under the requirements of IFRS 9 "Financial Instruments" since 1 January 2018. The balance of the Company's long-term equity investments (including those accounted for as associates using the equity method, financial assets at FVPL) together with their investment return (in terms of dividend income generated) for the periods indicated below are summarised as follows:

	As at 30 June	As at 31 December
	2020		2019
			(Audited)
	(RMB in thousands)
Long-term equity investments, accounted for:
- As associate using the equity method	1,415,562		1,309,906
- Investment categorised as financial assets at FVPL	191,320		178,504
Total	1,606,882		1,488,410
	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Dividend income generated from:
- As associate using the equity method	60,197		43,355
- Investment categorised as financial assets at FVPL	5,417		-
Total	65,614		43,355

The average investment returns of the Company's long-term equity investments (calculated as the total of the investment income (in terms of the dividend income received), annualised as a percentage of average investment balance in such long-term equity investments, where appropriate) were 6.4% and 8.5% for six months ended 30 June 2019 and 30 June 2020, respectively. The increase in average return on long-term equity investments in the first half of 2020 as compared to that of the first half of 2019 was primarily due to the increase in dividend income from the associates of the Company in the first half of 2020.

Shandong International Trust Co., Ltd. 19

MANAGEMENT DISCUSSION AND ANALYSIS

Proprietary Loans

While the Company is allowed to grant proprietary loans to its customers, it does not engage in such business on a regular basis. As at 31 December 2019 and 30 June 2020, the outstanding balance of the Company's proprietary loans were RMB1,295.3 million and RMB1,092.0 million, respectively.

Trust Industry Protection Fund

According to the Administrative Measures on Trust Industry Protection Fund 《( 信託業保障基金管理辦法》) issued by the CBRC in December 2014, trust companies are required to subscribe for a certain amount of the protection fund when conducting business. The Company's interests in the Trust Industry Protection Fund increased by 4.6% from RMB95.7 million as at 31 December 2019 to RMB100.1 million as at 30 June 2020.

FINANCIAL OVERVIEW

Unaudited Interim Condensed Consolidated Statement of Comprehensive Income Analysis

In the first half of 2020, the net profit attributable to Shareholders of the Company amounted to RMB514.3 million, which increased by RMB186.0 million as compared to the corresponding period of last year, representing an increase of 56.7%.

Results of Operations

The following table summarises the Group's results of operations for the periods indicated:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Fee and commission income	571,351		477,066
Interest income	386,632		243,701
Net changes in fair value on financial assets at FVPL and investment in
associates measured at fair value	54,434		133,862
Investment income	42,520		3,072
Net gains on disposal of investment in associates	54,882		-
Other operating income	27,247		314
Total operating income	1,137,066		858,015

20 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Interest expenses	(171,259)		(85,581)
Staff costs (including directors and supervisors' emoluments)	(78,986)		(64,657)
Operating lease payments	(4,198)		(3,916)
Depreciation and amortisation	(6,707)		(5,004)
Change in net assets attributable to other beneficiaries of
consolidated structured entities	(25,089)		(11,321)
Tax and surcharges	(8,017)		(5,100)
Auditor's remuneration	(896)		(896)
Loan impairment charges and other credit risk provision	(312,580)		(276,232)
Impairment losses on other assets	(747)		(5,045)
Other operating expenses	(18,676)		(30,953)
Total operating expenses	(627,155)		(488,705)
Share of profit of investments accounted for using the equity method	140,148		61,833
Profit before income tax	650,059		431,143
Income tax expense	(135,791)		(102,861)
Net profit attributable to Shareholders of the Company	514,268		328,282

Total Operating Income

Fee and Commission Income

The following table summarises the breakdown of the Group's fee and commission income for the periods indicated:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Fee and commission income:
Trustee's remuneration	571,083		476,889
Others	268		177
Total	571,351		477,066

Shandong International Trust Co., Ltd. 21

MANAGEMENT DISCUSSION AND ANALYSIS

The Group's fee and commission income in the first half of 2020 was RMB571.4million, representing an increase of 19.8% as compared to RMB477.1 million in the first half of 2019. Such increase was primarily due to an increase in the Group's trustee's remuneration, which was caused by an increase in the average AUM of investment trusts (i.e., average of the beginning balance and the ending balance of AUM during the the Reporting Period) of the Company in the first half of 2020.

Interest Income

The following table summarises the breakdown of the Group's interest income for the periods indicated:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Interest income from:
Cash and bank balance	1,251		2,719
Loans to customers	377,572		230,920
Financial investments - amortised cost	2,679		2,171
Financial assets purchased under resale agreements	2,425		3,941
Contribution to Trust Industry Protection Fund on behalf of borrowers	2,705		3,950
Total	386,632		243,701

The Group's interest income in the first half of 2020 was RMB386.6 million, representing an increase of 58.7% as compared to the RMB243.7 million in the first half of 2019. Such increase was primarily due to an increase in the size of grant of loans in the consolidated trust scheme of interest income recorded by the Group in the first half of 2020, and the Group's interest income from loans to customers increased by 63.5% from RMB230.9 million in the first half of 2019 to RMB377.6 million in the first half of 2020.

22 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Net Changes in Fair Value on Financial Assets at FVPL and Investment in Associates Measured at Fair Value

Net changes in fair value on financial assets at FVPL and investment in associates measured at fair value decreased from a gain of RMB133.9 million in the first half of 2019 to a gain of RMB54.4 million in the first half of 2020, primarily due to (i) the decrease in valuation of associates indirectly held by the Group through trust schemes measured at fair value; (ii) the decrease in valuation of trust schemes held by the Group measured at FVPL; and (iii) an increase in valuation of mutual funds held by the Group measured at FVPL affected by the capital market.

Investment Income

The following table summarises the breakdown of the Group's investment income for the periods indicated:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Dividends income from:
Financial assets at FVPL	6,493		-
Net realised gains from:
Financial assets at FVPL	36,027		3,072
Total	42,520		3,072

The Group's investment income in the first half of 2020 was RMB42.5 million, representing an increase of RMB39.4 million as compared to RMB3.1 million in the first half of 2019. Such increase was primarily due to the gains generated by the disposal of listed shares and mutual funds of the Group in the first half of 2020.

Net gains on disposal of investment in associates

The net gains on disposal of the equity interests held by the specific consolidated structured entities measured at the equity method was RMB54.9 million in the first half of 2020, no such gains was recorded in the first half of 2019.

Shandong International Trust Co., Ltd. 23

MANAGEMENT DISCUSSION AND ANALYSIS

Total Operating Expenses

Interest Expenses

The Group's interest expenses represented (i) interest paid to China Trust Protection Fund Co., Ltd. (中國信託業保障基金 有限責任公司); (ii) interest paid for inter-bank borrowings and (iii) expected returns attributable to third-party beneficiaries of the Group's consolidated financing trust schemes (after offsetting the impairment losses attributable to such third-party beneficiaries).

The Group's interest expenses in the first half of 2020 were RMB171.3 million, increased by 100.1% as compared to RMB85.6 million in the first half of 2019, primarily due to an increase in expected returns attributable to third-party beneficiaries of the Group consolidated financing trust schemes (after offsetting the impairment losses attributable to such third-party beneficiaries). The increase in expected returns attributable to third-party beneficiaries of the Group's consolidated financing trust schemes (after offsetting the impairment losses attributable to such third-party beneficiaries) was primarily due to an increase in the loans scale granted by the Group's consolidated financing trust schemes in the first half of 2020 as compared to the first half of 2019 and a decrease in the proportion of proprietary funds inherent in such loans.

Staff Costs (including Directors and Supervisors' emoluments)

The following table summarises the breakdown of the Group's staff costs for the periods indicated:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Salaries and bonuses	70,948		47,733
Pension costs (defined contribution plans)	523		3,349
Housing funds	2,875		3,165
Labour union fee and staff education expenses	1,677		3,488
Other social security and benefit costs	2,963		6,922
Total	78,986		64,657

The Group's staff costs in the first half of 2020 were RMB79.0 million, increased by 22.2% as compared to RMB64.7 million in the first half of 2019, primarily due to the increase in salaries and bonuses.

24 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Impairment Losses on Assets

The following table summarises the breakdown of the Group's impairment losses on assets for the periods indicated:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Loan impairment charges and other credit risk provision
- Loans to customers	284,704		246,026
- Financial investments - amortised cost	33,952		146
- Trustee's remuneration receivable	(1,931)		3,902
- Others	(4,145)		26,158
Sub-total	312,580		276,232
Impairment loss on other assets
- Investment in artwork	747		2,712
- Investments accounted for using the equity method	-		2,333
Sub-total	747		5,045
Total	313,327		281,277

Loan impairment charges and other credit risk provision of the Group increased by 13.2% from RMB276.2 million in the first half of 2019 to RMB312.6 million in the first half of 2020, which was primarily due to the comprehensive impact of an increase in allowance for impairment of loans to customers and financial investments - amortised cost held by the Group, and a decrease in allowance for impairment of other credit assets.

Shandong International Trust Co., Ltd. 25

MANAGEMENT DISCUSSION AND ANALYSIS

Other Operating Expenses

The Group's other operating expenses decreased by 39.7% from RMB31.0 million in the first half of 2019 to RMB18.7 million in the first half of 2020, primarily due to the decrease in a foreign exchange loss in the first half of 2020.

Share of Profit of Investments Accounted for Using the Equity Method

The Group's share of profit of investments accounted for using equity method increased by 126.7% from RMB61.8 million in the first half of 2019 to RMB140.1 million in the first half of 2020, primarily due to the increase in the net profit of certain investees.

Profit before Income Tax and Operating Margin

The following table sets forth our profit before income tax and operating margin for the periods indicated:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Profit before income tax	650,059		431,143
Operating margin(1)	57.2%		50.2%

Note:

1. Operating margin = Profit before income tax/total operating income.

As a result of the foregoing, the Group's profit before income tax increased by 50.8% from RMB431.1 million in the first half of 2019 to RMB650.1 million in the first half of 2020, and the Group's operating margin increased from 50.2% in the first half of 2019 to 57.2% in the first half of 2020.

Income Tax Expense

The Group's income tax expense increased by 32.0% from RMB102.9 million in the first half of 2019 to RMB135.8 million in the first half of 2020 primarily due to an increase in profit before income tax in the first half of 2020.

26 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Net Profit Attributable to shareholders of the Company and Net Profit Margin

The following table sets forth the net profit attributable to shareholders of the Company and the Company's net profit margin for the periods indicated:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Net profit attributable to shareholders of the Company	514,268		328,282
Net profit margin(1)	45.2%		38.3%

Note:

1. Net profit margin = Net profit attributable to shareholders of the Company/total operating income.

As a result of the foregoing, the net profit attributable to the shareholders of the Company increased by 56.7% from RMB

328.3 million in the first half of 2019 to RMB514.3 million in the first half of 2020. The Group's net profit margin increased from 38.3% in the first half of 2019 to 45.2% in the first half of 2020.

Segment Results of Operations

From the business perspective, the Group conducts its business through two main business segments: trust business and proprietary business. The following table sets forth the Group's segment income and its main components for the periods indicated:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Trust business:
Operating income	571,716		477,558
Segment income	571,716		477,558
Proprietary business:
Operating income	565,350		380,457
Share of profit of investments accounted for using the equity method	140,148		61,833
Segment income	705,498		442,290

Shandong International Trust Co., Ltd. 27

MANAGEMENT DISCUSSION AND ANALYSIS

The following table sets forth the Group's segment operating expenses for the periods indicated:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Trust business	(112,129)		(105,054)
Proprietary business	(515,026)		(383,651)
Total operating expenses	(627,155)		(488,705)

The following table sets forth the Group's segment profit before income tax for the periods indicated, which is calculated as segment income minus segment operating expenses:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Trust business	459,587		372,504
Proprietary business	190,472		58,639
Total profit before income tax	650,059		431,143

The following table sets forth the Group's segment margin for the periods indicated, which is calculated as segment profit before income tax divided by the segment income:

	Six months ended 30 June
	2020		2019
	(RMB in thousands)
Trust business	80.4%		78.0%
Proprietary business	27.0%		13.3%

28 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Trust Business

The segment income from the Group's trust business consists of its fee and commission income, interest income from cash and bank balance and other operating income that are related to the Group's trust business. Segment operating expenses of the Group's trust business consist of staff costs, operating lease payments, depreciation and amortisation, tax and surcharges and other operating expenses that are related to the Group's trust business.

The segment profit before income tax for the Group's trust business increased by 23.4% from RMB372.5 million in the first half of 2019 to RMB459.6 million in the first half of 2020, primarily due to an increase of 19.7% in the segment income from the trust business from RMB477.6 million in the first half of 2019 to RMB571.7 million in the first half of 2020, partly offset by the segment operating expenses in the trust business increased by 6.7% from RMB105.1 million in the first half of 2019 to RMB112.1 million in the first half of 2020.

The increase in the segment income from the trust business was mainly due to an increase in the Group's fee and commission income from RMB477.1 million in the first half of 2019 to RMB571.4 million in the first half of 2020.

The increase in the segment operating expenses in the trust business was mainly due to an increase in staff costs from RMB62.4 million in the first half of 2019 to RMB76.8 million in the first half of 2020, while the other operating expenses decreased from RMB29.9 million in the first half of 2019 to RMB17.9 million in the first half of 2020.

As a result of the foregoing, the segment margin of the trust business increased from 78.0% in the first half of 2019 to 80.4% in the first half of 2020.

Proprietary Business

The segment income from the Group's proprietary business mainly consists of the interest income from loans to customers, interest income from financial investment - amortised cost and financial assets purchased under resale agreements, interest income from contribution to Trust Industry Protection Fund on behalf of borrowers, net changes in fair value on financial assets at FVPL and investment in associates measured at fair value, investment income, net gains on disposal of investment in associates and share of profit of investments accounted for using the equity method. The segment operating expenses of the Group's proprietary business mainly consists of the trust benefits that the Group's consolidated financing trust schemes expect to distribute to third-party beneficiaries, staff costs, depreciation and amortisation, change in net assets attributable to third-party beneficiaries of the Group's consolidated investment trust schemes, tax and surcharges and impairment losses on assets.

Shandong International Trust Co., Ltd. 29

MANAGEMENT DISCUSSION AND ANALYSIS

The segment profit before income tax for the Group's proprietary business increased by 224.8% from RMB58.6 million in the first half of 2019 to RMB190.5 million in the first half of 2020, primarily due to an increase of 59.5% in the segment income from the proprietary business from RMB442.3 million in the first half of 2019 to RMB705.5 million in the first half of 2020, partly offset by the segment operating expenses from the proprietary business increased by 34.2% from RMB383.7 million in the first half of 2019 to RMB515.0 million in the first half of 2020.

1. The increase in the segment income from the proprietary business was mainly due to (i) an increase in interest income from RMB243.2 million in the first half 2019 to RMB386.3 million in the first half of 2020; (ii) an increase in investment income from RMB3.1 million in the first half of 2019 to RMB42.5 million in the first half of 2020; (iii) net gains on disposal of investment in associates of RMB54.9 million was recorded in the first half of 2020, no such gains was recorded in the first half of 2019; (iv) an increase in other operating income from RMB0.3 million in the first half 2019 to RMB27.2 million in the first half of 2020;and (v) an increase in share of profit of investments accounted for using the equity method from RMB61.8 million in the first half of 2019 to RMB140.1 million in the first half of 2020. The interest income, investment income, net gains on disposal of investment in associates, other operating income and share of profit of investments accounted for using the equity method are partially offset by the decrease in net changes in fair value on financial assets at FVPL and investment in associates measured at fair value from RMB133.9 million in the first half of 2019 to RMB54.4 million in the first half of 2020.
2. The increase in segment operating expenses from the proprietary business was mainly due to (i) the increase in interest expenses from RMB85.6 million in the first half of 2019 to RMB171.3 million in the first half of 2020; (ii) an increase in the change in net assets attributable to other beneficiaries of consolidated structured entities from RMB11.3 million in the first half of 2019 to RMB25.1 million in the first half of 2020 and (iii) the increase in loan impairment charges and other credit risk provision from RMB276.2 million in the first half of 2019 to RMB312.6 million in the first half of 2020.

As a result of the foregoing, the segment margin of the Group's proprietary business increased from 13.3% in the first half of 2019 to 27.0% in the first half of 2020.

Selected Consolidated Financial Positions

The Group's consolidated statements of financial positions include the proprietary assets and liabilities of the Company as well as the assets and liabilities of the Company's consolidated trust schemes. The net assets attributable to third-party beneficiaries of the Group's consolidated trust schemes are accounted for as liabilities in the Group's consolidated statements of financial positions.

30 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Assets

As at 31 December 2019 and 30 June 2020, the total assets of the Group (including the Company and the trust schemes over which the Company has control) amounted to RMB14,572.3 million and RMB16,068.0 million, respectively, of which the total assets of the Company amounted to RMB11,200.6 million and RMB11,449.5 million, respectively. The Group's major assets consist of (i) loans to customers, (ii) investments in associates, (iii) financial investments - amortised cost,

1. financial assets at FVPL,(v) cash and bank balance, (vi) trustee's remuneration receivable, and (vii) financial assets purchased under resale agreements. As at 30 June 2020, the above-mentioned major assets accounted for 51.2%, 18.4%, 6.5%, 12.7%, 2.5%, 1.2% and 0.9%, respectively, of the total assets of the Group.

Loans to Customers

The following table sets forth the gross amount of the Group's loans to customers, interest receivable, expected credit losses allowance, net amount of the Group's loans to customers, as well as classification of the Group's loans to customers into non-current and current assets as at the dates indicated:

	As at 30 June	As at 31 December
	2020		2019
			(Audited)
	(RMB in thousands)
Corporate loans - at amortised cost	9,689,648		9,027,180
Interest receivable	95,290		53,398
Less: Expected credit losses allowance - Loans	(1,557,197)		(1,276,128)
Expected credit losses allowance - Interest receivable	(5,114)		(1,479)
Loans to customers, net	8,222,627		7,802,971
Presented as:
- Non-current assets	5,437,618		5,659,408
- Current assets	2,785,009		2,143,563
Loans to customers, net	8,222,627		7,802,971

The majority of the Group's loans to customers were granted by the Company's consolidated trust schemes.

Shandong International Trust Co., Ltd. 31

MANAGEMENT DISCUSSION AND ANALYSIS

The Group's loans to customers were most granted to corporate customers during the Reporting Period.

Some of the loans granted by the Group's trust schemes to which it made proprietary investment and consolidated into the Group's financial statements were identified as impaired during the Reporting Period. The gross amount of such impaired loans decreased by 7.7% from RMB1,563.5 million as at 31 December 2019 to RMB1,443.4 million as at 30 June 2020. The aggregate fair value of collateral (estimated based on the latest external valuations available and adjusted by the experience of realisation of the collateral in current market conditions) for such loans outstanding as at 31 December 2019 and 30 June 2020 were RMB742.5 million and RMB310.2 million, respectively. The Group determined the provision for impairment losses on those loans through expected credit losses assessments and made allowance for impairment of RMB1,083.5 million and RMB1,159.2 million for these impaired loans as at 31 December 2019 and 30 June 2020, respectively, representing 69.3% and 80.3% of the gross amount of those loans, respectively. The Group has provided impairment allowances as such impairment allowances were provided in accordance with the provisions under IFRS 9 "Financial Instruments". Such impairment allowances were measured by the difference between the carrying amount of those impaired loans and the present value of estimated future cash flows of those loans, and in particular, the disposal proceeds after deduction of expenses attributable to such disposals as at each of the respective balance sheet dates. The gross amount of such impaired loans represented 17.3% and 14.9% of the Group's gross loans to customers as at 31 December 2019 and 30 June 2020, respectively.

While the Company is allowed to grant loans to customers using its proprietary assets, which are referred to as the Company's proprietary loans, the Company does not regularly conduct such business. As at 30 June 2020, the gross amount of proprietary loans and the net amount of proprietary loans of the Company accounted for 15.2% and 13.2% of the gross amount of the Group's loans to customers and the net amount of the Group's loans to customers, respectively.

32 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

The following table sets forth the gross amount of the Company's proprietary loans, interest receivable, expected credit losses allowance, net amount of such loans, as well as classification of such loans into non-current and current assets as at the dates indicated:

	As at 30 June	As at 31 December
	2020		2019
			(Audited)
	(RMB in thousands)
Corporate loans - at amortised cost	1,471,898		1,571,795
Interest receivable	21,939		13,976
Less: Expected credit losses allowance - Loans	(401,018)		(290,113)
Expected credit losses allowance - Interest receivable	(846)		(387)
Loans to customers, net	1,091,973		1,295,271
Presented as:
- Non-current assets	-		1,281,682
- Current assets	1,091,973		13,589
Loans to customers, net	1,091,973		1,295,271

As the Company's proprietary loans were granted to counterparty clients of the Company, changes in the amount of such loans during the Reporting Period mainly reflected the Company's agreements with different counterparty clients at different times.

Shandong International Trust Co., Ltd. 33

MANAGEMENT DISCUSSION AND ANALYSIS

Investments in Associates

The Group has made equity investments in various companies. When the Group has significant influence but no control over a target company, the Group treats such investee company as an associate and the Group accounts for its investments in associates using the equity method of accounting or measured at fair value. The following table sets forth the associates of the Company and the associates of the Company's certain consolidated structured entities, associates indirectly held by the Group through trust schemes measured at fair value and the book value of investments in them as at the dates indicated:

	Equity Interest as at	As at 30 June	As at 31 December
	30 June 2020	2020	2019
			(Audited)
		(RMB in thousands)
Associates of the Company accounted for using the
equity method:
Fullgoal Fund Management Co., Ltd. (富國基金管理有限
公司)	16.68%	701,455	658,056
Taishan Property & Casualty Insurance Co., Ltd. (泰山財
產保險股份有限公司)	9.85%	212,899	216,375
Shandong HOWO Auto Finance Co., Ltd. (山東豪沃汽車
金融有限公司)	10.00%	207,403	198,755
Dezhou Bank Co., Ltd. (德州銀行股份有限公司)	2.37%	109,999	107,888
First-Trust Fund Management Co., Ltd. (泰信基金管理有
限公司)	45.00%	41,143	47,469
Tailong Health Industry Investment Company Limited
(太龍健康產業投資有限公司)	18.60%	35,513	-
Others		107,150	81,363
Gross amount		1,415,562	1,309,906
Less: Impairment allowance		-	-
Associates of the Company accounted for using the
equity method, net		1,415,562	1,309,906

34 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

	Equity Interest as at	As at 30 June	As at 31 December
	30 June 2020	2020	2019
			(Audited)
		(RMB in thousands)
Associates of the Company's certain consolidated
structured entities accounted for using the equity
method:
Shandong Provincial Financial Asset Management Co.,
Ltd. (山東省金融資產管理股份有限公司)	1.50%	676,609	620,282
Tailong Health Industry Investment Company Limited
(太龍健康產業投資有限公司)	-	-	50,758
Others		71,633	52,591
Gross amount		748,242	723,631
Less: Impairment allowance		(10,000)	(10,000)
Associates of the Company's certain consolidated
structured entities accounted for using the equity
method, net		738,242	713,631
Associates indirectly held by the Group through
trust schemes measured at fair value:
Henan Liang Ding Property Co., Ltd.
(河南梁鼎置業有限公司)	35.00%	153,087	153,087
Huizhou Zhengfeng Industrial Investment Co., Ltd.
(惠州市正豐實業投資有限公司)	15.20%	120,000	120,000
Cangzhou Liangsheng Property Development Co., Ltd.
(滄州梁生房地產開發有限公司)	39.00%	103,660	119,087
Huangshi Liangsheng Real Estate Development Co.,
Ltd. (黄石梁晟房地產開發有限公司)	28.00%	89,600	89,600
Tianjin Liangxin Property Development Co., Ltd.
(天津梁信房地產開發有限公司)	40.00%	79,423	87,546
Tianjin Liangshun Property Development Co., Ltd.
(天津梁順房地產開發有限公司)	40.00%	54,078	72,174
Tengzhou Haide Park Property Co., Ltd.
(滕州海德公園地產有限公司)	20.20%	47,502	53,980
Nanyang Zhongliang Chengtong Real Estate Co., Ltd.
(南陽中梁城通置業有限公司)	20.00%	44,680	44,680
Ankang Liangsheng Foundation Real Estate Co., Ltd.
(安康梁盛基業置業有限公司)	20.00%	44,000	-
Yunnan Hongshan City Investment Development Co.,
Ltd. (雲南虹山城市投資發展有限公司)	15.00%	30,000	-
Weifang Hengru Real Estate Co., Ltd. (濰坊恒儒置業有限
公司)	15.00%	14,000	-
Shenzhen Qianhai Run Xin Investment Co., Ltd.
(深圳前海潤信投資有限公司)	30.00%	12,036	12,654
Qingdao Tianyitianzhong Real Estate Development Co.,
Ltd. (青島天一天眾房地產開發有限公司)	20.00%	10,800	-
Total amount		802,866	752,808
Total		2,956,670	2,776,345

Shandong International Trust Co., Ltd. 35

MANAGEMENT DISCUSSION AND ANALYSIS

Financial Assets at FVPL

The following table sets forth the components and amount of the Group's financial assets at FVPL as at the dates indicated:

	As at 30 June	As at 31 December
	2020		2019
			(Audited)
	(RMB in thousands)
Listed shares	102,944		47,007
Equity investments in unlisted entities	208,460		374,347
Mutual funds	636,925		564,448
Investments in trust schemes	829,973		264,500
Investments in Trust Industry Protection Fund	100,070		95,668
Others	167,425		178,455
Total	2,045,797		1,524,425

The changes in the major composition of the Group's financial assets at FVPL were due to the flexible adjustment of portfolio based on the market conditions by the Group in order to increase investment returns. Financial assets at FVPL increased by 34.2% from RMB1,524.4 million as at 31 December 2019 to RMB2,045.8 million as at 30 June 2020, primarily due to the Group's (i) increase of the investments in trust schemes; (ii) increase of the investments in mutual funds; (iii) increase of the investments in listed shares; (iv) decrease of the equity investments in unlisted entities; and (v) decrease of the investments in other asset management products.

Cash and Bank Balance

As at 31 December 2019 and 30 June 2020, the Group's cash and bank balance amounted to RMB964.4 million and RMB398.9 million, respectively, of which RMB866.9 million and RMB180.8 million, respectively, were proprietary assets of the Company, and the remaining was cash and bank balance of the Group's consolidated trust schemes.

Trustee's Remuneration Receivable

The Group's trustee's remuneration receivable represents the trustee's remuneration that has accrued to the Company as the trustee but has not yet been paid from the trust accounts of its unconsolidated trust schemes to the Company's proprietary accounts.

The Group's trustee's remuneration receivable decreased by 10.6% from RMB214.1 million as at 31 December 2019 to RMB191.4 million as at 30 June 2020. The Company, as the trustee, has closely monitored the trust accounts of its unconsolidated trust schemes, and the Company is usually allowed to collect its trustee's remuneration in arrears in one or more instalments according to the Company's trust contracts. The Company is normally allowed only to receive trustee's remuneration after the trust has paid its quarterly interests, and the Company expects to continue to have certain amount of trustee's remuneration receivable in the future. As at 31 July 2020, 8.4% of the trustee's remuneration receivable was recovered.

36 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Financial Assets Purchased under Resale Agreements

The Group's financial assets purchased under resale agreements consist of the government bonds purchased under agreements to resell as part of its proprietary business.

The Group's government bond purchased under agreements to resell increased from RMB11.0 million as at 31 December 2019 to RMB149.8 million as at 30 June 2020. These changes were due to the flexible adjustment of the business scale of the Group's based on the overall market condition and interest rates, and such adjustment resulted in a change in the amounts of the Group's government bonds purchased under agreements to resell as at 31 December 2019 and 30 June 2020, respectively.

Contribution to Trust Industry Protection Fund due from Counterparty Clients

Pursuant to the Measures for the Administration of Trust Industry Protection Fund 《( 信託業保障基金管理辦法》) issued by the CBRC in December 2014, counterparty clients of the Company's financing trusts should make contributions to Trust Industry Protection Fund and the Company should collect the required contribution funds from its counterparty clients and pays to Trust Industry Protection Fund on behalf of the counterparty clients. Upon liquidation of a financing trust, Trust Industry Protection Fund will return the Company the contribution funds and any accrued interests and the Company then distributes them to the counterparty clients. From time to time, however, the Company may agree to pay such contribution funds on behalf of its counterparty clients, and in such circumstances, the Company will be entitled to keep the contribution funds and any accrued interests when they are returned to it by Trust Industry Protection Fund upon liquidation of the relevant financing trusts. The Company adopts such practice in order to avoid any unnecessary payment transactions between itself and its counterparty clients and to provide better services. The Company will not be subject to the credit risk of its counterparty clients as a result of such practice because the contribution funds will be returned to the Company by the Trust Industry Protection Fund upon liquidation of the financing trusts.

The Company recorded the amounts of contribution funds it has paid on behalf of its counterparty clients as contribution to Trust Industry Protection Fund due from its counterparty clients, which amounted to RMB540.0 million and RMB391.4 million as at 31 December 2019 and 30 June 2020, respectively, among which RMB349.5 million and RMB242.3 million were classified as non-current assets, and RMB190.5 million and RMB149.1 million were classified as current assets. Instead of collecting such amounts from the counterparty clients before liquidation of the financing trusts, the Company recovers such amounts from distributions to be made by Trust Industry Protection Fund upon termination of the financing trusts. At the end of the Reporting Period, the Company has not encountered any difficulties in recovering such amounts from distributions made by Trust Industry Protection Fund upon termination of the Company's financing trusts.

Shandong International Trust Co., Ltd. 37

MANAGEMENT DISCUSSION AND ANALYSIS

Liabilities

As at 31 December 2019 and 30 June 2020, the Group's total liabilities amounted to RMB4,761.9 million and RMB5,998.6 million, respectively. As a trust company in the PRC, the Company is not allowed to incur any debt in operating its business other than through inter-bank borrowings or otherwise allowed by the CBIRC. The Group's major liabilities during the Reporting Period included net assets attributable to other beneficiaries of consolidated structured entities (both current and non-current portions), short-term borrowings, dividend payable, income tax payable, salary and welfare payable (both current and non-current portions) and other current liabilities. As at 30 June 2020, the net assets attributable to other beneficiaries of consolidated structured entities (both current and non-current portions), short-term borrowings, dividend payable, income tax payable, salary and welfare payable (both current and non-current portions) and other current liabilities accounted for 75.8%, 5.0%, 4.3%, 1.6%, 2.0% and 11.3% of the Group's total liabilities, respectively.

Net Assets Attributable to Other Beneficiaries of Consolidated Structured Entities (both current and non-current portions)

The net assets attributable to other beneficiaries of consolidated structured entities represent third-party beneficiaries' share of net assets of the Company's consolidated trust schemes. Under the PRC laws and regulations, these third-party beneficiaries' entitlements are limited to the available assets of the relevant trust schemes, and as long as the Company does not breach its duty as a trustee, the Company will not be required to use any of its proprietary assets to pay for such third-party beneficiaries' entitlements. In addition, the Company cannot use, and is prohibited from using, the assets of a consolidated trust scheme to pay for any beneficiary of another consolidated trust scheme. As such, while the net assets attributable to other beneficiaries of consolidated structured entities are accounted for as the Group's liabilities, such liabilities are limited to the net assets of the relevant consolidated trust schemes.

The Group's total net assets attributable to other beneficiaries of consolidated structured entities (both current and non- current portions) increased by 33.5% from RMB3,404.7 million as at 31 December 2019 to RMB4,544.3 million as at 30 June 2020. Changes in such amount mainly reflected changes in the net assets of the Group's consolidated trust schemes as well as the change in percentage of the Company's proprietary investment in such trust schemes.

Income Tax Payable

The Group's income tax payable decreased by 49.3% from RMB186.4 million as at 31 December 2019 to RMB94.6 million as at 30 June 2020.

Other Current Liabilities

The Group's other current liabilities during the Reporting Period consisted mainly of proceeds due to the National Council for Social Security Fund of the PRC (全國社會保障基金理事會), and Trust Industry Protection Fund collected from counterparty clients of the Company's financing trusts, value-added tax and surcharges for trusts, deferred trustee's remuneration and other tax payable.

The Company's Trust Industry Protection Fund collected from counterparty clients of its financing trusts decreased from RMB296.1 million as at 31 December 2019 to RMB83.9 million as at 30 June 2020.

The Company's deferred trustee's remuneration decreased from RMB47.1 million as at 31 December 2019 to RMB23.3 million as at 30 June 2020.

38 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

The Notice in relation to Value-Added Tax Policies on Asset Management Products (Cai Shui [2017] No. 56)《關於資管產 品增值稅有關問題的通知》(財稅[2017]56 號) was promulgated by the Ministry of Finance of the PRC and State Taxation Administration on 30 June 2017 (the "Notice"). The Notice requires that, with effect from 1 January 2018, VAT-taxable acts committed by a manager of asset management products during the operation of asset management products shall, for the time being, be governed by the method of simplified VAT taxation, and be subject to VAT at the levy rate of 3%. The trust schemes operated by the Company shall pay the VAT pursuant to the Notice. The VAT shall be submitted to the competent taxation authority through a special account of the Company. As of 30 June 2020, the outstanding VAT for trusts and the related surcharges amounted to RMB107.0 million.

Off-balance Sheet Arrangements

As at 30 June 2020, the Group did not have any outstanding off-balance sheet guarantees or foreign currency forward contracts.

AUM, Asset Quality and Financial Performance of Consolidated Trust Schemes

The Group's results of operations and financial condition have been significantly affected by the AUM, asset quality and financial performance of the Company's consolidated trust schemes. While, under PRC laws and regulations, the assets of trust schemes under the Company's management are distinct and separate from the Company's proprietary assets and the Company is not responsible to its trustor clients or the beneficiaries for any loss of trust assets under its management, except for losses caused by the Company's failure to properly fulfill its duty as a trustee, the Company has consolidated some of the trust schemes under its management pursuant to the IFRSs. Those trust schemes are deconsolidated when the Company ceases to have control over them. During the Reporting Period, deconsolidation of the Company's consolidated trust schemes generally occurred when such trust schemes were disposed of or were liquidated upon the expiry of their terms.

As at 31 December 2019 and 30 June 2020, the Company had consolidated 58 and 58 of the trust schemes under its management, respectively, and the total trust assets of these consolidated trust schemes were RMB9,514.2 million and RMB10,414.1 million, respectively. The following table sets forth changes in the number of the Group's consolidated trust schemes during the Reporting Period:

	As at 30 June	As at 31 December
	2020	2019
Beginning:	58	51
Newly consolidated trust schemes	5	25
Deconsolidated trust schemes	5	18
Ending:	58	58

Shandong International Trust Co., Ltd. 39

MANAGEMENT DISCUSSION AND ANALYSIS

The consolidation of these trust schemes significantly increased the Company's total assets during the Reporting Period due to the inclusion of assets of these trust schemes (consisting of loans to customers, financial assets at FVPL, investments in associates and other assets) in the Company's total assets. The following table illustrates the impact on the Company's total assets resulting from the consolidation of these trust schemes during the Reporting Period:

	As at 30 June	As at 31 December
	2020		2019
			(Audited)
	(RMB in millions)
Total assets of the Company	11,450		11,201
Total assets of consolidated trust schemes	10,414		9,514
Consolidation adjustment	(5,796)		(6,143)
Total assets of the Group	16,068		14,572

However, the impact on the Group's total assets largely corresponded to the significant increase in the Group's total liabilities due to the inclusion of liabilities of these trust schemes (presented as "Net assets attributable to other beneficiaries of consolidated structured entities" in the Group's consolidated balance sheet) in the Group's total liabilities. The following table illustrates the impact on the Group's total liabilities resulting from the consolidation of these trust schemes during the Reporting Period:

	As at 30 June	As at 31 December
	2020		2019
			(Audited)
	(RMB in millions)
Total liabilities of the Company	1,463		1,439
Total liabilities of consolidated trust schemes	10,414		9,514
Consolidation adjustment	(5,878)		(6,191)
Total liabilities of the Group	5,999		4,762

40 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

As a result of the foregoing, the impact on the Group's net assets or equity from consolidation of these trust schemes was thus significantly reduced. The following table illustrates the impact on the Group's total equity resulting from the consolidation of these trust schemes during the Reporting Period:

	As at 30 June	As at 31 December
	2020		2019
			(Audited)
	(RMB in millions)
Total equity of the Company	9,987		9,762
Consolidation adjustment	82		48
Total equity of the Group	10,069		9,810

The consolidation of these trust schemes also significantly affected the Group's results of operations. For example, all trustees' remunerations the Company was entitled to from these consolidated trust schemes were eliminated as a result of consolidation and thereby reduced the Company's fee and commission income. In addition, the consolidation of these trust schemes increased the Group's interest income due to inclusion of interest income generated from loans granted by the Group's consolidated trust schemes. It also increased the Group's interest expense which represented interest income of the Group's consolidated financing trust schemes that were expected to be distributed to third-party beneficiaries of such trust schemes. These impacts on income and expenses largely offset each other, the resulting impact on net profit attributable to the Company's shareholders has been reduced. The following table illustrates the impact on net profit attributable to the Company's shareholders resulting from the consolidation of these trust schemes during the Reporting Period:

	Six months ended 30 June
	2020		2019
	(RMB in millions)
Net profit attributable to the Company's shareholders before consolidation of
trust schemes	480		332
Impact of consolidation of trust schemes	34		(4)
Net profit attributable to the Group's shareholders after consolidation of
trust schemes	514		328

Shandong International Trust Co., Ltd. 41

MANAGEMENT DISCUSSION AND ANALYSIS

In determining whether a trust scheme should be consolidated involves a substantial subjective judgment by the Company's management. The Company assesses whether a trust scheme should be consolidated based on the contractual terms as to whether the Company is exposed to risks of, or has rights to, variable returns from the Company's involvement in the trust and have the ability to affect those returns through the Company's power to direct the activities of the trust. The contractual terms of those consolidated trust schemes usually have some or all of the following features:

1. Whether the Company has power over the trust scheme, and whether the Company can exercise the rights that give the Company the ability to affect the relevant activities of the trust scheme. Usually the Company has such power when it acts as the trustee of those actively managed trusts, as the contractual terms in the trust contracts allow the Company to determine the selection of assets or projects in which the trust assets will be invested in, to perform due diligence on the assets or projects as well as the counterparties that hold the assets or projects, to determine the pricing strategy, and to be actively involved in the ongoing management and disposition of the trust assets;
2. Whether the Company is exposed to the risks of or has rights to, variable returns from its involvement as the trustee when the Company's returns from its involvement have the potential to vary as a result of the performance of the trust scheme. Such variable returns may either form a part of the investment returns from the trust scheme when the Company has proprietary funds invested in the trust scheme, or as floating trustee's remuneration as are calculated according to the relevant terms in the trust contracts; and
3. Whether the Company controls the trust scheme that the Company not only has the power over the trust scheme and exposure or rights to variable returns from its involvement, but also the ability to use its power to affect the returns from the trust scheme. As the Company is responsible for the planning, pricing, setting of beneficial rights, management and operations of those actively managed trust schemes as the trustee, the Company may have the ability to significantly affect its returns from such trust schemes. For example, where the Company subscribes a significant portion of a trust scheme, or in case the Company decides to provide liquidity support to a troubled trust, the Company intentionally uses its rights as the trustee and ability to invest using proprietary funds, so as to associate itself with the variable returns from such trust schemes.

Under IFRSs, the greater the magnitude and variability of the returns that the Company is exposed to from the Company's involvement with a trust scheme, the more likely that the Company will be deemed to have control over the trust scheme and be required to consolidate it. However, there is no bright line test and the Company is required to consider all the relevant factors as a whole.

Given the Company's limited decision-making authority over administrative management trusts and because the Company has not made any proprietary investment in the Company's administrative management trusts during the Reporting Period, the Company had not been required to consolidate any administrative management trusts during the Reporting Period.

42 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

With respect to the Company's actively managed trusts, the Company is more likely to be required to consolidate those in which it has made proprietary investments and therefore may be subject to substantial variable return resulting from such investments. The contract terms of the Company's consolidated actively managed trust schemes with respect to the Company's power and authority do not differ materially from those of its unconsolidated actively managed trusts. The amount of proprietary investment the Company has made in an actively managed trust as a percentage of its total trust assets has been, and will be, a differentiating factor in determining whether the Company was, and will be, required to consolidate such trust. Variable return may also be affected by the allocation and distribution of trust beneficiaries pursuant to the terms and conditions of respective trust contract, when the Company determines whether a trust scheme should be consolidated or not.

During the Reporting Period, the Company had not consolidated any administrative management trust schemes and had not consolidated any actively managed trust schemes in which it did not make any proprietary investments.

RISK MANAGEMENT

Overview

The Company has been devoted to establishing risk management and internal control systems consisting of objectives, principles, organisational framework, procedures and methods against key risks that the Company considers to be appropriate for its business operations, and the Company has developed a comprehensive risk management system covering all aspects of its business operation. The sophisticated risk management culture, target-oriented and sound risk management system and mechanisms of the Company ensure the sustainable and stable operation of the Company's business and provide a solid basis for the Company's identification and management of risks involved in its business operation.

Risk Management Organisational Structure

The integrated risk management organisational structure of the Company is included in every level of the Company's corporate governance, including (1) Shareholders' general meeting; (2) the Board and its Strategies and Risk Management Committee, Audit Committee and Business Decision Committee; (3) the board of supervisors; (4) General Manager's Office Meeting; (5) Trust Business Review Committee; (6) Trust Business Ad-hoc Issue Coordination Group and (7) other functional departments, including the Risk Control Department, Legal & Compliance Department, Operation Management Department, Planning and Finance Department, Information Technology Department, Business Supervision Department, Audit Department, Asset Disposition Department, Asset Management Department, Proprietary Business Management Department and Financial Investment Business Department. Finally, all Trust Business Departments of the Company (including Regional Business Units) are required to assume primary risk management responsibilities.

Shandong International Trust Co., Ltd. 43

MANAGEMENT DISCUSSION AND ANALYSIS

The organisational structure of the Company's risk management system is as follows:

			Shareholders' General Meeting
			Board of Directors	Board of Supervisors
Strategies		and Risk
	Business Decision Committee	Audit Committee
Management Committee

General Manager's Office Meeting(1)

Trust Business Review Committee

Trust Business

Ad-hoc Issue Coordination Group

Trust Business

Proprietary

Financial

Risk Control

Legal &

Operation

Planning &

Information

Business

Audit

Asset

Asset

Departments

Business

Investment

Department

Compliance

Management

Finance

Technology

Supervision

Department

Disposal

Management

Department

Business

Department

Department

Department

Department

Department

Department

Department

Department

Note:

1. Covering all our senior management members, including general manager, vice general manager, secretary to the Board, chief risk control officer and chief financial officer.

Factors Affecting the Company's Results of Operations

The following factors are the principal adverse and favourable factors that have affected and, the Company expects, will continue to affect the Company's business, financial condition, results of operations and prospects.

General Economic and Financial Market Conditions

The Company's business operations are conducted in China and most of the Company's income is generated within China. As a financial institution in China, the Company's business, financial condition, results of operations and prospects are significantly affected by general economic and financial market conditions of China.

44 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

After Chinese economy has experienced rapid growth over the past 40 years, it has entered a stage of high-quality development characterised by economic structure optimisation, industry transformation and upgrading. The structural transformation of the Chinese economy and fluctuations in macroeconomic policy and financial market present challenges for the Company's business. For example, regulation of the real estate industry in China and control on local governments to incur debts may negatively affect the Company's trust business. Under the background of economic slowdown and structural adjustment, macroeconomic situation created certain pressure and constraint on the capital and asset sides of trust industry. The Company's clients may reduce their investment activities or financing needs during times of economic slowdown, which may reduce the demand for the Company's various types of trust products. Financial risks of individual cases may break out more often during times of economic slowdown, which may increase the default risks of the Company's counterparties. In 2020, the sudden COVID-19 epidemic has a huge impact on China and world economy, and many market players have been exposed to unprecedented pressure, which may reduce the market demand for the Company's business. On the other hand, the Company may identify new business opportunities during such economic transformation and take advantages of the changes in financial market conditions and the Company may increase its business in areas that can counteract the impact of downward economic cycle. There are, however, uncertainties in the Company's ability to effectively respond to changes in general economic and financial market conditions and increase in its innovative business may not be able to offset decrease in its traditional business, and therefore, the trust business will continue to be significantly affected by general economic and financial market conditions in China.

The Company has made proprietary investments in different kinds of financial institutions in China, and a significant portion of the Company's proprietary assets are held in the form of various kinds of financial products. The value of these investments is materially affected by the general economic conditions, performance of the capital markets and investor sentiment. As such, changes in general economic and financial market conditions of China will also affect the value of, and investment income from, the Company's proprietary investments.

Regulatory Environment

The Company's results of operations, financial condition and development prospects are affected by regulatory developments in the PRC. CBIRC, the main regulatory authority for the PRC trust industry, has been continuously monitoring the development status of the industry and issuing various regulations and policies to encourage or discourage or even prohibit conducting certain types of trust business from time to time. The Company will need to continuously adjust its trust business structure and mode of operation to conform to these regulations and policies, which may have positive or negative impact on the size, income or profitability of the Company's trust business. In April 2018, the People's Bank of China, the CBIRC, the China Securities Regulatory Commission and the State Administration of Foreign Exchange jointly issued the Guiding Opinions on Regulating Asset Management Business of Financial Institution (Yin Fa [2018] No. 106) 《( 關於規範 金融機構資產管理業務的指導意見》(銀發[2018]106號)) to unify the regulatory standards of asset management business by product types, requiring, among other things, financial institutions including trust companies to carry out "de- channeling" and "reduce nested systems" in conducting the asset management business. In 2020, the CBIRC made clear requirements for the pressure drop of trust companies' channel business, insisting on the goal of "de-channeling", continuing to reduce channel business of trust companies and guiding trust companies to accelerate business model transformation. Such policies may impose certain tightening effects on the operation of trust companies in the short term, while in the long term, they are conducive to trust companies in enhancing the active management capability and revisiting to the fundamentals of trust industry. However, the regulatory authorities may also restrict the development of certain businesses of trust companies from time to time, which may have an adverse effect on the Company's business.

Shandong International Trust Co., Ltd. 45

MANAGEMENT DISCUSSION AND ANALYSIS

In addition, the regulatory environment of other financial industries in China may also indirectly impact the Company's trust business. For example, in September 2018, the CBIRC promulgated the "Administrative Measures for Supervision of Wealth Management Business of Commercial Banks" 《( 商業銀行理財業務監督管理辦法》) and the "Administrative Measures for Wealth Management Subsidiaries of Commercial Banks" 《( 商業銀行理財子公司管理辦法》) in December 2018, which clearly stipulated the wealth management business of commercial banks, allowing commercial banks to develop asset management services through the establishment of financial management subsidiaries. The Company has traditionally benefited from the expanded business scope under the Company's trust license. However, other financial institutions, such as commercial banks and subsidiaries of commercial banks, may be able to offer an increasing number of products and services that are similar to these offered by the Company and the Company may lose some of its advantages and face increased competition as a result.

Business Lines and Product Mix

The Company has two business segments, namely trust business and proprietary business. The Company's historical financial results were significantly affected by the fee and commission income from the Company's trust business. As a result, any material changes in the Company's trust business, such as in terms of client development, growth strategies and regulatory requirements, may significantly affect the Company's financial condition and results of operations. The Company also offers a variety of trust products, including actively managed trusts, which have relatively high trust remuneration rates, and administrative management trusts, which have relatively low trust remuneration rates. The Company has financing trusts that provide financings to counterparty clients in different industries and investment trusts that invest the Company's trustor clients' assets into different asset classes. Therefore, different types of trust products will have different risk-and-return profiles and will require different means of management from the Company, which will affect the trustee's remuneration of the Company. As a result, the overall financial performance of the Company's trust business would be significantly affected by the relative weight of different types of trust products the Company provides. The Company also generates interest income and investment income from its proprietary business by allocating its proprietary assets into different asset classes. The performance of the Company's proprietary business is affected by its proprietary assets allocation plan, market condition, interest rate as well as the Company's investment and risk management capability, and will also significantly affect the Company's financial position and results of operation.

The Company continues to diversify the Company's trust products by designing more trust products tailored to different and emerging demands and providing more active assets management services. As a result, the Company's future results of operations and financial condition could be significantly affected by the Company's ability to design, develop and manage more trust products that are attractive to the Company's counterparty clients and trustor clients and allow the Company to maintain or increase the trustee's remuneration rates. The Company also seeks to further improve its proprietary business through optimization of asset allocation, and the Company's success in this regard is also expected to significantly affect the Company's future results of operations and financial condition.

46 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Competition

The Company faces competition from other trust companies in China. In the course of internal development in the trust industry with the momentum characterised by differentiation, most of the trust companies are working on expansion and innovation in a proactive and effective manner. The Company competes with these trust companies in terms of client base, knowledge of the relevant industries, active management capability, innovation capability, reputation, creditworthiness, shareholders' background and support. The Company will leverage on its own advantages, shareholders' background, strategic partnership as well as research and development and innovative capabilities, fostering business expansion and financial innovation to reinforce the Company's competitive position while maintaining its profitability.

The Company also faces competition from other financial institutions. For the Company's financing trusts, the Company competes with other potential financing sources, such as commercial banks and investment banks, for the Company's counterparty clients and the intensity of competition from other financing sources will affect the number and quality of the Company's counterparty clients as well as the level of interest the Company can charge on financings to the Company's counterparty clients and thereby affect the Company's operating income and profitability. For the Company's investment trusts, the Company competes with other financial institutions that provide assets and wealth management services. Given the changes of regulation policies on various financial sectors, financial institutions such as commercial banks, securities firms, fund management companies, private equity funds and insurance companies have diversified their assets and wealth management services. As such, the Company's ability to grow its investment trust business depends on the Company's ability to effectively compete with these financial institutions through offering a variety of trust products that are tailored to the different needs of the Company's trustor clients.

Interest Rate Environment

The Company's business is also affected by changes in interest rates, which fluctuate continually and may be unpredictable and highly volatile. Interest rates in China are regulated by the People's Bank of China. The Company's business and results of operations are affected by changes in interest rates in different ways, such as:

• Changes in lending rates may affect the comparative financing costs for the Company's counterparty clients from different financing sources and thereby affect their willingness to carry out financings through the Company's trust products;
• Changes in deposit interest rates may affect the comparative investment returns to the Company's trustor clients from different investment options and thereby affecting their willingness to invest in the Company's trust products;
• Changes in lending rates may affect the amount of interest income generated from loans provided to the Company's counterparty clients by the Company's trust schemes or itself using the Company's proprietary assets and thereby affecting the amount of the trustee's remuneration of the Company as well as the Company's interest income from consolidated trust schemes and its proprietary loans; and
• Changes in interest rates may also affect the value of various types of financial assets held by the Company's trust schemes or itself as proprietary assets. For example, an increase in interest rates may cause a decline in the market value of fixed-income securities and thereby reduce the net assets value of the trust schemes holding such securities or the Company's proprietary business.

Shandong International Trust Co., Ltd. 47

MANAGEMENT DISCUSSION AND ANALYSIS

Credit Risk Management

Credit risk refers to the risk that the clients and counterparties of the Company fail to fulfill contractual obligations. The credit risk of the Company arises from the Company's trust business and proprietary business.

During the Reporting Period, in strict compliance with credit risk management guidelines and other regulatory requirements issued by the CBIRC, under the leadership of the Strategies and Risk Management Committee of the Board and the senior management, the Company focused on facilitating the realisation of strategic goals by improving credit risk management system and system establishment and reinforcing risk management over key areas so as to control and mitigate credit risks.

Credit Risk Management on Trust Business

The credit risk of the Company's trust business mainly refers to the risk that the Company, as the trustee, fails to receive the Company's due remuneration which is agreed in the trust contracts. The majority of the Company's trusts are financing trusts, under which the failure of fulfilling the repayment obligations by the counterparty clients of the Company, or the ultimate financiers, will negatively affect the Company's ability to receive its remuneration. The Company assesses and manages such default risk through comprehensive due diligence, stringent internal approval and trust establishment procedures as well as ex-post inspections and monitoring. The Company obtains third party guarantee and collateral as credit enhancements in order to mitigate the default risk by financiers and the Company may ask for additional collaterals in case the value of the original collaterals become insufficient. Under circumstances where the Company assesses the likelihood of such default becomes relatively high, the Company may take necessary resolution and disposition measures in a timely manner to minimise the potential loss.

Credit Risk Management on Proprietary Business

The proprietary business of the Company mainly includes the Company's own debt and equity investments. The management of the Company had formulated an annual asset allocation plan which consists of concentration limit for each type of investment and such annual plan shall be approved by the Board. The Company maintains a diversified investment portfolio for the Company's proprietary business and has established detailed internal risk management policies and procedures for each type of investment.

48 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Market Risk Management

Market risk primarily refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of the changes in market prices. It mainly represents the volatility risk arising from price risk, interest rates risk and foreign exchange risk. During the Reporting Period, the Company managed such risk mainly through the Company's diversified and carefully selected investment portfolio and stringent investment decision-making mechanism.

Liquidity Risk Management

Liquidity risk refers to the risk that the Company may not be able to generate sufficient cash to settle the Company's debts in full when they fall due or may only do so on terms that are materially disadvantageous to the Company.

During the Reporting Period, the Company conducted periodical forecasts of the Company's cash flows and monitored the short-term and long-term capital needs of the Company to ensure sufficient cash reserve and financial assets that could be readily convertible into cash. The Company holds sufficient unrestricted cash at bank and in hand to satisfy the capital need for the daily operation of the Company.

Compliance Risk Management

Compliance risk refers to the risk of being subject to legal sanctions, regulatory measures, disciplinary penalties or loss of property or reputation because the Company's business activities or those activities of the Company's employees violated the relevant laws, regulations or rules. The Company had formulated various compliance rules and policies and the Legal

• Compliance Department shall be responsible for monitoring the overall compliance status of each aspects of the daily operation of the Company.

During the Reporting Period, the Legal & Compliance Department of the Company also continuously tracked the latest development of the relevant laws, regulations and policies and submitted proposals on the formulation of and amendments to the relevant internal regulations and policies to the relevant departments. Moreover, the Company organised various training programs for the employees from different departments based on the nature of their respective business activities and periodically provided updates relating to the current legal and regulatory requirements and the Company's internal policies on an ongoing basis.

Shandong International Trust Co., Ltd. 49

MANAGEMENT DISCUSSION AND ANALYSIS

Operational Risk Management

Operational risk refers to the risk of financial loss resulting from the improper operation of transactional processes or the management system. During the Reporting Period, to minimise the operational risk, the Company implemented strict operational risk control mechanisms to reduce the risks of technical irregularities or human errors and enhanced the effectiveness of the operational risk management. In addition, the Audit Department of the Company shall be responsible for conducting internal auditing and evaluating the effectiveness of the operational risk management.

Reputational Risk Management

The Company values its positive market image which has been built over the years. It actively implements effective measures to avoid and prevent from any harm to its reputation. The Company formulated the Administrative Measures on Reputational Risk Management. During the Reporting Period, the Company enhanced customer loyalty with its outstanding wealth management capability and at the same time, promoted its external publicity, actively performed social responsibilities and created multiple channels to communicate with the regulatory authorities, media, public and other stakeholders to strengthen the Company's core corporate values of "Professionalism, Integrity, Diligence and Accomplishment".

Other Risk Management

The Company enhanced its foresight and adaptability and controlled the policy risks by analysing and researching on the national macro-economic policies and industrial policies. A sound corporate governance structure, an internal control system and business operational procedures had been established to ensure complete and scientific work logistics. The Company consistently strengthened the ideological education for its employees, fostered their awarenesses of diligence and dedication, and advanced their risk management concepts to prevent moral risks. At the same time, the Company strengthen the education of legal awareness and carried out extensive educational activities for all of its employees to strengthen their sense of occupational integrity. The Company also designated specific legal positions and engaged legal advisers on annual basis to control the legal risks effectively.

50 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Risk Management Systems and Policies

The Company has put in place systems and policies in every aspect and stage of our business operation. These internal systems constitute a complete risk management system. The main systems and policies applicable to the Company's trust business may be illustrated as follows:

• Administrative Measures on Individual Trust Business
• Administrative Measures on Collective Trust Scheme
• Administrative Measures on Collective Trust Due Diligence
• Administrative Measures on Equity Investment Trust Business
• Administrative Measures on Collective Concentration of Business
• Administrative Measures on Risk Management Plans
• Administrative Measures on Comprehensive Risks

• Administrative Measures on Contract Matters

• Administrative Measures on the Financial Management of Trust Business
• Administrative Measures on Information Disclosure of Trust Scheme
• Administrative Measures on the Post Loan (Investment) of Trust Scheme
• Regulations on Internal Supervision

Project
Initiation	Internal
and Due	Approval
Diligence

				Trust	Profit
				Scheme
Legal	Transfer of	Distribution
Management &
Documentation	Trust Assets	&
Information
				Liquidation
				Disclosure

• Rules of Procedures on Trust Business Review Committee
• Rules of Procedures on General Manager's Office Meeting
• Rules of Procedure on Party Committee
• Rules of Procedures on Business Decision Committee of the Board of Directors

• Administrative measures on Financial Management of Trust Business
• Administrative Regulations on Reporting Financial Information
• Administrative Measures on Special Bank Settlement Account of Trust Assets

• Administrative Measures on the Financial Management of Trust Business
• Regulation on Internal Audit
• Regulation on Internal Supervision

Shandong International Trust Co., Ltd. 51

MANAGEMENT DISCUSSION AND ANALYSIS

The main systems and policies governing the proprietary business of the Company include Rules of Procedures on Business Decision Committee of the Board of Directors (董事會業務決策委員會議事規則), Rules of Procedures on Party Committee (黨委會議事規則), Rules of Procedures on General Manager's Office Meeting (總經理辦公會議事規則), Administrative Measures on Proprietary Long-Term Equity Investments (自有資金長期股權投資業務管理辦法), Administrative Measures on Proprietary Securities Investment (自營證券業務管理辦法), Administrative Measures on Proprietary Loans (自有 資金貸款業務管理辦法), Administrative Measures on Proprietary Financial Products Investment (自有資金認購理財產品管理辦 法), and Administrative Measures on Inter-bank Lending and Borrowing (自有資金同業拆借管理辦法).

Anti-money Laundering Management

During the Reporting Period, the Company performed anti-money laundering obligations of the Company in accordance with the applicable anti-money laundering laws and regulations of the PRC and adopted its own Administrative Measures on Anti-Money Laundering 《( 反洗錢管理辦法》). Such measures set out the anti-money laundering system of the Company and regulate the anti-money laundering management of the Company, ensuring that the Company can perform the anti-money laundering obligations in accordance with the applicable anti-money laundering laws and regulations.

The Company established an Anti-Money Laundering Leading Work Group for anti-money management, appointed the General Manager of the Company as the chairperson of the group, and the Chief Risk Management Officer who was responsible for legal and compliance matters as the vice chairperson of the group, and the heads of other relevant departments as members of the group. The Company also established an anti-money laundering office under the Anti- Money Laundering Working Group, consisting of the department heads of the Planning & Finance Department, Risk Control Department, Operation Management Department, Legal & Compliance Department, Wealth Management Center, General Management Department, Audit Department and Office of Party Committee and Discipline Inspection, in order to organise and conduct anti-money laundering management work.

Pursuant to the Company's Administrative Measures on Anti-Money Laundering, the Company has established a client identification system, which requires employees of the Company to effectively verify and continuously update the identification data of the Company's clients. For example, employees of the Company are required to conduct due diligence on the comprehensive background of potential clients, including verifying the validity of the identification data provided, such as the respective corporate certification for enterprises and individuals, or individual identity cards, as well as understanding sources of funds, liquidity and potential transaction purposes of such potential clients. Also, employees of the Company are required to continuously update such clients' identification data during its daily operation, in particular where there is any material change. Employees shall conduct further investigations if any irregularity is identified in connection with the clients' operational or financial status, or their usual transaction patterns, or there was any discrepancy between any new data available to the Company and the data previously provided to the Company, or any suspicious activities involving money laundering or terrorist financing. The Company may terminate the business relationship with a client if it fails to provide it with the most updated and valid identification documents within a certain period upon the Company's request. The identification data of the Company's clients is recorded and archived in accordance with the relevant PRC laws. Such identification data and any information or materials relating to the Company's transactions and accounts with the Company would be kept for at least five years after the relevant party ceases to be a client of the Company.

52 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Furthermore, the Company's Administrative Measures on Anti-Money Laundering also specify certain criteria of demining a suspicious transaction and establish a suspicious transaction reporting system. Based on such criteria, business departments of the Company are required to immediately report to the Anti-Money Laundering Work office of the Company if they identify any suspicious transaction during their daily operation. The Anti-Money Laundering Work office is required to conduct investigation and analysis on the reported transaction. Once confirmed, it is required to report such transaction to the Anti-Money Laundering Leading Work Group of the Company, which shall also report to the PRC Anti-Money Laundering Monitoring and Analysis Center led by the People's Bank of China within 10 days of the transaction in accordance with the relevant laws and regulations.

CAPITAL MANAGEMENT

The Company's capital management is centred on net capital and risk-based capital, with an objective to meet external regulatory requirements, balance the risk and return and maintain an appropriate level of liquidity.

The Company prudently determines the objectives of net capital and risk-based capital management that are in accordance with regulatory requirements and are in line with its own risk exposure. Generally, the capital management measures include adjustment of dividend distribution and raising new capital.

The Company monitors its net capital and risk-based capital regularly based on regulations issued by the CBIRC. Effective from 20 August 2010, the Company started to implement the CBRC's regulation of "Measures for the Administration of Net Capital of Trust Companies" 《( 信託公司淨資本管理辦法》) which was issued on the same day. Pursuant to this regulation, a trust company shall maintain its net capital at a level of no less than RMB200 million, the ratio of net capital to total risk-based capital at no less than 100%, and the ratio of net capital to net asset at no less than 40%. The Company reports the required capital information to the CBIRC on a quarterly basis.

Total risk-based capital is defined as the aggregate of (i) risk-based capital of the Company's proprietary business; (ii) risk-based capital of the Company's trust business; and (iii) risk-based capital of the Company's other business, if any. The risk-based capital is calculated by applying a risk factor which ranges from 0% to 50% for the Company's proprietary business, and 0.1% to 9.0% for the Company's trust business.

As at 30 June 2020, the Company's net capital was approximately RMB8.086 billion, which is not less than RMB200 million; the total risk-based capital was approximately RMB4.065 billion; the ratio of net capital to total risk-based capital was 198.91%, which is not lower than 100%; and the ratio of net capital to net asset was 80.95%, which is not lower than 40%.

Shandong International Trust Co., Ltd. 53

MANAGEMENT DISCUSSION AND ANALYSIS

FUTURE PROSPECT

In the foreseeable future, as uncertainties lingered concerning the global pandemic and the world economy was double affected by both supply and demand, which exacerbated the risk of recession, regional financial risks accelerated and accumulated, leading to further reduction in the room for macroeconomic policies in major economies and huge uncertainties for economic development. While the pandemic brought unprecedented impacts to the socioeconomic development of our country, its overall effects were controllable, so the huge challenges faced in the short-term could not change the fundamentals of China's economic stability, long-term improvement, and high-quality development. China's financial industry will focus on the three major concepts of serving the real economy, preventing and controlling financial risks, and deepening financial reform while accelerating efforts to fully conduct the "stability on six fronts" and "security in six areas" campaigns and strengthening counter-cycle adjustment, in order to offer precise financial support for epidemic prevention and control, work resumption and the development of the real economy, and guarantee the accomplishment of the significant mission of poverty alleviation for the development of a well-off society. Following the new trends in the expansion and opening up of the financial sector, industrial regulatory requirements and valuable asset management industry development, the trust business will make use of the advantages of the trust system to speed up transformation and innovation, continue to increase support for the real economy, perfect its incentive mechanisms and promote the trust culture, thereby vigorously developing investment, service and wealth management businesses and constructing research and investment systems with the characteristics of trusts, in order to achieve a new round of high quality development in the sector.

HUMAN RESOURCES MANAGEMENT

Guided by the target of corporate strategies for the human resources work of the Company in the first half of 2020, the Company always adheres to enhancing human resources value, continuously improves the scientific and systematic level of human resource management and providing solid organisational assurance and talents support to the high-quality development of the Company.

The Company formulated human resources development strategy according to corporate strategies, fully strengthened the development of human resources management system, established the long-term mechanism for "selecting, using, cultivating and maintaining" talents, fully motivated the entrepreneurial enthusiasm of all employees and officers and created a good talent development environment.

The Company continued to optimise organisational structure, integrated and optimised departments, clarified duties of departments and offices, establish wealth network, recruited excellent talents from inside and outside and gradually built professional business line.

The Company standardised the management of selection and appointment of personnel, promoted the development of staff and kept improving the management ability and level of the management, provided staff with various promotion channels and addressed the practical issue of the employee's career development.

We believe the competence and loyalty of its employees are vital to its sustainable growth. The Company has adopted a market-oriented performance assessment, appraisal and incentive system, under which compensation is linked to employee's performance. We formulate a remuneration plan based on the operation performance, risk control and other conditions of the Company. The remuneration of employees is closely related to their performance index, risk control index, social responsibility index and other assessment and completion.

54 INTERIM REPORT 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Comprehensive performance assessment systems provide the basis for human resources related decisions such as compensation adjustment, bonus distribution, promotion, talent development, and employee incentives. Comply with the relevant regulations of the supervisory authority on salary management, and earnestly implement the relevant regulations such as the salary deferred payment system and the post avoidance system.

We provide social insurance (including pension insurance, medical insurance, employment injury insurance, unemployment insurance, and maternity insurance) and housing provident fund for our employees in accordance with the relevant laws and regulations of the PRC. The Company also provides supplementary pension insurance and medical insurance for employees.

We always insist on the development of "learning organisation" and has provided staff with a multi-level,year-round training programme, and we exert great efforts in improving the comprehensive quality and work skills of staff. We rely on online and offline training platforms, carry out internal training by means of internal case sharing and engaging external professional mentors. In addition, we actively encourage employees to "go out". We keep improving the Company's training system by combining compulsory courses with optional courses, focusing on training credits and enriching online training courses. We provide efficient, professional and all-around training according to the needs of different posts and levels.

Our employees have participated in labour unions that safeguard the rights and interests of its employees, and coordinate closely with management with respect to human resources matters. The Company's operations have never been affected by any strike or significant labour dispute. The Company believes our management will continue to maintain good relationships with the labour union and its employees.

As at 30 June 2019 and 30 June 2020, the Company has a total of 221 and 227 employees, respectively. The number and percentage of different employees by departments are as follows:

	30 June 2020		30 June 2019
			Number of
	Number of
	employees	%	employees	%
Management	8	3.52	8	3.62
Trust business employees	95	41.85	89	40.27
Proprietary business employees	16	4.85	6	2.72
Wealth management employees	26	11.45	23	10.41
Risk management and audit employees	26	11.45	25	11.31
Financial and accounting employees	10	6.17	14	6.33
Operation management employees	30	13.22	32	14.48
Other staff (1)	17	7.49	24	10.86
Total	227	100.00	221	100.00

Note:

1. Includes employees from the Company's human resources department, research and development department as well as other back-end departments.

Shandong International Trust Co., Ltd. 55

MANAGEMENT DISCUSSION AND ANALYSIS

As at 30 June 2019 and 30 June 2020, the details of employees by age are as follows:

	30 June 2020		30 June 2019
			Number of
	Number of
	employees	%	employees	%
Aged 25 and below	4	1.76	0	0
Aged 25-29	52	22.91	41	18.55
Aged 30-39	120	52.86	125	56.56
Aged 40 and above	51	22.47	55	24.89
Total	227	100.00	221	100.00

As at 30 June 2019 and 30 June 2020, the details of employees by education level are as follows:

	30 June 2020		30 June 2019
			Number of
	Number of
	employees	%	employees	%
Doctoral degree and above	6	2.64	6	2.71
Master's degree	163	71.81	153	69.23
Bachelor's degree	48	21.15	51	23.08
Junior college and below	10	4.40	11	4.98
Total	227	100.00	221	100.00

56 INTERIM REPORT 2020

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS

CHANGE IN SHARE CAPITAL

	31 December 2019		30 June 2020
			Increase or
			decrease during
			the Reporting	Number of
Category of shares	Number of shares	Percentage	Period	shares	Percentage
		(%)			(%)
Domestic Shares	3,494,115,000	75	-	3,494,115,000	75
H Shares	1,164,735,000	25	-	1,164,735,000	25
Total	4,658,850,000	100	-	4,658,850,000	100

INTERESTS OF SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS

As at 30 June 2020, the Company has been notified by the following persons in relation to their interests or short positions in the shares and underlying shares of the Company which are discloseable pursuant to Divisions 2 and 3 of Part XV of the SFO, and such interests or short positions recorded in the register required to be kept under section 336 of the SFO are as follows:

				Approximate
			Number of	percentage of the	Approximate
			underlying shares	class of underlying	percentage of total
Name of Shareholder	Class of shares	Nature of interests(1)	held(2)	shares(2)	share capital(2)
Shandong High-Tech Venture Capital Co., Ltd.(3)	Domestic Shares	Beneficial owner	125,000,000	6.44%	4.83%
Lucion Venture Capital Group Co., Ltd.(3)	Domestic Shares	Interest in a controlled	125,000,000	6.44%	4.83%
		corporation
Shandong Lucion Investment Holdings Group Co., Ltd(3),(5)	Domestic Shares	Beneficial owner	2,242,202,580	64.17%	48.13%
	Domestic Shares	Interest in a controlled	225,000,000	6.44%	4.83%
		corporation

Shandong International Trust Co., Ltd. 57

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS

				Approximate
			Number of	percentage of the	Approximate
			underlying shares	class of underlying	percentage of total
Name of Shareholder	Class of shares	Nature of interests(1)	held(2)	shares(2)	share capital(2)
Shandong Provincial Finance Bureau(4)	Domestic Shares	Interest in a controlled	2,467,202,580	70.61%	52.96%
		corporation
CNPC Assets Management Co., Ltd.(6)	Domestic Shares	Beneficial owner	485,293,750	25.00%	18.75%
CNPC Capital Company Limited(6)	Domestic Shares	Interest in a controlled	485,293,750	25.00%	18.75%
		corporation
CNPC Capital Joint Stock Company with Limited Liability(6)	Domestic Shares	Interest in a controlled	485,293,750	25.00%	18.75%
		corporation
China National Petroleum Corporation(6)	Domestic Shares	Interest in a controlled	485,293,750	25.00%	18.75%
		corporation
State-owned Assets Supervision and Administration	H Shares	Interest in a controlled	140,425,000	21.70%	5.43%
Commission of Jinan Municipal People's Government(7)		corporation
Jinan Finance Holding Group Co., Ltd.(7)	H Shares	Beneficial owner	140,425,000	21.70%	5.43%
Qingdao Global Wealth Center Development and Construction	H Shares	Beneficial owner	130,900,000	20.23%	5.06%
Co., Ltd.(8)
Qingdao Laoshan District Finance Bureau(8)	H Shares	Interest in a controlled	130,900,000	20.23%	5.06%
		corporation
China Create Capital Limited	H Shares	Beneficial owner	64,737,000	10.00%	2.50%
Chang Xin Asset Management Co., Ltd.(9)	H Shares	Trustee	113,263,200	9.72%	2.43%
Dingxin Company Limited(10)	H Shares	Beneficial owner	51,315,000	7.93%	1.98%
Honesty Global Holdings Limited(10)	H Shares	Interest in a controlled	51,315,000	7.93%	1.98%
		corporation
Ou Guofei (11)	H Shares	Founder of a	51,315,000	7.93%	1.98%
		discretionary trust
Ou Zonghong(11)	H Shares	Beneficiary of a trust	51,315,000	7.93%	1.98%
TMF (Cayman) Ltd.(10),(11)	H Shares	Trustee	51,315,000	7.93%	1.98%
Xu Lixiang (11)	H Shares	Interest of spouse	51,315,000	7.93%	1.98%
Shandong Development & Investment Holding Group Co.,	H Shares	Beneficial owner	51,272,000	7.92%	1.98%
Ltd.
HWABAO TRUST CO., LTD	H Shares	Trustee	35,974,200	5.56%	1.39%

58 INTERIM REPORT 2020

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS

Note:

1. All of the interests refer to long positions.
2. According to the authorization of the 2018 Second Extraordinary General Meeting convened on 19 October 2018 by the Company, on 8 January 2020, the Company completed the issue of new shares to Shareholders by way of capitalisation of capital reserve on the basis of 8 new shares for every 10 existing Shares then held by Shareholders whose names were on the register of members of the Company on the Record Date (i.e. 19 December 2018). A total of 2,070,600,000 new shares were issued under the capitalisation issue, including 1,552,940,000 new domestic shares and 517,660,000 new H Shares (the "Capitalisation Issue"). The total Shares in issue of the Company as at 30 June 2020 were 4,658,850,000 Shares, comprising 3,494,115,000 Domestic Shares and 1,164,735,000 H Shares. The number and percentage of shares disclosed herein is equal to the number and percentage of shares reported in the form of disclosure of interests, pursuant to, the change of number of Shares arising from Capitalisation Issue did not constitute reporting obligation pursuant to the SFO and apart from the Shandong Provincial Finance Bureau, Lucion Group and Chang Xin Asset Management Co., Ltd., the updated number of shares were not reflected in the form of disclosure of interests.
3. Shandong High-Tech Venture Capital Co., Ltd. ("Shandong High-Tech") is a direct wholly-owned subsidiary of Lucion Venture Capital Group Co., Ltd. ("Lucion Venture Capital"). Lucion Venture Capital is a non-wholly owned subsidiary owned as to 69.57% by Lucion Group and therefore is deemed to be interested in all of the shares of the Company held by Shandong High-Tech, and Lucion Group is deemed to be interested in all of the shares of the Company held indirectly by Lucion Venture Capital. As disclosed in the announcement of the Company dated 3 September 2020, Shandong High-Tech intends to transfer all of its 4.83% equity interest in the Company to Lucion Group by way of non-public agreement. As at the date of this report, the proposed equity transfer has not been completed.
4. Lucion Group is owned as to 97.39% by Shandong Provincial Finance Bureau and as to 2.61% by Shandong Provincial Council for Social Security Fund (山東省社會保障基金理事會) ("Shandong SSF"). Shandong Provincial Finance Bureau is therefore deemed to be interested in all of the shares of the Company directly and indirectly held by Lucion Group.
5. On 11 February 2020, 46,800,000 Domestic Shares of the Company held by Jinan Energy Investment Co., Ltd. were auctioned off on a judicial auction and obtained by Lucion Group. The change of equity interest has been approved by Shandong Office of CBIRC on 27 February 2020.
6. CNPC Assets Management Co., Ltd. is a direct wholly-owned subsidiary of CNPC Capital Company Limited ("CNPC Capital") and CNPC Capital is wholly-owned by CNPC Capital Joint Stock Company with Limited Liability ("CNPC"). CNPC, which is an A share listed company, is held as to 77.35% by China National Petroleum Corporation. Each of CNPC Capital, CNPC and China National Petroleum Corporation are therefore deemed to be interested in all of the shares of the Company held by CNPC Assets Management.
7. Jinan Finance Holding Group Co., Ltd. ("Jinan Finance Holding") is wholly owned by State-owned Assets Supervision and Administration Commission of Jinan Municipal People's Government ("Jinan SASAC") and Jinan SASAC is therefore deemed to be interested in all of the shares of the Company held by Jinan Finance Holding.
8. Qingdao Global Wealth Center Development and Construction Co., Ltd. is wholly owned by Qingdao Laoshan District Finance Bureau and Qingdao Laoshan District Finance Bureau is therefore deemed to be interested in all of the shares of the Company held by Qingdao Global Wealth Center Development and Construction Co., Ltd.
9. Chang Xin Asset Management Co., Ltd. holds the equity of the Company's shares as a trustee of the trust for the Chang Xin Fund-Dongfang No. 1 Single Asset Management Plan.
10. Dingxin Company Limited is wholly owned by Honesty Global Holdings Limited and Honesty Global Holdings Limited is wholly owned by TMF (Cayman) Ltd. Honesty Global Holdings Limited and TMF (Cayman) Ltd. are therefore deemed to be interested in all of the shares of the Company held by Dingxin Company Limited.
11. TMF (Cayman) Ltd., being the trustee of Ou Family Trust, holds shares of the Company through Honesty Global Holdings Limited and Dingxin Company Limited, being its wholly-owned subsidiaries. Each of Mr. Ou Guofei, the founder of Ou Family Trust, Mr. Ou Zonghong, the beneficiary of Ou Family Trust and Ms. Xu Lixiang, the spouse of Mr. Ou Zonghong, are deemed to be interested in
    all of the shares of the Company held by the trust assets of Ou Family Trust.

Shandong International Trust Co., Ltd. 59

DETAILS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

PROFILE

Directors

As at the date of publication of this interim report, members of the Board of Directors include Mr. Wan Zhong (Chairman) and Mr. Yue Zengguang as executive Directors; Mr. Xiao Hua (vice chairman), Mr. Jin Tongshui and Ms. Wang Bailing as non-executive Directors; Mr. Yen Huai-chiang, Mr. Ding Huiping and Ms. Meng Rujing as independent non-executive Directors.

Supervisors

As at the date of publication of this interim report, the members of the Board of Supervisors include Mr. Guo Shougui (chairman), Mr. Hou Zhenkai, Mr. Chen Yong, Mr. Wu Chen, Ms. Wang Zhimei, Mr. Guan Wei as shareholder representative Supervisors; Mr. Tian Zhiguo, Mr. Zuo Hui and Mr. Zhang Wenbin, as employee representative Supervisors.

Senior Management

As at the date of publication of this interim report, the members of the senior management include Mr. Yue Zengguang as the general manager, Ms. Zhou Jianqu as the vice general manager; Mr. He Chuangye as the vice general manager, the secretary to the Board and the joint company secretary; Mr. Wang Ping as the chief financial officer; Mr. Fu Jiguang as the chief risk management officer; and Mr. Niu Xucheng as the vice general manager.

CHANGES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Changes of Directors

Ms. Wang Bailing was elected as the non-executive Director of the Company at the 2019 first extraordinary general meeting held on 28 November 2019, and the qualification of Ms. Wang to act as the non-executive director was approved by the Shandong Office of CBIRC on 25 March 2020.

Changes of Supervisors

During the Reporting Period, there was no change of Supervisors of the Company.

Changes of senior management

During the Reporting Period, there was no change of senior management of the Company.

Save as disclosed above, there is no other information required to be disclosed under the Rule 13.51B (1) of the Listing Rules.

60 INTERIM REPORT 2020

SIGNIFICANT EVENTS

CORPORATE GOVERNANCE

During the Reporting Period, the Company persistently raised the transparency of corporate governance so as to safeguard the interests of the Shareholders and enhance the corporate value.

The Company has set up a relatively comprehensive corporate governance structure as required by the Listing Rules. The composition of the Board and the special committees under the Board are in compliance with the requirements of the Listing Rules. The Company clearly classifies the responsibilities among the Shareholders' general meeting, the Board, the Board of Supervisors and senior management. The Shareholders' general meeting acts as the highest authority of the Company and the Board is held accountable to Shareholders. The Board has established six special committees, which operate under the leadership of the Board and provide opinions on the decisions of the Board. The Board of Supervisors oversees the steady and sound operation of the Company and the performance of duties by the Board and senior management. Under the leadership of the Board, the senior management is responsible for implementation of resolutions from the Board and the day-to-day business and management of the Company, as well as periodic reporting to the Board and the Board of Supervisors.

CORPORATE GOVERNANCE CODE

The Company is committed to maintaining high standard of corporate governance to safeguard the interests of the Company's Shareholders and to enhance corporate value and accountability. The Company has adopted the Corporate Governance Code and Corporate Governance Report (the "Corporate Governance Code") contained in Appendix 14 to the Listing Rules as its own corporate governance code. The Company has been in compliance with all code provisions as set out in the Corporate Governance Code during the Reporting Period. The Company will continue to review and monitor its corporate governance practice in order to ensure the compliance with the Corporate Governance Code.

SHAREHOLDERS' GENERAL MEETING

The Company held the 2019 annual general meeting (the "2019 AGM") in Jinan on 17 June 2020, at which 12 resolutions were considered and approved, including the 2019 Work Report of the Board, 2019 Work Report of the Independent Directors, 2019 Work Report of the Board of Supervisors, 2019 Final Account Report, 2019 Profit Distribution Plan, grant of general mandate to the Board to issue shares, and Considering and Approving the Proposed Amendments to the Articles of Association and the Grant of Mandate to the Board to Complete the Approval and/or Registration or Filing of the Company's Articles of Association in accordance with Relevant Laws, Regulations, Requirements of Relevant Government Departments and Regulatory Authorities; and listened to the 2019 Net Capital Report and the Report on the Due Payment of Trust Business of the Company and the Realisation of the Interests of Beneficiaries of 2019.

The Shareholders' general meeting was convened in accordance with relevant laws, regulations and the Listing Rules. The Directors, Supervisors and senior management attended the meeting. The Company announced the poll results of the Shareholders' general meeting in due course in accordance with regulatory requirements.

Shandong International Trust Co., Ltd. 61

SIGNIFICANT EVENTS

THE BOARD OF DIRECTORS

As at the date of the publication of this interim report, the Board of Directors comprised eight Directors, including two executive Directors, three non-executive Directors, and three independent non-executive Directors.

During the Reporting Period, the Company convened 5 board meetings and considered and approved 36 resolutions, including 2019 Work Report of the General Manager, the Resolution on 2019 Financial Report (Draft), the Resolution on 2019 Profit Distribution Plan (Draft) and the 2019 Work Report of the Board (Draft).

In the first half of 2020, the six committees under the Board convened a total of 35 meetings and considered and listened to report 110 resolutions, including the Resolution on 2019 Annual Report and Results Announcement (Draft) and the Resolution on the 2019 Remuneration Plan for the Directors (Draft).

All Directors shall ensure that they carry out their duties in good faith, in compliance with applicable laws and regulations, and in the interests of the Company and its Shareholders at all times. The Company has arranged appropriate insurance coverage in respect of liability arising from legal actions against its Directors, and will conduct annual review of the scope of such insurance coverage.

THE BOARD OF SUPERVISORS

As at the date of the publication of this interim report, the Board of Supervisors comprised nine Supervisors. Pursuant to the Articles of Association, at least one-third of our Supervisors must be employee representatives elected by the employees. Mr. Tian Zhiguo, Mr. Zhang Wenbin and Mr. Zuo Hui are elected by our employees while other Supervisors are elected and appointed by our Shareholders at the Shareholders' general meeting. Each of the Supervisors elected by our employees or by our Shareholders is appointed for a term of three years, which is eligible for re-election and re-appointment.

During the Reporting Period, the Board of Supervisors convened a total of one meeting and considered and approved nine resolutions, including the 2019 Work Report of the Board of Supervisors (Draft) and the Resolution on the 2019 Remuneration Plan for the Supervisors (Draft).

During the Reporting Period, with a view to be committed to the Shareholders and the Company, the Board of Supervisors has diligently performed its duties of supervision pursuant to applicable laws and regulations and the Articles of Association. The Board of Supervisors strived to explore supervisory methods to improve its effectiveness so as to protect the interests of the Shareholders and the Company to further exercise its supervisory and counter balancing further under the corporate governance of the Company.

By attending meetings of the Board and its special committees, general manager's office meetings and other relevant meetings, the Board of Supervisors gets informed of decisions of the Company and information about operation and management, reviews and verifies the financial information, and strengthens its supervision over Directors, Supervisors and senior management's lawful operation and decision-making procedures for major issues. It also reinforces its supervision over Directors, Supervisors, senior management as well as the execution of resolutions of the Shareholders' general meeting, the Board and the Board of Supervisors by carrying out investigations and studies, conducting visits and interviews and analysing relevant information. Pursuant to the relevant regulatory requirements, it conducted annual performance reviews, and issued evaluation reports on the performance of Directors, Supervisors and senior management.

62 INTERIM REPORT 2020

SIGNIFICANT EVENTS

The Board of Supervisors supervised the regular periodic with the focus on truthfulness, accuracy and completeness of the financial reports, reviewed the annual audit plan, interim review plan and relevant implementation reports carefully, and guided external audit work. The Board of Supervisors closely monitored the establishment and implementation of the internal control system, the problems identified during the internal audit and the implementation of the rectification of such problems identified. The Board of Supervisors was particularly focused on a sound and organised implementation of the Company's risk management system, providing relevant opinions and suggestions on the implementation of the risk prevention and control work and improving and perfecting the risk management system.

SENIOR MANAGEMENT

Our senior management is responsible for the day-to-day management and operation of the business of the Company. Serving as the executive body of the Company, the senior management is responsible for the Board of Directors and is subject to the supervision of the Board of Supervisors. Powers and authority of the senior management and the Board of Directors are divided in strict compliance with the Articles of Association and other corporate governance documents.

During the Reporting Period, the senior management of the Company paid great efforts, duly performed their roles and pragmatically executed each resolution passed at the Shareholders' general meetings and Board meetings. They have not acted against the laws, regulations and the Articles of Association nor have prejudiced the interests of the Company.

RISK MANAGEMENT AND INTERNAL CONTROL

Risk Management and Internal Control Systems

The Board understands that the Board shall, in accordance with the requirements of the corporate internal control standards and system, establish and execute sound and effective internal controls, undertake to maintain adequate risk management and internal control systems and truthfully disclose the evaluation report of internal controls, to safeguard the Shareholders' investments and the Company's assets, and conduct annual review on the effectiveness of the internal control systems.

During the Reporting Period, details about establishment of the risk management systems, risk management structure and control measures of the Company are set out in "Risk Management" under the section headed "Management Discussion and Analysis" of this interim report.

The internal control of the Company is aimed at ensuring a reasonable legal compliance of operation and management, the safety of assets, the truthfulness and completeness of financial reports and relevant information and the improvement on operational efficiency and effectiveness so as to realise our developmental strategies. We have established an internal control system comprising of the regulation system, the benchmark system and the assessment system. To facilitate the improvement of our internal control system, we have comprehensively reviewed various internal procedures of the Company, and we have requested the relevant parties to rectify the problems identified.

Shandong International Trust Co., Ltd. 63

SIGNIFICANT EVENTS

In terms of corporate governance, the Board is ultimately responsible for the sound establishment, effective implementation and overall examination and review of the internal control system. The Board of Supervisors supervised the Board and the management on the sound establishment, effective implementation and regular review of the Company's internal control system. The management organised and leaded the daily operation of the internal control of the Company, established and improved the related system of the operational sector of the internal control system, and comprehensively promoted the implementation of the internal control system. The Audit Committee of the Board annually reviewed the Company's evaluation report on internal control for the year.

In terms of the Company's operation, the business department is the first line of defence and had established an internal control mechanism of voluntarily implementing the internal control, assessing its own risk exposure, conducting self- correction and reporting in a timely manner. The legal and compliance department, and Risk Control Department as the second line of defence, acts as the functional department for internal control and compliance management. It leads the establishment and maintenance of the internal control system, and supervises and examines the implementation of internal control by a combination of routined and targeted inspections. The audit department, as the third line of defence, conducts audit and evaluation on the adequacy and effectiveness of internal control, reported problems identified in the audit to the Board, and provides supervision and follow-up on the rectification.

Internal Auditing

The Company has adopted an internal audit system and has professional auditors responsible for the independent and objective supervision, examination and evaluation of the Company's conditions such as revenues and expenditures, business activities, risk conditions and internal control. The auditors shall report to the Board or the Audit Committee of the Board and the Board of Supervisors if any material problems are discovered during the audits.

During the Reporting Period, the internal audit organisation of the Company was led by the Board and consisted of the Audit Committee and the audit department. The Board was responsible for supervising, reviewing and evaluating the Company's internal audit to ensure that the internal audit was independent and effective. The audit committee of the Board was responsible for reviewing the Company's internal audit methods, audit policies and procedures and annual auditing plans and providing guidance and supervision. The Company had adhered to the principles of independence, objectivity, prudence, efficiency, importance and pertinence during the internal auditing process. The Company's internal audit system was comprehensive covering business operation, risk management, internal control and corporate governance.

Under the leadership of the Audit Committee of the Board, the audit department organised and coordinated the Company's annual internal audit during the Reporting Period based on the annual internal audit work plan for 2020. In addition, the Company organised the risk management and internal control assessment team as well as relevant departments to closely cooperate with the external auditors in the work of internal control audit of financial statements. The internal control audit has performed auditing for all key processes and control points related to major accounting subjects. The external auditors regularly communicated with the management on audit results.

64 INTERIM REPORT 2020

SIGNIFICANT EVENTS

During the Reporting Period, the Company continued to promote the concept that "prioritises compliance, requires all staff to comply with laws and regulations consciously and encourages staff to create value when complying with laws and regulations". It established a compliance management system that "defines rules on internal control, sets restrictions on each department, specifies responsibility of each position, sets procedures for all operation, requires supervision over all processes, demands close monitoring on risks, request performance assessment, and sets clear accountability". The Company maintained a sound development of internal control management, enhanced the execution of internal control measures, and optimised the establishment of risk control system. Details are as follows:

1. The Company audited 2019 operating activities, business performance and internal management of the Company. The Company attached great importance to the implementation of internal control, development of regulation system and compliance system of the Company, as well as the enhancement of risk management and control and the ability to withstand risk. The Company actively provided advice and suggestions for the optimisation of corporate operation and management and enhancing corporate value, so as to perform obligation of internal auditors to supervise;
2. The Company objectively evaluated the development of 2019 internal control system of the Company, carrying out the evaluation of internal controls in terms of control environment, risk assessments, control activities, information and communication and internal supervision of the Company. The Company provided remedial measures for the possible internal control deficiencies, constantly improving and streamlining the internal control system of the Company;
3. The Company conducted targeted inspections on existing trust business on a regular basis and focused on the compliance of business implementation, completeness of duty performance and validity of internal supervision in terms of projects approval, due diligence review, project approval, project establishment and duration management, so as to improve standard business management; and
4. The Company conducted dynamic monitoring on the quality of the system data used in the trust business. supervising the processing of system data used in the trust business and the progress of the upgrade and perfection works through regular full-scope checking and random testing, with an aim to ensure the accuracy of the quality of system data for its businesses and provide great support for improving efficiency of operation and management.

During the Reporting Period, the Board had reviewed the risk management and internal control systems of the Group and considered the systems to be adequate and effective.

Shandong International Trust Co., Ltd. 65

SIGNIFICANT EVENTS

PROFITS AND DIVIDENDS DISTRIBUTION

The Company's establishment and implementation of cash dividend policy conforms to the regulations of the Articles of Association, as well as the requirements of the Shareholders' general meeting. The dividend standard and proportion are clear, and the decision-making procedure and mechanism are mature and have been approved by the independent non- executive Directors. Medium and minority shareholders may express their opinions and requests to maintain their legal rights.

As approved by the 2019 AGM convened on 17 June 2020, the Company paid a cash dividend of RMB0.055 per share (tax inclusive) (the total dividend of approximately RMB256.2 million (tax inclusive)), on 12 August 2020, to holders of H Shares and Domestic Shares whose names appear on the registers of members of the Company on 29 June 2020.

The Company will not declare the interim dividend for the year 2020.

USE OF PROCEEDS

The Company was listed on the Hong Kong Stock Exchange on 8 December 2017. A total of 647,075,000 H shares were issued in the global offering, including 588,250,000 H shares issued in the global offering and 58,825,000 H shares converted from domestic shares and offered for sale in the global offering. The offer price was HK$4.56 per H Share. The nominal value is RMB1.00 per H Share. After deduction of (i) the net proceeds from the sale of the sale shares by the selling Shareholders in the global offering; and (ii) the underwriting commissions and other expenses in connection with the global offering, the net proceeds received by the Company from the global offering were approximately HK$2,560.3 million.

As at 30 June 2020, all proceeds were settled to the Company's domestic accounts, utilised in the manner set out in the Prospectus, and were collected in full together with the Company's existing proprietary assets for allocation to different assets classes, significantly increasing the Company's net capital.

CHANGE OF REGISTERED CAPITAL AND CAPITAL STRUCTURE AND CHANGE OF SHAREHOLDING OF SHAREHOLDERS

On 11 February 2020, 46,800,000 Domestic Shares of the Company held by Jinan Energy Investment Co., Ltd. were auctioned off on a judicial auction and obtained by Lucion Group. This change of equity interest has been approved by Shandong Office of CBIRC on 27 February 2020.

Save as disclosed above, the Company had not changed its registered capital or its capital structure during the Reporting Period.

66 INTERIM REPORT 2020

SIGNIFICANT EVENTS

CHANGE OF SHAREHOLDING STRUCTURE OF CONTROLLING SHAREHOLDER

On 9 January 2020, the registered capital of Lucion Group, the Controlling Shareholder of the Company, has increased from RMB3 billion to RMB11.5 billion, and the increasing registered capital was fully contributed by Shandong Province Finance Bureau. Upon the capital increase, the registered capital of Lucion Group was RMB11.5 billion, of which RMB8.5 billion was contributed by Shandong Province Finance Bureau, representing 73.91% of the registered capital of Lucion Group, RMB2.1 billion was contributed by Shandong SASAC, representing 18.26% of the registered capital of Lucion Group, RMB0.6 billion was contributed by Shandong Guohui, representing 5.22% of the registered capital of Lucion Group, and RMB0.3 billion was contributed by Shandong SSF, representing 2.61% of the registered capital of Lucion Group. The controlling shareholder of Lucion Group has been changed from Shandong SASAC to Shandong Province Finance Bureau. Both Shandong Province Finance Bureau and Shandong SASAC are subordinates to the People's Government of Shandong Province.

The Company has also been informed by Lucion Group that it has received the waiver granted by the Executive of Corporate Finance Division, the Securities and Futures Commission of Hong Kong (the "Executive") to make the mandatory general offer to acquire all of the securities of the Company by Lucion Group and persons acting in concert with it due to such change of shareholding structure of the Controlling Shareholder under Rule 26 of the Hong Kong Code on Takeovers and Mergers (the "Takeovers Code").

On 10 April 2020, the shareholding structure of Lucion Group has been further changed. Shandong SASAC and Shandong Guohui transferred 18.26% and 5.22% equity interest in Lucion Group held by them to Shandong Province Finance Bureau at nil consideration, respectively. Upon completion of the above transfers, Lucion Group is owned as to 97.39% by Shandong Province Finance Bureau and as to 2.61% by Shandong SSF. Shandong Province Finance Bureau remains to be the controlling shareholder of Lucion Group, while Shandong SASAC and Shandong Guohui has ceased to be shareholders of Lucion Group. The Company has also been informed by Lucion Group that the Executive has confirmed to Lucion Group that no general offer obligations for the shares of the Company will be triggered on the part of Shandong Province Finance Bureau as a result of the transfers pursuant to Rule 26 of the Takeovers Code.

Upon the above changes of the shareholding of our Controlling Shareholder, the shareholding in the Company held by Lucion Group, the Controlling Shareholder, remained unchanged (all of which are the domestic shares of the Company). Its nature as a state-owned shareholder has not changed. Its ultimate controller remains the People's Government of Shandong Province. The changes of the shareholding structure of Lucion Group does not have any impact on the operating activities of the Company.

Shandong International Trust Co., Ltd. 67

SIGNIFICANT EVENTS

PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

In accordance with the relevant requirements of the Reply of the State Council on the Adjustment of the Notice Period of the General Meetings and Other Matters Applicable to oversea listed companies (Guo Han [2019] No.97) 《( 關於調整適用在境外 上市公司召開股東大會通知期限等事項規定的批覆》(國函[2019] 97號)) issued by the State Council of the PRC and the Interim Measures for Equity Management of Trust Companies 《( 信託公司股權管理暫行辦法》), the Company proposed to amend the relevant articles of Articles of Association in relation to (i) the notice period of general meeting, the convening procedures and other matters; and (ii) establishment of the related party transaction control committee ("Proposed Amendments to the Articles of Association"). The resolution on the Proposed Amendments to the Articles of Association was considered and approved by the shareholders at the 2019 AGM, the H Shareholders class general meeting ("H Shareholders Class Meeting") and domestic shareholders class meeting ("Domestic Shareholders Class Meeting") of the Company dated 17 June 2020, and became effective upon approval by the Shandong Office of CBIRC on 1 September 2020.

Save as disclosed above, during the Reporting Period and up to the date of this interim report, there had been no material change to the Articles of the Association. The Company's Articles of Association are available on the websites of the Company and the Hong Kong Stock Exchange.

PROPOSED AMENDMENTS TO THE PROCEDURAL RULES FOR THE GENERAL MEETING AND THE PROCEDURAL RULES FOR THE BOARD OF DIRECTORS

Based on the Proposed Amendments to the Articles of Association, the Company proposed to amend correspondingly the terms of the procedural rules for the general meeting regarding the notice period and convening procedures of the general meeting (the "Proposed Amendments to Procedural Rules for the General Meeting"), and the terms of the procedural rules for the Board of Directors regarding the committees under the Board of Directors ("Proposed Amendments to the Procedural Rules for the Board of Directors"). The resolution on the Proposed Amendments to the Procedural Rules for the General Meeting was considered and approved by the Shareholders at the 2019 AGM, the H Shareholders Class Meeting and Domestic Shareholders Class Meeting. The resolution of Proposed Amendments to Procedural Rules for the Board of Directors was considered and approved by the Shareholders at the 2019 AGM of the Company.

MATERIAL LEGAL PROCEEDINGS AND ARBITRATION

As at 30 June 2020, the Company, being the plaintiff and applicant, were involved in 2 pending material litigations involving an amount of more than RMB10 million in dispute, the value of the litigations in which the Company was involved approximately RMB157.51 million in total. These litigations were mainly contract dispute.

As at 30 June 2020, the Company, being the defendant, was involved in 6 pending litigations, of which the amount in dispute was more than RMB10 million, total value of the litigation in which the Company was involved amounted to RMB357.78 million. These litigations were mainly contract dispute.

MATERIAL ASSETS ACQUISITION, SALE AND MERGER

During the Reporting Period, the Company had no material assets acquisition, sale and merger.

68 INTERIM REPORT 2020

SIGNIFICANT EVENTS

PENALTIES IMPOSED ON THE COMPANY AND DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT OF THE COMPANY

During the Reporting Period, the Company, and its Directors, Supervisors and senior management were not subject to any penalty.

IMPLEMENTATION OF EQUITY INCENTIVE PLAN

During the Reporting Period, the Company did not implement any equity incentive plan.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

During the Reporting Period, the Company did not purchase, sell or redeem any of the Company's listed securities.

MAJOR CLIENTS AND SUPPLIERS

During the Reporting Period, the aggregate trustee's remuneration of the Company's top five trust schemes in terms of trustee's remunerations accounted for less than 30% of the Company's total fee and commission income during the relevant period.

To the knowledge of the Directors, none of the Directors, Supervisors and their respective close associates or any Shareholder holding more than 5% of the issued share capital of the Company has any interest in any of the trustor clients and counterparty clients of the Company's five largest trust schemes in terms of trustee's remuneration during the Reporting Period.

The Company has no major suppliers due to the nature of our business.

SECURITIES TRANSACTIONS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers ("Model Code") specified in Appendix 10 to the Listing Rules, as the code of conduct for securities transactions implemented by its Directors and Supervisors. After specific inquiry to all Directors and Supervisors, all Directors and Supervisors confirmed that during the Reporting Period, they all have complied with the standard regulations set out in the Model Code.

During the Reporting Period, the Company also adopted a set of code of conduct for securities transactions implemented by its employees not inferior to the standards set out in the Model Code, to allow employees who may have access to any undisclosed inside information of the Company to purchase and sell securities of the Company as required.

Shandong International Trust Co., Ltd. 69

SIGNIFICANT EVENTS

DIRECTORS AND SUPERVISORS' INTERESTS IN MATERIAL TRANSACTIONS, ARRANGEMENTS OR CONTRACTS

During the Reporting Period, none of the Directors or Supervisors directly or indirectly had any material interest in any material transaction, arrangement or contract in relation to the Company's business, to which the Company, any of its subsidiaries or fellow subsidiaries, if any, was a party.

DIRECTORS', SUPERVISORS' AND CHIEF EXECUTIVES' INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES OR DEBENTURES

During the Reporting Period, none of the Directors, Supervisors, chief executive or their respective associates had any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations (as defined in Part XV of the SFO) which were required to be entered into the register kept by the Company pursuant to section 352 of the SFO or which they were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code.

DIRECTORS' AND SUPERVISORS' RIGHTS TO ACQUIRE SHARES OR DEBENTURES

During the Reporting Period, the Company had not been a party to any arrangement that would enable the Directors or Supervisors to benefit from the acquisition of shares in, or debentures of, the Company or any other body corporate, and none of the Directors and Supervisors or any of their spouses or children under the age of 18 were granted any right to subscribe for the equity or debt securities of the Company or any other body corporate or had exercised any such right.

PROVISIONAL REPORT ON MATERIAL ISSUES

During the Reporting Period, no provisional report in connection with material issues was made by the Company.

AUDIT COMMITTEE

The Audit Committee has reviewed the interim results of the Company for the six months ended 30 June 2020 and the financial statements for the six months ended 30 June 2020 prepared in accordance with IFRS.

70 INTERIM REPORT 2020

SIGNIFICANT EVENTS

AUDITOR

PricewaterhouseCoopers was appointed as the auditor to review the financial information for the six months ended 30 June 2020 prepared in accordance with the IFRS. The interim financial information disclosed in this interim report have not been audited. The enclosed interim condensed consolidated financial information prepared in accordance with the IFRS have been reviewed by PricewaterhouseCoopers. The Company has retained PricewaterhouseCoopers since the date of preparation of its listing. PricewaterhouseCoopers retired as the Company's auditor at the end of the forthcoming shareholders' annual general meeting of the Company and, being eligible, offered themselves for re-appointment. A resolution was proposed for approval by Shareholders at the 2019 annual general meeting of the Company to consider and approve the re-appointment of PricewaterhouseCoopers as the Company's overseas auditor for auditing 2020 financial statements and reviewing interim financial statements and PricewaterhouseCoopers Zhong Tian LLP as the Company's domestic auditor for auditing 2020 financial statements, which was approved by the Shareholders

SUBSEQUENT EVENTS

Save as disclosed above, the Company had no material matters subsequent to the Reporting Period.

Shandong International Trust Co., Ltd. 71

REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

TO THE BOARD OF DIRECTORS OF SHANDONG INTERNATIONAL TRUST CO., LTD.

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

INTRODUCTION

We have reviewed the interim financial information set out on pages 73 to 128, which comprises the interim condensed consolidated statement of financial position of Shandong International Trust Co., Ltd. (the "Company") and its subsidiaries (together, the "Group") as at 30 June 2020 and the interim condensed consolidated statement of comprehensive income, the interim condensed consolidated statement of changes in equity and the interim condensed consolidated statement of cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 "Interim Financial Reporting". The directors of the Company are responsible for the preparation and presentation of this interim financial information in accordance with International Accounting Standard 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this interim financial information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

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

CONCLUSION

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

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 25 August 2020

72 INTERIM REPORT 2020

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

		Six months ended 30 June
	Note		2019
	2020
		(Unaudited)	(Unaudited)
Fee and commission income	3	571,351	477,066
Interest income	4	386,632	243,701
Net changes in fair value on financial assets at fair value
through profit or loss and investment in associates measured
at fair value	5	54,434	133,862
Investment income	6	42,520	3,072
Net gains on disposal of investment in associates		54,882	-
Other operating income		27,247	314
Total operating income		1,137,066	858,015
Interest expenses	7	(171,259)	(85,581)
Staff costs (including directors and supervisors' emoluments)	8	(78,986)	(64,657)
Operating lease payments		(4,198)	(3,916)
Depreciation and amortisation		(6,707)	(5,004)
Change in net assets attributable to other beneficiaries of
consolidated structured entities		(25,089)	(11,321)
Tax and surcharges		(8,017)	(5,100)
Auditor's remuneration		(896)	(896)
Loan impairment charges and other credit risk provision	9	(312,580)	(276,232)
Impairment losses on other assets	10	(747)	(5,045)
Other operating expenses		(18,676)	(30,953)
Total operating expenses		(627,155)	(488,705)
Share of profit of investments accounted for using the equity
method		140,148	61,833
Profit before income tax		650,059	431,143
Income tax expense	11	(135,791)	(102,861)
Net profit attributable to shareholders of the Company		514,268	328,282

Shandong International Trust Co., Ltd. 73

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

		Six months ended 30 June
	Note		2019
	2020
		(Unaudited)	(Unaudited)
Other comprehensive income
Items that may be reclassified subsequently to profit or
loss:
Share of other comprehensive income from investments
accounted for using the equity method	23	985	723
Total other comprehensive income, net of tax		985	723
Total comprehensive income
attributable to shareholders of the Company		515,253	329,005
Basic and diluted earnings per share attributable to
shareholders of the Company (in RMB yuan)	12	0.11	0.07
Total comprehensive income for the period attributable to
shareholders of the Company arises from:
Continuing operations		515,253	329,005
Discontinued operations		-	-

The above interim condensed consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

74 INTERIM REPORT 2020

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

		30 June	31 December
	Note	2020	2019
		(Unaudited)	(Audited)
ASSETS
Non-current assets
Property, plant and equipment		124,403	126,522
Investment properties		146,965	148,825
Right-of-use assets		1,143	1,043
Intangible assets		5,141	5,829
Investments in associates	13	2,956,670	2,776,345
Financial assets at fair value through profit or loss	19	789,876	912,970
Loans to customers	14	5,437,618	5,659,408
Financial investments-amortised cost	15	983,972	18,541
Advance payments		21,492	25,326
Deferred income tax assets	16	240,560	230,110
Other non-current assets	17	251,547	359,503
Total non-current assets		10,959,387	10,264,422
Current assets
Cash and bank balance	18	398,930	964,424
Financial assets at fair value through profit or loss	19	1,255,921	611,455
Financial assets purchased under resale agreements		149,800	11,026
Loans to customers	14	2,785,009	2,143,563
Financial investments-amortised cost	15	63,299	60,828
Trustee's remuneration receivable		191,371	214,056
Other current assets	20	264,332	302,516
Total current assets		5,108,662	4,307,868
Total assets		16,068,049	14,572,290
Equity and liabilities
Share capital	21	4,658,850	4,658,850
Capital reserve	21	143,285	143,285
Statutory surplus reserve	22	845,282	845,282
Statutory general reserve	22	834,036	834,036
Other reserves	23	120	(865)
Retained earnings		3,587,856	3,329,825
Total equity		10,069,429	9,810,413

Shandong International Trust Co., Ltd. 75

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

		30 June	31 December
	Note	2020	2019
		(Unaudited)	(Audited)
Liabilities
Non-current liabilities
Salary and welfare payable		32,461	48,899
Lease liabilities		138	346
Net assets attributable to other beneficiaries of consolidated
structured entities	25	3,765,977	2,647,623
Total non-current liabilities		3,798,576	2,696,868
Current liabilities
Short-term borrowings	26	300,000	320,000
Lease liabilities		816	708
Salary and welfare payable		90,164	61,961
Net assets attributable to other beneficiaries of consolidated
structured entities	25	778,281	757,118
Income tax payable		94,570	186,357
Dividend payable		260,611	4,374
Other current liabilities	27	675,602	734,491
Total current liabilities		2,200,044	2,065,009
Total liabilities		5,998,620	4,761,877
Total equity and liabilities		16,068,049	14,572,290

The above interim condensed consolidated statement of financial position should be read in conjunction with the accompanying notes.

The interim financial information was approved and authorised for issue by the Board of Directors on 25 August 2020 and signed on its behalf by：

Chairman and Executive Director

General Manager and Executive Director

76 INTERIM REPORT 2020

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

			Statutory	Statutory
		Capital	surplus	general	Other	Retained
	Share capital	reserve	reserve	reserve	reserves	earnings	Total
	(Note 21)	(Note 21)	(Note 22)	(Note 22)	(Note 23)
(Unaudited)
Balance at 1 January 2020	4,658,850	143,285	845,282	834,036	(865)	3,329,825	9,810,413
Net profit for the period	-	-	-	-	-	514,268	514,268
Other comprehensive income for
the period	-	-	-	-	985	-	985
Total comprehensive income	-	-	-	-	985	514,268	515,253
Dividend distribution (Note 24)	-	-	-	-	-	(256,237)	(256,237)
Balance at 30 June 2020	4,658,850	143,285	845,282	834,036	120	3,587,856	10,069,429
Balance at 1 January 2019	2,588,250	2,231,139	767,319	756,073	(1,301)	3,199,212	9,540,692
Net profit for the period	-	-	-	-	-	328,282	328,282
Other comprehensive income for
the period	-	-	-	-	723	-	723
Total comprehensive income	-	-	-	-	723	328,282	329,005
Share capital converted from
capital reserve	2,070,600	(2,070,600)	-	-	-	-	-
Dividend distribution (Note 24)	-	-	-	-	-	(377,367)	(377,367)
Other	-	(54,266)	-	-	-	-	(54,266)
Balance at 30 June 2019	4,658,850	106,273	767,319	756,073	(578)	3,150,127	9,438,064

The above interim condensed consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Shandong International Trust Co., Ltd. 77

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

		Six months ended 30 June
	Note		2019
	2020
		(Unaudited)	(Unaudited)
Cash flows from operating activities
Profit before income tax		650,059	431,143
Adjustments for:
Depreciation and amortisation		6,707	5,004
Loan impairment charges and other credit risk provision	9	312,580	276,232
Impairment losses on other assets	10	747	5,045
Fair value changes in financial assets at fair value through
profit or loss and investment in associate measured at fair
value		(54,434)	(133,862)
Change in net assets attributable to other beneficiaries of
consolidated structured entities		25,089	11,321
Share of profit of investments accounted for using the equity
method		(140,148)	(61,833)
Net gains on disposal of investment in associates		(54,882)
Interest expense for financing activities		9,428	15,788
Dividend income from financial assets		(6,493)	-
Net gain on disposal of property and equipment, intangible
assets and other long-term assets		(19)	(1)
Subtotal		748,634	548,837
Net change in operating assets and operating liabilities:
Increase in financial assets at fair value through profit or loss		(418,196)	(307,603)
(Increase)/Decrease in loans to customers		(704,360)	357,732
(Increase)/Decrease in financial investments-amortised cost		(1,001,854)	53,828
Increase in financial assets purchased under resale
agreements		(138,774)	(618,700)
Net increase/(decrease) in net assets attributable to other
investors of consolidated structured entities		1,241,137	(183,536)
Net decrease/(increase) in other operating assets		159,302	(60,689)
Net (decrease)/increase in other operating liabilities		(124,241)	142,437
Cash used in operating activities before income tax		(238,352)	(67,694)
Income tax paid		(238,028)	(239,035)
Net cash used in operating activities		(476,380)	(306,729)

78 INTERIM REPORT 2020

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

		Six months ended 30 June
	Note		2019
	2020
		(Unaudited)	(Unaudited)
Cash flows from investing activities:
Dividends received from investments accounted for using the
equity method		60,197	43,355
Dividends received from financial assets		6,493	-
Purchase of property and equipment, intangible assets and
other long-term assets		(2,044)	(3,743)
Investments in associates		(124,800)	(296,440)
Proceeds from disposal of property and equipment, intangible
assets and other long-term assets		1	10
Net cash used in from investing activities		(60,153)	(256,818)
Cash flows from financing activities:
Repayment of short-term loans		(720,000)	(470,000)
Proceeds from short-term loans		700,000	440,000
Interest expense		(9,428)	(15,521)
Net cash used in financing activities		(29,428)	(45,521)
Effect of exchange rate changes on cash and cash
equivalents		467	(12,587)
Net decrease in cash and cash equivalents		(565,494)	(621,655)
Cash and cash equivalents at the beginning of the period		964,424	1,081,254
Cash and cash equivalents at end of the period	18	398,930	459,599
Net cash flows from operating activities including:
Interest received		348,375	213,530
Interest paid		143,039	38,939

The above interim condensed consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Shandong International Trust Co., Ltd. 79

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

1. GENERAL

Shandong International Trust Co., Ltd. ("Shandong Trust" or "the Company") is a non-bank financial institution incorporated in Shandong Province, the People's Republic of China (the "PRC") on 10 March 1987 with the approval from People's Bank of China ("PBOC") and Shandong Provincial Government. In August 2002, the Company was transformed from a wholly state-owned company to a limited liability company. In July 2015, the Company was further transformed from a limited liability company to a joint stock limited company with registered and issued share capital of Renminbi ("RMB") 2,000,000,000 (RMB1 each per registered and issued share). On 8 December 2017, the Company completed its public offering on The Stock Exchange of Hong Kong Limited and increased its share capital to RMB2,588,250,000. Pursuant to the resolution of 2018 Special General Meeting on 19 October 2018, the Company converted the capital surplus into ordinary shares in the proportion of 8 shares for every 10 shares held. The Company completed the conversion on 8 January 2019 and the amount of share capital was increased to RMB4,658,850,000.

The Company operates under the financial service certificate No. 00606003 issued by the China Banking and Insurance Regulatory Commission ("CBIRC", the former "China Banking and Regulatory Commission, CBRC" and "China Insurance Regulatory Commission, CIRC") in August 2015. The principal activities of the Company as approved by the CBRC include trust business and proprietary business. Trust business is the Company's core business. As the trustee, the Company accepts entrustment of funds and property from its trustor clients and manages such entrusted funds and property to satisfy its trustor clients' financing, investment and wealth management needs. The proprietary business focuses on allocating its proprietary assets into different asset classes and investing in businesses with strategic value to its trust business in order to maintain and increase the value of its proprietary assets.

The Company and its consolidated structured entities are collectively referred to as "the Group". The information of the Company's consolidated structured entities is provided in Note 28.

2. BASIS OF PREPARATION AND ACCOUNTING ESTIMATES AND JUDGEMENTS

2.1 Basis of preparation

The interim condensed consolidated financial information of the Group has been prepared in accordance with International Accounting Standards ("IAS") 34, "Interim financial reporting" and disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The Group adopted the going concern basis in preparing its interim condensed consolidated financial information.

The interim condensed consolidated financial information does not include all the notes of the type normally included in an annual financial statement. Accordingly, it should be read in conjunction with the annual financial statements for the year ended 31 December 2019, which have been prepared in accordance with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standards Board ("IASB").

Except as described below, the Group's accounting policies applied in preparing the interim condensed consolidated financial information are consistent with those policies applied in preparing the financial statements for the year ended 31 December 2019 and the corresponding interim reporting period.

80 INTERIM REPORT 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

2. BASIS OF PREPARATION AND ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED)

2.1 Basis of preparation (Continued)

2.1.1 New and amended standards adopted by the Group

A number of new or amended standards became applicable for the current reporting period. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards.

2.1.2 New standards, amendments and interpretations effective after 1 January 2020 and have not been early adopted by the Group

A number of new standards, amendments to standards and interpretations are effective for period beginning after 1 January 2020, and have not been early adopted in preparing the interim financial information. None of these are expected to have a material effect on the financial information of the Group.

2.2 Critical accounting estimates and judgements

The Group continually evaluates the significant accounting estimates and judgements applied based on historical experience and other factors, including reasonable expectations of future events. The critical accounting estimates and key assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities are consistent with these policies applied in preparing the financial statements for the year ended at 31 December 2019.

3 FEE AND COMMISSION INCOME

	Six months ended 30 June
	2020	2019
Trustee's remuneration	571,083	476,889
Others	268	177
Total	571,351	477,066

Shandong International Trust Co., Ltd. 81

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

4	INTEREST INCOME
		Six months ended 30 June
		2020	2019
	Interest income from:
	Cash and bank balance	1,251	2,719
	Loans to customers	377,572	230,920
	Financial investments-amortised cost	2,679	2,171
	Financial assets purchased under resale agreements	2,425	3,941
	Contribution to Trust Industry Protection Fund on behalf of borrowers
	(Note 17(i))	2,705	3,950
	Total	386,632	243,701

5 NET CHANGES IN FAIR VALUE ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS AND INVESTMENT IN ASSOCIATES MEASURED AT FAIR VALUE

	Six months ended 30 June
	2020	2019
Net changes in fair value arising from:
Financial assets at fair value through profit or loss
- Listed shares	14,995	5,478
- Mutual funds	99,013	53,756
- Trust schemes	(21,682)	32,750
- Unlisted companies	12,816	18,090
- Other asset management products	(1,966)	(3,090)
	103,176	106,984
Investment in associates (Note 13(c))	(48,742)	26,878
Total	54,434	133,862

82 INTERIM REPORT 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

6		INVESTMENT INCOME
			Six months ended 30 June
			2020		2019
		Dividends income from:
		Financial assets at fair value through profit or loss	6,493		-
	Net realised gains from:
	Financial assets at fair value through profit or loss	36,027		3,072
		Total	42,520		3,072

7		INTEREST EXPENSES
			Six months ended 30 June
			2020		2019
		Interest for borrowings from China Trust Protection Fund Co., Ltd.	9,348		15,787
	Interest for placement from banks	80		1
	Third-party beneficiaries' interests (i)	161,831		69,793
		Total	171,259		85,581

1. These interests represent returns attributable to third-party beneficiaries of the consolidated financing trust schemes. Third-party beneficiaries' interests in the consolidated trust schemes are accounted for as net assets attributable to other beneficiaries of consolidated structured entities in the statement of financial position (Note 28).

Shandong International Trust Co., Ltd. 83

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

8 STAFF COSTS (INCLUDING DIRECTORS AND SUPERVISORS' EMOLUMENTS)

	Six months ended 30 June
	2020		2019
Salaries and bonuses	70,948		47,733
Pension costs (defined contribution plans)	523		3,349
Housing funds	2,875		3,165
Labour union fee and staff education expenses	1,677		3,488
Other social security and benefit costs	2,963		6,922
Total	78,986		64,657

9 LOAN IMPAIRMENT CHARGES AND OTHER CREDIT RISK PROVISION

			Six months ended 30 June
			2020	2019
	Loans to customers		284,704	246,026
	Financial investments-amortised cost		33,952	146
	Trustee's remuneration receivable		(1,931)	3,902
	Others		(4,145)	26,158
	Total		312,580	276,232
10 IMPAIRMENT LOSSES ON OTHER ASSETS
			Six months ended 30 June
			2020	2019
	Investment in artwork		747	2,712
	Investments accounted for using the equity method		-	2,333
	Total		747	5,045

84 INTERIM REPORT 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

11 INCOME TAX EXPENSE

	Six months ended 30 June
	2020	2019
Current income tax	146,241	154,905
Deferred income tax (Note 16)	(10,450)	(52,044)
Total	135,791	102,861

Current income tax is calculated based on the statutory tax rate of 25% of the taxable income of the Group as determined in accordance with the relevant PRC income tax rules and regulations for the respective years.

The difference between the actual income tax charged in the profit or loss and the amounts which would result from applying the enacted tax rate to profit before income tax can be reconciled as follows:

	Six months ended 30 June
	2020	2019
Profit before income tax	650,059	431,143
Tax calculated at a tax rate of 25%	162,515	107,786
Tax effect arising from income not subject to tax (i)	(28,234)	(13,653)
Tax effect of expenses that are not deductible for tax purposes	1,510	8,728
Income tax expense	135,791	102,861

1. The income not subject to tax mainly represents the share of profit from investments accounted for using equity method.

Shandong International Trust Co., Ltd. 85

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

12 BASIC AND DILUTED EARNINGS PER SHARE

1. Basic earnings per share

Basic earnings per share are calculated by dividing the net profit attributable to shareholders of the Company by the weighted average number of ordinary shares in issue during the periods.

	Six months ended 30 June
	2020	2019
Net profit attributable to shareholders of the Company	514,268	328,282
Weighted average number of ordinary shares in issue	4,658,850	4,658,850
Basic earnings per share	0.11	0.07

1. Diluted earnings per share

For the six months ended 30 June 2020 and 2019, there were no potential diluted ordinary shares and therefore the diluted earnings per share were the same as the basic earnings per share.

86 INTERIM REPORT 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

13 INVESTMENTS IN ASSOCIATES

1. The amounts recognised in the interim condensed consolidated financial information are as follows:

	30 June	31 December
	2020	2019
Associates of the Company, measured at
equity accounting
Fullgoal Fund Management Co., Ltd. ("Fullgoal") (b)(i)	701,455	658,056
Taishan Property & Casualty Insurance Co., Ltd. (b)(ii)	212,899	216,375
Shandong HOWO Auto Finance Co., Ltd. (b)(ii)	207,403	198,755
Dezhou Bank Co., Ltd. ("Dezhou Bank") (b)(ii)	109,999	107,888
First-Trust Fund Management Co., Ltd. ("First-trust FMC") (b)(ii)	41,143	47,469
Tailong Health Industry Investment Company Limited ("Tailong
Health") (b)(ii)	35,513	-
Others (b)(ii)	107,150	81,363
Gross amount	1,415,562	1,309,906
Less: Impairment allowance	-	-
Associates of the Company, net	1,415,562	1,309,906
Associates of the Company's certain consolidated
structured entities, measured at equity accounting
Shandong Provincial Financial Asset Management Co., Ltd.
("Shandong AMC") (b)(i)	676,609	620,282
Tailong Health Industry Investment Company Limited ("Tailong
Health") (b)(ii)	-	50,758
Others (b)(ii)	71,633	52,591
Gross amount	748,242	723,631
Less: Impairment allowance	(10,000)	(10,000)
Associates of the Company's certain consolidated
structured entities, net	738,242	713,631

Shandong International Trust Co., Ltd. 87

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

13 INVESTMENTS IN ASSOCIATES (CONTINUED)

1. The amounts recognised in the interim condensed consolidated financial information are as follows (Continued):

	30 June	31 December
	2020	2019
Associates indirectly held by the Group through trust
schemes, measured at fair value (c)
Henan Liang Ding Property Co., Ltd.	153,087	153,087
Huizhou Zhengfeng Industrial Investment Co., Ltd	120,000	120,000
Cangzhou Liang Sheng Property Development Co., Ltd.	103,660	119,087
Huangshi Liangsheng Real Estate Development Co., Ltd	89,600	89,600
Tianjin Liangxin Property Development Co., Ltd.	79,423	87,546
Tianjin Liangshun Property Development Co., Ltd.	54,078	72,174
Tengzhou Haide Park Property Co., Ltd.	47,502	53,980
Nanyang Zhongliang Chengtong Real Estate Co., Ltd.	44,680	44,680
Ankang Liangsheng Foundation Real Estate Co., Ltd.	44,000	-
Yunnan Hongshan City Investment Development Co., Ltd.	30,000	-
Weifang Hengru Real Estate Co., Ltd.	14,000	-
Shenzhen Qianhai Run Xin Investment Co., Ltd.	12,036	12,654
Qingdao Tianyitianzhong Real Estate Development Co., Ltd.	10,800	-
Gross amount	802,866	752,808
Total	2,956,670	2,776,345

88 INTERIM REPORT 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

13 INVESTMENTS IN ASSOCIATES (CONTINUED)

1. Investment in associates, measured at equity accounting

Set out below are the associates of the Group as at 30 June 2020 which, in the opinion of the directors, are material to the Group. The country of incorporation or registration is also their principal place of business.

	Place of business/	% of
	country of	ownership	Measurement
Name of entity	incorporation	interest	method
Fullgoal Fund Management Co., Ltd.	Shanghai, China	16.68%	Equity
Shandong AMC	Shandong, China	1.50%	Equity

The Group has one seat on the board of Fullgoal Fund Management Co., Ltd., and Shandong AMC respectively, and participates in all significant financial and operating decisions. The Group has therefore determined that it has significant influence over these entities.

1. Summarised financial information for significant associates
   Fullgoal Fund Management Co., Ltd.

Summarised balance sheet
		31 December
	30 June
	2020	2019
Current assets	5,382,308	4,888,608
Non-current assets	467,124	766,548
Total assets	5,849,432	5,655,156
Current liabilities	(1,074,898)	(1,240,650)
Non-current liabilities	(567,908)	(468,143)
Total liabilities	(1,642,806)	(1,708,793)
Net assets	4,206,626	3,946,363

Shandong International Trust Co., Ltd. 89

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

13 INVESTMENTS IN ASSOCIATES (CONTINUED)

1. Investment in associates, measured at equity accounting (Continued)
2. 1. Summarised financial information for significant associates (Continued)
      Fullgoal Fund Management Co., Ltd. (Continued)

Summarised statement of comprehensive income
	Six months ended 30 June
	2020	2019
Revenue	1,955,701	1,297,628
Profit from continuing operations	615,268	404,819
Other comprehensive income	5,995	(3,608)
Total comprehensive income	621,263	401,211
Dividends received from associate	60,197	43,355

The information above reflects the amounts presented in the financial statements of the associate (and not the Group's share of those amounts) adjusted for differences in accounting policies between the Group and the associate.

Reconciliation of summarised financial information

Reconciliation of the summarised financial information presented to the carrying amount of its interest in associate.

	Six months ended 30 June
	2020	2019
Net assets at the beginning of the period	3,946,363	3,394,273
Profit for the period	615,268	404,819
Dividend distribution	(361,000)	(260,000)
Other comprehensive income	5,995	(3,608)
Net assets at the end of the period	4,206,626	3,535,484
Percentage of the Group's interests in the associate	16.68%	16.68%
Carrying amount of the Group's interest in the associate	701,455	589,542

90 INTERIM REPORT 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

13 INVESTMENTS IN ASSOCIATES (CONTINUED)

1. Investment in associates, measured at equity accounting (Continued)
2. 1. Summarised financial information for significant associates (Continued)

Shandong AMC

Summarised balance sheet
		31 December
	30 June
	2020	2019
Current assets	104,881,168	75,165,690
Non-current assets	56,245,641	51,417,618
Total assets	161,126,809	126,583,308
Current liabilities	(30,317,879)	(22,555,753)
Non-current liabilities	(82,817,231)	(92,184,879)
Total liabilities	(113,135,110)	(114,740,632)
Net assets	47,991,699	11,842,676
Including: Net assets attributable to Type C shareholders	44,574,415	8,418,701
Summarised statement of comprehensive income
	Six months ended 30 June
	2020	2019
Revenue	1,814,963	946,806
Profit from continuing operations	157,718	162,074
Including: Profit attributable to Type C shareholders	98,618	99,807
Other comprehensive income	(2,004)	-
Total comprehensive income	155,714	162,074
Dividends received/receivable from the associate	-	-

Shandong International Trust Co., Ltd. 91

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

13 INVESTMENTS IN ASSOCIATES (CONTINUED)

1. Investment in associates, measured at equity accounting (Continued)
2. 1. Summarised financial information for significant associates (Continued)

Shandong AMC (Continued)

The information above reflects the amounts presented in the financial statements of the associate (and not the Group's share of those amounts) adjusted for differences in accounting policies between the Group and the associate.

Reconciliation of summarised financial information

Reconciliation of the summarised financial information presented to the carrying amount of its interest in associate.

	Six months ended 30 June
	2020	2019
Net assets attributable to Type C shareholders at the
beginning of the period	8,418,701	8,429,220
Capital contribution received	36,000,000	-
Profit attributable to Type C shareholders	98,618	99,807
Other comprehensive income	(2,004)	-
Closing net assets attributable to Type C shareholders	44,515,315	8,529,027
Percentage of the Group's interests in the associate	1.50%	7.24%
Group's share in the associate	665,504	617,161
Goodwill	11,105	11,105
Carrying amount of the Group's interest in the associate	676,609	628,266

Note a: The Group invests in the Type C shares of Shandong AMC. Shandong AMC's profit distribution is not proportional to each shareholder's ownership percentage. For type A and B shareholders, if Shandong AMC decides to distribute its profit, they are entitled only to a fixed rate of return. A certain portion of the remaining distributable profit will be further distributed to Type C shareholders. Thus, only movement of net assets attributable to Type C shareholders is disclosed.

Note b: Shandong AMC obtained additional capital contribution of RMB36 billion from other investors on 30 January 2020. The Company's equity share was diluted from 7.24% to 1.50% as a result.

92 INTERIM REPORT 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

13 INVESTMENTS IN ASSOCIATES (CONTINUED)

1. Investment in associates, measured at equity accounting (Continued)
2. 1. Reconciliation of summarised financial information of insignificant associates

	Six months ended 30 June
	2020	2019
Carrying amount at the beginning of the period	745,199	758,048
Acquisition during the period	26,000	-
Disposal during the period	(31,551)	-
Share of net profit/(loss) for the period	36,077	(12,893)
Other comprehensive income for the period	15	378
Impairment allowance	-	(2,333)
Others	-	(58,887)
Carrying amount at the end of the period	775,740	684,313

1. Investment in associates, measured at fair value

The Group holds investments in those associates indirectly through consolidated trust schemes. The Group elected to measure them at fair value through profit and loss.

	Six months ended 30 June
	2020	2019
Carrying amount at the beginning of the period	752,808	163,694
Acquisition during the period	98,800	296,440
Fair value changes (Note 5)	(48,742)	26,878
Carrying amount at the end of the period	802,866	487,012

Shandong International Trust Co., Ltd. 93

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

14 LOANS TO CUSTOMERS

1. Analysis of loans to customers:

	30 June	31 December
	2020	2019
Corporate loans-at amortised cost	9,689,648	9,027,180
Interest receivable	95,290	53,398
Less: ECL allowance-Loans	(1,557,197)	(1,276,128)
ECL allowance-Interest receivable	(5,114)	(1,479)
Loans to customers, net	8,222,627	7,802,971
Presented as:
Non-current assets	5,437,618	5,659,408
Current assets	2,785,009	2,143,563
Loans to customers, net	8,222,627	7,802,971

1. Movement of corporate loans

	Stage 1	Stage 2	Stage 3	Total
Balance as at 1 January 2020	7,463,694	-	1,563,486	9,027,180
Additions	2,568,000	-	-	2,568,000
Repayments	(1,785,400)	-	(120,132)	(1,905,532)
Transfers:	(1,279,150)	1,279,150	-	-
Transfer from Stage 1 to Stage 2	(1,279,150)	1,279,150	-	-
Balance as at 30 June 2020	6,967,144	1,279,150	1,443,354	9,689,648

94 INTERIM REPORT 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

14 LOANS TO CUSTOMERS (CONTINUED)

1. Movement of corporate loans (Continued)

	Stage 1	Stage 2	Stage 3	Total
Balance as at 1 January 2019	5,631,500	676,500	1,375,391	7,683,391
Additions	6,346,850	-	-	6,346,850
Repayments	(4,514,656)	-	(488,405)	(5,003,061)
Transfers:	-	(676,500)	676,500	-
Transfer from Stage 2 to Stage 3	-	(676,500)	676,500	-
Balance as at 31 December 2019	7,463,694	-	1,563,486	9,027,180

1. Movements of ECL allowance-Loans

	Stage 1	Stage 2	Stage 3
	12-month ECL	Lifetime ECL	Lifetime ECL	Total
Balance as at 1 January 2020	192,591	-	1,083,537	1,276,128
Provision for impairment	33,798	-	-	33,798
Reversal of impairment allowances	(25,957)	-	(52,516)	(78,473)
Transfers:	(30,881)	30,881	-	-
Transfer from Stage 1 to Stage 2	(30,881)	30,881	-	-
EAD, PD and LGD changes (i)	38,500	159,066	128,178	325,744
Balance as at 30 June 2020	208,051	189,947	1,159,199	1,557,197
	Stage 1	Stage 2	Stage 3
	12-month ECL	Lifetime ECL	Lifetime ECL	Total
Balance as at 1 January 2019	108,968	21,137	470,319	600,424
Provision for impairment	146,063	-	593,381	739,444
Reversal of impairment allowances	(60,400)	-	(1,300)	(61,700)
Transfers:	-	(21,137)	21,137	-
Transfer from Stage 2 to Stage 3	-	(21,137)	21,137	-
EAD, PD and LGD changes (i)	(2,040)	-	-	(2,040)
Balance as at 31 December 2019	192,591	-	1,083,537	1,276,128

1. This item includes PD, EAD, LGD change due to routine updates to model parameters.

Shandong International Trust Co., Ltd. 95

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

15 FINANCIAL INVESTMENTS-AMORTISED COST

1. Analysis of financial investments-amortised cost:

	30 June	31 December
	2020	2019
Financial investments-amortised cost, gross (i)	1,093,297	93,297
Interest receivable	3,631	1,777
Less: ECL allowance- Financial investments-amortised cost	(49,552)	(15,656)
ECL allowance-Interest receivable	(105)	(49)
Financial investments-amortised cost, net	1,047,271	79,369
Presented as:
Non-current assets	983,972	18,541
Current assets	63,299	60,828
Financial investments-amortised cost, net	1,047,271	79,369

1. 1. Financial investments-amortised cost consists of the Company's investments in those unconsolidated trust schemes managed by the Company. The underlying assets of these trust schemes are loans to customers.
2. Movement of principals

	Stage 1	Stage 2	Stage 3	Total
Balance as at 1 January 2020	79,000	-	14,297	93,297
Additions	-	1,000,000	-	1,000,000
Balance as at 30 June 2020	79,000	1,000,000	14,297	1,093,297
	Stage 1	Stage 2	Stage 3	Total
Balance as at 1 January 2019	111,600	-	19,714	131,314
Additions	27,600	-	-	27,600
Repayments	(60,200)	-	(5,417)	(65,617)
Balance as at 31 December 2019	79,000	-	14,297	93,297

96 INTERIM REPORT 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

15 FINANCIAL INVESTMENTS-AMORTISED COST (CONTINUED)

1. Movements of ECL allowance

	Stage 1	Stage 2	Stage 3
	12-month ECL	Lifetime ECL	Lifetime ECL	Total
Balance as at 1 January 2020	1,359	-	14,297	15,656
Provision for impairment	-	34,461	-	34,461
EAD, PD and LGD changes	(565)	-	-	(565)
Balance as at 30 June 2020	794	34,461	14,297	49,552
	Stage 1	Stage 2	Stage 3
	12-month ECL	Lifetime ECL	Lifetime ECL	Total
Balance as at 1 January 2019	1,262	-	13,087	14,349
Provision for impairment	459	-	1,210	1,669
Reversal of impairment allowances	(672)	-	-	(672)
EAD, PD and LGD changes	310	-	-	310
Balance as at 31 December 2019	1,359	-	14,297	15,656

Shandong International Trust Co., Ltd. 97

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

16 DEFERRED INCOME TAXES

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset income tax assets against income tax liabilities and when the deferred income taxes related to income taxes levied by the same taxation authority. The movements for deferred tax assets and liabilities recognised are as follows:

	At 1 January	Charged to	At 30 June
	2020	profit or loss	2020
Deferred income tax assets:
Impairment allowances for assets	271,766	41,228	312,994
Staff salary and welfare payable	27,715	2,941	30,656
Subtotal	299,481	44,169	343,650
Deferred income tax liabilities:
Fair value changes of financial assets at fair
value through profit or loss	(52,751)	(25,162)	(77,913)
Accumulated gain or loss of the consolidated
trust schemes attributed to the Company	(16,620)	(8,557)	(25,177)
Subtotal	(69,371)	(33,719)	(103,090)
Net deferred income tax assets	230,110	10,450	240,560

98 INTERIM REPORT 2020

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

FOR THE SIX MONTHS ENDED 30 JUNE 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

16 DEFERRED INCOME TAXES (CONTINUED)

			At 1 January	Charged to	At 31 December
			2019	profit or loss	2019
	Deferred income tax assets:
	Impairment allowances for assets	100,092	171,674	271,766
Staff salary and welfare payable	20,359	7,356	27,715
Others	630	(630)	-
	Subtotal	121,081	178,400	299,481
	Deferred income tax liabilities:
	Fair value changes of financial assets at fair value through
		profit or loss	3,994	(56,745)	(52,751)
	Accumulated gain or loss of the consolidated trust schemes
		attributed to the Company	(26,819)	10,199	(16,620)
	Subtotal	(22,825)	(46,546)	(69,371)
	Net deferred income tax assets	98,256	131,854	230,110
17 OTHER NON-CURRENT ASSETS
						31 December
					30 June
					2020		2019
		Investment in artwork			9,235		9,982
		Investment in artwork, gross			46,806		46,806
		Less: Impairment allowance			(37,571)		(36,824)
		Contribution to Trust Industry Protection Fund on behalf
		of borrowers (i)			242,312		349,521
		Total			251,547		359,503

1. The amount represents the Group's subscription of contribution to the Trust Industry Protection Fund on behalf of borrowers. For detailed requirement of Trust Industry Protection Fund, please refer to Note 19.

Shandong International Trust Co., Ltd. 99