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个股公告正文

晨 鸣B:2013年年度报告(英文版)

日期:2014-03-21附件下载

    I    Important Notice, Table of Contents and Definitions
    The board of directors (the “Board”), the supervisory committee (the “Supervisory Committee”) and the directors (the “Directors”),
    supervisors (the “Supervisors”) and senior management (the “Senior Management”) of the Company hereby warrant the
    truthfulness, accuracy and completeness of the contents of the annual report (the “Report”), guarantee that there are no false
    representations, misleading statements or material omissions contained in this Report, and are jointly and severally responsible
    for the liabilities of the Company.
    All Directors were present in person at the Board meeting to consider and approve this Report except the following Director.
    Name of the Director              Capacity of the Director          Reason for failure
    unable to attend the meeting      unable to attend the meeting      to attend the meeting
    in person                         in person                         in person                          Name of the proxy
    Cui Youping                       Director                          Failure to attend                  Wang Aiguo
                                                                       the meeting in person
                                                                       due to business engagement
    Zhang Zhiyuan                    Independent Director                Failure to attend                 Zhang Hong
                                                                        the meeting in person
                                                                        due to business engagement
    The proposed profit distribution plan of the Company was considered and passed by the Board: based on the number of the
    shares as at the dividend distribution registration date, a dividend of RMB3.00 (tax inclusive) per 10 shares was to be paid and no
    bonus shares (tax inclusive) were to be delivered to all shareholders without increase of share capital from reserves.
    Chen Hongguo, head of the Company, Li Dong, head in charge of accounting and Liu Jun, head of the accounting department
    (Accounting Officer), declare that they warrant the truthfulness, accuracy and completeness of the financial statements in the
    annual report.
                                         2013 Annual Report             /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                      1
    I      Important Notice, Table of Contents and Definitions
    Table of contents
    I      Important Notice, Table of Contents and Definitions...................................................................................................................3
    II     Company Profile ..........................................................................................................................................................................5
    III    Summary of Accounting Data and Financial Indicators ..............................................................................................................7
    IV     Chairman’s Statement ...............................................................................................................................................................10
    V      Directors’ Report........................................................................................................................................................................13
    VI     Material Matters .........................................................................................................................................................................57
    VII    Changes in Share Capital and Shareholders ............................................................................................................................77
    VIII   Directors, Supervisors, Senior Management and Staff .............................................................................................................87
    IX     Corporate Governance ..............................................................................................................................................................99
    X      Internal Control ........................................................................................................................................................................121
    XI     Financial Report.......................................................................................................................................................................127
    XII    Documents Available for Inspection ........................................................................................................................................296
    2   SHANDONG CHENMING PAPER HOLDINGS LIMITED                                                    /         2013 Annual Report
    I   Important Notice, Table of Contents and Definitions
         Definitions
         Item                          means       Definition
         Company or Chenming Paper     means       Shandong Chenming Paper Holdings Limited
         Group                         means       Shandong Chenming Paper Holdings Limited and its subsidiaries
         Chenming Holdings             means       Shouguang Chenming Holdings Company Limited
         Shenzhen Stock Exchange       means       Shenzhen Stock Exchange
         Stock Exchange                means       The Stock Exchange of Hong Kong
         CSRC                          means       China Securities Regulatory Commission
         Shandong CSRC                 means       Shandong branch of China Securities Regulatory Commission
         Jiangxi Chenming              means       Jiangxi Chenming Paper Co., Ltd.
         Wuhan Chenming                means       Wuhan Chenming Hanyang Paper Holdings Co., Ltd.
         Chenming (HK)                 means       Chenming (HK) Limited
         Guangdong Huirui              means       Guangdong Huirui Investment Co., Ltd.
         Haiming Mining                means       Haicheng Haiming Mining Company Limited
         Zhanjiang Chenming            means       Zhanjiang Chenming Pulp & Paper Co., Ltd.
         Jilin Chenming                means       Jilin Chenming Paper Co., Ltd.
         Yanbian Chenming              means       Yanbian Chenming Paper Co., Ltd.
         RSM China                     means       RSM China Certified Public Accountants (Special General Partnership)
         Ruihua                        means       Ruihua Certified Public Accountants (Special General Partnership)
         Chenming GmbH                 means       Chenming GmbH
                                   2013 Annual Report       /      SHANDONG CHENMING PAPER HOLDINGS LIMITED               3
    I    Important Notice, Table of Contents and Definitions
             Definitions (Cont’d)
             Shouguang Meilun                  means          Shouguang Meilun Paper Co., Ltd.
             Chenming Sales Company            means          Shandong Chenming Paper Sales Company Limited
             Chenming Power                    means          Shandong Chenming Power Supply Holdings Co., Ltd.
             Zhanjiang Wall Materials          means          Zhanjiang Chenming New-style Wall Materials Co., Ltd.
             Zhanjiang Meilun                  means          Zhanjiang Meilun Pulp & Paper Co., Ltd.
             Hongxiang Printing                means          Shouguang Hongxiang Printing & Packaging Co., Ltd.
             Shanghai Runchen                  means          Shanghai Runchen Equity Investment Fund Co., Ltd.
             Chenjian Company                  means          Wuhan Chenjian New-style Wall Materials Co., Ltd.
             Hubei Zheshang                    means          Hubei Zheshang Wan Xing Investment Co., Ltd.
    Important Risk Notice
    The Company is exposed to various risk factors such as macro-economic fluctuation, adjustment of national policy, intensified
    competition in the industry, as well as change in interest rate and exchange rate. Investor should be aware of investment risks.
    For further details, please refer to the risk factors likely to be faced and the measures to be taken to address them as set out in
    the outlook on the future development of the Company in Directors’ Report.
    4   SHANDONG CHENMING PAPER HOLDINGS LIMITED                      /     2013 Annual Report
    II Company Profile
    I.    Company profile
          Stock abbreviation                                     晨鳴紙業              Stock Code           000488
          Stock abbreviation                                     晨鳴 B                Stock Code           200488
          Stock abbreviation                                     Chenming Paper        Stock Code           01812
          Stock exchanges on which the shares are listed         Shenzhen Stock Exchange and The Stock Exchange of Hong Kong
          Legal name in Chinese of the Company                   山東晨鳴紙業集團股份有限公司
          Legal short name in Chinese of the Company             晨鳴紙業
          Legal name in English of the Company (if any)          SHANDONG CHENMING PAPER HOLDINGS LIMITED
          Legal short name in English of the Company (if any)    SCPH
          Legal representative of the Company                    Chen Hongguo
          Registered address                                     No. 595 Shengcheng Road, Shouguang City, Shandong Province
          Postal code of registered address                      262700
          Office address                                         No. 2199 Nongsheng East Road, Shouguang City, Shandong Province
          Postal code of office address                          262705
          Website of the Company                                 http://www.chenmingpaper.com
          Email address                                          chenmmingpaper@163.com
    II.   Contact persons and contact methods
                                 Secretary to the Board              Securities Affairs Representative    Hong Kong Company Secretary
         Name                   Wang Chunfang                        Xiao Peng                            Poon Shiu Cheong
         Correspondence Address No. 2199 East Nongsheng Road,        No. 2199 East Nongsheng Road,        22nd Floor, World Wide House, Central,
                                 Shouguang City, Shandong Province    Shouguang City, Shandong Province    Hong Kong
         Telephone              (86)-0536-2158008                    (86)-0536-2158008                    (852)-2501 0088
         Facsimile              (86)-0536-2158977                    (86)-0536-2158977                    (852)-2501 0028
         Email address          chenmmingpaper@163.com               chenmmingpaper@163.com               kentpoon_1009@yahoo.com.hk
    III. Information disclosure and places for inspection
          Designated newspapers for                          China Securities Journal, Shanghai Securities News, Securities Times,
            information disclosure                           Securities Daily and Hong Kong Commercial Daily
          Designated websites for the publication of         Domestic: http://www.cninfo.com.cn; Overseas: http://www.hkex.com.hk
            the Annual Report as approved by CSRC
          Places for inspection of the Company’s            Capital operation department of the Company
            Annual Report
                                          2013 Annual Report             /        SHANDONG CHENMING PAPER HOLDINGS LIMITED                         5
    II Company Profile
    IV. Change in registration
                                                                                      Legal Person
                                                                                      Business License       Taxation Registration
                                     Date of                                          Registration           Number                Organisation Code
                                     Registration     Address of Registration         Number
         First Registration          5 May 1993       No. 595 Shengcheng Road,        16568230-2             370783613588986      61358898-6
                                                      Shouguang City,
                                                      Shandong Province
         Registration at the end     2 January 2014   No. 595 Shengcheng Road,        370000400001170        370783613588986      61358898-6
           of the reporting period                    Shouguang City,
                                                      Shandong Province
         Change of principal activities               No
           since its listing
         Change of the controlling                    Please refer to III. Company Overview of section XI of this report.
           shareholder
    V.   Other relevant information
         CPAs engaged by the Company
           Name of CPAs                                   Ruihua Certified Public Accountants (Special General Partnership)
           CPAs’ Office Address                          8-9/F, Block A, Corporation Building, No. 35 Finance Street,
                                                          Xicheng District, Beijing
           Name of the Signing Certified Public           Wang Chuanshun and Jing Chuanxuan
            Accountants
         Sponsors engaged by the Company to continuously perform its supervisory function during the reporting period
         □ Applicable √ Not applicable
         Financial Advisors engaged by the Company to continuously perform its supervisory function during the reporting period
         □ Applicable √ Not applicable
    6   SHANDONG CHENMING PAPER HOLDINGS LIMITED                              /      2013 Annual Report
    III Summary of Accounting Data and Financial Indicators
    I.   Major accounting data and financial indicators
        Retrospective adjustment to or restatement of the accounting data for prior years by the Company due to change of
        accounting policies and correction of accounting errors
        □ Yes √ No
                                                                                                              Increase/decrease
                                                                                                                      for the year
                                                                                                                 as compared to
                                                                          2013                      2012        the prior year (%)                  2011
        Revenue (RMB)                                        20,388,890,067.41          19,761,679,230.05                 3.17%       17,747,489,900.87
        Net profit attributable to shareholders
         of the Company (RMB)                                  710,655,331.72             221,034,822.54               221.51%           608,271,256.29
        Net profit after extraordinary gains or
          losses attributable to shareholders
         of the Company (RMB)                                  406,170,148.25            -159,777,900.37               354.21%           285,121,911.63
        Net cash flows from operating
            activities (RMB)                                   1,122,616,800.91           1,956,866,477.99               -42.63%          -437,463,010.89
         Basic earnings per share (RMB per share)                         0.35                       0.11                218.18%                     0.29
         Diluted earnings per share (RMB per share)                       0.35                       0.11                218.18%                     0.29
         Rate of return on net assets
            on weighted average basis (%)                                5.11%                      1.63%                  3.48%                    4.50%
                                                                                                               Increase/decrease
                                                                                                              as at the end of the
                                                                                                                   year compared
                                                                  As at the end              As at the end            to the end of          As at the end
                                                                         of 2013                    of 2012      the prior year (%)                 of 2011
           Total assets (RMB)                                 47,521,883,569.18          47,725,421,927.39                 -0.43%        45,630,828,967.03
           Total liabilities (RMB)                            32,883,530,036.29          33,380,003,994.34                 -1.49%        30,643,054,107.64
           Gearing ratio (%)                                           69.20%                     69.94%                   -0.74%                 67.15%
           Net assets attributable to shareholders
             of the Company (RMB)                             14,039,888,226.11          13,759,496,179.85                  2.04%        13,528,622,319.91
           Share capital (shares)                              1,975,471,967.00           2,062,045,941.00                 -4.20%         2,062,045,941.00
        Note:      The Company repurchased and cancelled 86,573,974 B shares during the reporting period and, therefore, the total number of the shares of
                   the Company was reduced by 86,573,974 shares.
                                             2013 Annual Report                  /          SHANDONG CHENMING PAPER HOLDINGS LIMITED                          7
    III Summary of Accounting Data and Financial Indicators
    II.   Differences in accounting data under domestic and overseas accounting standards
          1. Differences between the net profit and net assets disclosed in accordance with international
              accounting standards, overseas accounting standards and China accounting standards in the
              financial report
                                                                                                                                   Unit: RMB
                                                  Net profit attributable to shareholders         Net assets attributable to shareholders of
                                                               of the Company                                 the Company
                                                   Amounts for the               Amounts for
                                                   reporting period           the prior period     Closing balance        Opening balance
              Under China accounting standards      710,655,331.72           221,034,822.54      14,039,888,226.11       13,759,496,179.85
              Items and amounts adjusted
                 under international accounting
                 standards and overseas
                 accounting standards
              Under international
                accounting standards               710,655,331.72           221,034,822.54       14,039,888,226.11      13,759,496,179.85
              Under overseas
                accounting standards               710,655,331.72           221,034,822.54       14,039,888,226.11      13,759,496,179.85
    8   SHANDONG CHENMING PAPER HOLDINGS LIMITED                     /      2013 Annual Report
    III Summary of Accounting Data and Financial Indicators
    III. Items and amounts of extraordinary gains or losses
                                                                                                                                 Unit: RMB
       Item                                    Amounts for 2013        Amounts for 2012      Amounts for 2011      Explanation
       Profit or loss from disposal
         of non-current assets
         (including write-off of provision
         for assets impairment)                       -6,367,477.99          26,092,788.22       26,249,093.41
       Government grants (except for
         the government grants closely
         related to the normal operation
         of the company and granted
         constantly at a fixed amount
         or quantity in accordance with
         a certain standard based on
         state policies) accounted for
         in profit or loss for the current
         period                                      174,947,619.19       235,157,521.57        236,198,625.29
       Gain arising from investment
         costs for acquisition of
         subsidiaries, associates and
         joint-ventures by the corporation
         being less than its share of fair
         value of identifiable net assets of
         the investees on acquisition                  2,408,368.37                              44,188,866.15
       Profit or loss from
           debt restructuring                             268,577.19             941,444.43       -18,179,889.32
        Changes in fair value
           of consumable biological assets             11,221,828.76          47,882,076.87       48,173,926.26
        Non-operating gains and losses
           other than the above items                 299,225,913.46         114,342,091.81       31,840,643.86
        Less: Effect of income tax                     98,299,197.38          40,604,179.01       32,413,333.65
        Effect of minority interests
           (after tax)                                 78,920,448.13           2,999,020.98       12,908,587.34
       Total                                         304,485,183.47       380,812,722.91        323,149,344.66     —
       Notes for the Company‘s extraordinary gain or loss items as defined in the Explanatory Announcement on Information
       Disclosure for Companies Offering Their Securities to the Public No.1 - Extraordinary Gains or Losses and the extraordinary
       gain or loss items as illustrated in the Explanatory Announcement on Information Disclosure for Companies Offering Their
       Securities to the Public No.1 - Extraordinary Gains or Losses defined as its recurring gain or loss items
       □ Applicable √ Not applicable
                                       2013 Annual Report                /        SHANDONG CHENMING PAPER HOLDINGS LIMITED                   9
      IV Chairman’s Statement
      Dear shareholders,
      It is my pleasure to present the report for the financial year ended 31 December 2013 to all shareholders and express my
      gratitude, for all shareholders’ concern and support to Chenming Paper on behalf of the board of directors.
      During the reporting period, a higher concentration ratio was secured due to slowdown in the growth of the supply in the paper
      making industry and elimination of outdated production capacity, which was conducive to a proactive increase in price proposed
      by enterprises. The continued appreciation of RMB and the increased downward pressure of raw material prices relieved the
      pressure on the operating costs of enterprises. Meanwhile, the Company proactively explore new markets by strengthening
      internal management, resulting in an increase in sales of pulp. As compared to the corresponding period of the prior year, the
      production costs decreased year on year. The gross profit margin of the Company’s principal operations grew steadily with
      significant improvement in profitability. Hence, the profit for the year increased significantly.
      During the reporting period, the Company focused on bases consolidation and efficiency enhancement, as well as overall
      continuous improvement. Facing complex and volatile market environment, the Company timely adjusted its business strategies
      and proactively responded to the market to ensure a balance between sales and production. Meanwhile, the Company placed
      great emphasis on production management, accelerating restructuring, stable machine operation, strengthening inventory
      reduction and promoting process optimisation.
      2013 saw a strong momentum in the Company’s corporate restructuring and development. Wuhan Chenming’s household paper
      project, Jilin Chenming’s environment protection relocation project and Shouguang City’s 100,000 tonnes paper additives project
      commenced operation respectively, which played an important role in the Company’s restructuring, cost reduction and efficiency
      enhancement. Jiangxi Chenming’s 350,000 tonnes high-grade packaging paper project, the 180,000 tonnes paper cup sheets
      and 190,000 tonnes culture paper projects in Zhanjiang, Guangdong Huirui’s Haidong New District Waterfront comprehensive
      regulation works project, Wan Xing Real Estate’s real estate project in Wuhan, Haicheng’s magnesite mining project and
      other projects commenced, which accelerated the restructuring of the Company and promoted corporate transformation and
      upgrading, thus further enhancing the strength of the Company. In addition, Huanggang Chenming’s integrated forestry, pulp
      and paper project is under planning and pending approval, which will play a significant role in enhancing the Company’s overall
      competitiveness.
      During the reporting period, the establishment of a finance company within Chenming Group was approved by the China Banking
      Regulatory Commission, being the first enterprise in the paper making industry to own a finance company. This marked the
      Company’s formal participation in the financial sector paved the way for the Group’s diversification.
      I.    Operating Results
            During the reporting period, the Company completed machine-made paper production of 4,160,000 tonnes, representing
            an increase of 210,000 tonnes or 5.32% as compared with 3,950,000 tonnes in the corresponding period of the prior year.
            The Company’s revenue amounted to RMB20,389 million, up by RMB627 million or up by 3.17% from 2012. The operating
            costs were RMB16,652 million, down by RMB42 million or 0.25% from 2012. The operating profit and net profit attributable
            to equity holders of the Company were RMB404 million and RMB711 million respectively, up by 196.95% and 221.51%
            respectively.
      II.   Corporate Governance
            During the reporting period, the Company regulated its operation under the requirements of Companies Law, Securities
            Law, Code of Corporate Governance for Listed Companies, Rules Governing Listing of Stocks on Shenzhen Stock
            Exchange, Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the related
            provisions of CSRC. It kept on improving and optimising its legal person governance structure and regulating its operation
            in practice. The Board considered the state of the Company’s corporate governance was substantially in compliance with
            the requirements and requests of the regulatory documents such as Code of Corporate Governance for Listed Companies.
    10   SHANDONG CHENMING PAPER HOLDINGS LIMITED                     /     2013 Annual Report
    IV Chairman’s Statement
    II.   Corporate Governance (Cont’d)
         During the reporting period, the Board strived to regulate the operation of the Company by improving its corporate
         governance. It improved corporate governance practice in a timely manner and formulated and optimised management
         systems including the revision of Procedural Rules of the Board of Directors Meeting, Rules of Supervisors Meeting,
         Management System of Connected Transactions, Procedural Rules of the General Meeting and Implementation Rules for
         the Nomination Committee of the Board of Directors, as well as formulation of the amended Decision Making System to
         Substantial Transaction, Decision Making System to External Investment, Decision Making System for External Guarantee,
         Investor Relationship Management System, Board Diversity Policy and Articles of Association in accordance with the
         regulatory requirements.
    III. Dividend Distribution
         Consistent with our long-term goal of pursuing the maximisation of corporate values, the Company has always placed
         much emphasis on shareholders’ benefits and returns. In view of the operating results realised in 2013 and after considering
         the financial position and cash flow condition of the Company as a whole, the Board recommended a proposed profit
         distribution plan for 2013 as follows: based on the number of the shares as at the dividend distribution registration date, a
         cash dividend of RMB3.00 (tax inclusive) was to be paid to all shareholders for every 10 shares held. Based on the total
         share capital of 1,975,471,967 shares of the Company as at 31 December 2013, cash dividend for 2013 amounted to
         RMB592,641,590.10 (tax inclusive), which represented 83.39% of the net profit attributable to shareholders of the Company
         as set out in the 2013 consolidated financial statements prepared in accordance with Accounting Standards for Business
         Enterprises. After such profit distribution, the undistributed profit would be rolled over for distribution in subsequent years.
         As always, the Company will continue to stay focused on its long-term development and maximise returns for shareholders
         by delivering better results.
    IV. Future Development
         The industry to which the Company belongs is the paper making industry, which is a light industry. The business
         sentiments of the industry are highly related to the macroeconomic growth. The overall profitability of the paper making
         industry hovered around at a low level during the past two years. However, a higher concentration ratio was obtained due
         to slowdown in the growth of the supply of the paper making industry and elimination of outdated production capacity.
         In the long run, the development conditions of the paper making industry gradually improve. The National Development
         and Reform Commission, Ministry of Industry and Communication and State Forestry Administration have jointly issued
         the Twelfth Five-Year Plan for the Development of the Paper Making Industry, which clearly states the general direction
         of “controlling total volume, promoting concentration, optimising raw materials and reducing energy consumption and
         emission”, from which the Company is expected to benefit in the long run.
         In recent years, the Company is committed to the integrated development of forestry, pulp and paper with a longer industry
         chain and more comprehensive paper types. During the reporting period, the Company carried out a series of capacity
         expansion on paper types with better prospects. The Company’s direction of development was in line with the requirements
         of the development plan of the entire paper making industry. Meanwhile, the Company expanded its industry chain by
         entering into the financial and energy industries with a more rationalised industry positioning, which further strengthened
         the Company’s competitiveness and development potential. As the economy and industry gradually recover, it is expected
         that the result of the Company will record stable growth. The Company’s future performance is what the market can look
         forward to.
                                         2013 Annual Report            /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                     11
      IV Chairman’s Statement
      IV. Future Development (Cont’d)
           In 2014, the Company will focus on an overall strengthening of management and improving operational quality to ensure a
           sustainable development. In view of this, the Company has adopted the guidelines of “team building, strict management,
           outstanding business performance, achieving good results” as the working principles of the year. The Company will focus
           on the following areas in 2014 In line with its strategic objectives:
           (I)     Corporate Management. The Company will firmly establish and strictly implement the working principles of “team
                   building, strict management, outstanding business performance, achieving good results”. It will revise the existing
                   management system by making it simple, effective, and easy to implement in order to create the basic conditions for
                   strict management. It will enhance team building by preparing good training materials, adopting strict examinations,
                   employment of qualified employees and dismissal of unqualified employees; improve incentive schemes by innovative
                   incentives and adoption of appointment through competition to further mobilise the enthusiasm of the cadres and
                   staff. The Company will also focus on corporate culture building and regulation of staff behaviour to achieve the
                   objective of “a high degree of integration of corporate management and corporate culture”, thus building an innovative
                   corporate culture of the Company.
           (II)    Operation and management. The Company will increase efficiency by optimising product structure and increase
                   investment in high-efficiency areas. It will make reference to advanced corporate marketing incentives and improve
                   performance appraisal systems to fully arouse the enthusiasm of sales staff. It aims to reduce inventory and costs
                   to proactively respond to the market through measures including market research and timely developed marketing
                   strategies. The Company will also enhance new product promotion and establish professional sales teams for high
                   value-added products including thermal paper and glassine paper to increase the revenue of the Company.
           (III)   Production management. The Company places great emphasis on the operation of production upgrade projects
                   and new production projects. It focuses on the management of its 800,000 tonnes coated paper project, 600,000
                   tonnes bleached kraft liner board project, Jilin Chenming’s environment protection relocation project, Meilun’s paper
                   additives projects and Wuhan’s specialty paper upgrade and household paper projects to accelerate growth in
                   efficiency. It will speed up product restructuring and new product development, enrich product structure, improve
                   the ability to respond to the market, and increase sales of new products and high value-added products. Special
                   emphasis will be placed on technology development and application to improve the Company’s core competitiveness.
                   The Company will continue to implement post setting and staffing and reduce labour costs through post consolidation
                   and improvement in automation.
           (IV)    Project management. The Company will revise and improve its original project management system to make the
                   system fully reflect the principle for project construction of “careful planning, casting quality products, striving for
                   progress and effectiveness verification”. For projects under construction including Jiangxi Chenming’s 350,000
                   tonnes high-grade packaging paper, Zhanjiang Chenming’s 180,000 tonnes paper cup sheets and 190,000 tonnes
                   culture paper projects, the Company will ensure comprehensive control and assessment, as well as strict quality and
                   cost control to ensure timely commencement of production. Projects under planning and pending approval including
                   Huanggang Chenming’s integrated forestry, pulp and paper project will undergo repeated verification and optimisation to
                   ensure that these projects will become world-class quality products.
           (V)     Other areas. The Company will accelerate the establishment of finance company, application for the establishment
                   of finance leasing company to make full use of foreign funds and reduce finance costs. It will reduce finance costs by
                   increasing use of foreign funds, expanding financing channels and improving capital use efficiency. It aims to achieve
                   economic efficiency by increasing trade volume through import and export companies, developing new customer
                   sources, establishing strategic partnerships and controlling quality supplies. It will also reduce inventory, promote the
                   business with manufacturers, merchants and banks and improve contract compliance rate to reduce capital use and
                   financing costs.
      Chen Hongguo
      Chairman
      20 March 2014
    12   SHANDONG CHENMING PAPER HOLDINGS LIMITED                        /     2013 Annual Report
    V Directors’ Report
    I.   Overview
        During the reporting period, the previous round of intensive expansion in the paper making industry was basically
        completed. Papermaking enterprises were unlikely to expand in the near future due to the sentiment in the industry. In
        addition, some the small and medium-sized enterprises left the market as a result of elimination of outdated production
        capacity and stricter environmental protection policy. This lowered the pressure of the new production capacity on the
        supply in the industry to a certain extent. A higher concentration ratio was secured due to the slowdown in the growth of
        the supply of the paper making industry and the elimination of outdated production capacity, which was conducive to a
        proactive increase in price proposed by enterprises. The continued appreciation of RMB and the increased downward
        pressure of raw material prices relieved the pressure on the operating costs of enterprises. Meanwhile, the Company
        proactively explored new markets by strengthening internal management, resulting in an increase in sales of pulp. As
        compared to the corresponding period of the prior year, the production costs decreased year on year. The gross profit
        margin of the Company’s principal operations steadily grew with significant improvement in profitability. Hence, the profit
        for the year increased significantly.
        During the reporting period, the Company focused on bases consolidation and efficiency enhancement, as well as overall
        continuous improvement. Firstly, new working principles and management concept have been specified according to
        different business segments. Secondly, overall management was regulated and system construction was improved. On the
        basis of improvement of the system, alarming cases have been formed based on the existing problems in the management
        process. Thirdly, special emphasis was placed on performance management. Full implementation of cost reduction
        incentives and efficiency improvement incentives enabled cadres and staff with outstanding performance to realise actual
        benefits. Fourthly, personnel management was strengthened. Increased efforts were made in attracting employees with
        high qualifications and sharp talents, and their abilities were fully demonstrated in their respective posts and achieved good
        results.
        During the reporting period, facing complex and volatile market environment, the Company timely adjusted its business
        strategies and proactively responded to the market to ensure a balance between sales and production. Firstly, significant
        progress was achieved in team building. All sales staff had maintained ideological stability with increased work initiative,
        thus enhancing sales performance. Secondly, proactive changes were made to marketing strategies. Investment in markets
        of close proximity was increased and the system of contracted dealers was improved. Thirdly, the Company’s brand
        influence continued to increase. Customer relations continued to improve as Zhanjiang Chenming’s high-grade offset paper
        products were widely recognised by customers for their high quality, and their high-grade coated paper with stable quality
        gained the 3-star EU certification. Fourthly, capital use continued to be reduced through reduction in inventories, promotion
        of the business with manufacturers, merchants and banks and improvement of contract compliance rate.
        During the reporting period, the Company placed great emphasis on production management. Firstly, restructuring was
        accelerated. Development of 16 new products was completed and restructuring of over 30 products were launched, thus
        increasing its product profitability. Secondly, stable machine operation was achieved by enhancing the operational efficiency of
        large machines. Thirdly, inventory reduction was strengthened to operate proactively. Fourthly, process optimisation
        was promoted by optimising the slurry structure and chemical processes and the use of new materials, thus increasing
        economic efficiency. Fifthly, labour costs were reduced by continuing implementation of fix posting setting and staffing.
                                        2013 Annual Report            /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                     13
      V Directors’ Report
      I.    Overview (Cont’d)
            2013 saw a strong momentum in the Company’s corporate restructuring and development. First, Wuhan Chenming’s
            household paper project, Jilin Chenming’s environment protection relocation project and Shouguang City’s 100,000 tonnes
            paper additives project commenced operation respectively, which played an important role in the Company’s restructuring,
            cost reduction and efficiency enhancement. Second, Jiangxi Chenming’s 350,000 tonnes high-grade packaging paper
            project, the 180,000 tonnes paper cup sheets and 190,000 tonnes culture paper projects in Zhanjiang, Guangdong Huirui’s
            Haidong New District Waterfront comprehensive regulation works project, Wan Xing Real Estate’s real estate project in
            Wuhan, Haicheng’s magnesite mining project and other projects commenced, which accelerated the restructuring of the
            Company and promoted corporate transformation and upgrading, thus further enhancing the strength of the Company.
            Third, Huanggang Chenming’s integrated forestry, pulp and paper project is under planning and pending approval, which
            will play a significant role in enhancing the Company’s overall competitiveness.
            During the reporting period, the establishment of a finance company within Chenming Group was approved by the China
            Banking Regulatory Commission, being the first enterprise in the paper making industry to own a finance company. This
            marked the Company’s formal participation in the financial sector paved the way for the Group’s diversification.
            During the reporting period, the Company continued to eliminate outdated production capacity by disposal of Yanbian
            Chenming. This was in line with the Company’s development strategy of focusing on high-end products, which helped
            raising the proportion of high-end products and increase economic efficiency. Meanwhile, the Company reduced finance
            expenses and enhanced its profitability through overseas financing and low-interest loans.
      II.   Analysis of principal operations
            1.   Overview
                 During the reporting period, the Company’s revenue amounted to RMB20,388.8901 million, up by RMB627.2108
                 million or 3.17% from 2012. The operating costs were RMB16,651.8860 million, down by RMB41.8823 million or 0.25%
                 from 2012. Operating profit and net profit attributable to equity holders of the parent company were RMB403.5409
                 million and RMB710.6553 million respectively, up by 196.95% and 221.51% respectively. During the reporting period,
                 the expenses for the period hit RMB3,258.4538 million, down by RMB89.0424 million or 2.66% from 2012. Investment
                 in research and development amounted to RMB379.2612 million, up by RMB85.5629 million or 29.13% from 2012.
                 Net cash flows from operating activities were RMB1,122.6168 million, down by RMB834.2497 million from 2012.
                 Review of the development strategy disclosed before and the progress of the operating plan during the reporting
                 period
                 Please refer to I. Overview of this section.
                 Whether the Company’s actual operation results were lower or higher than the publicly disclosed profit forecast for
                 the year by more than 20%:
                 □ Applicable √ Not Applicable
            2.   Revenue
                 During the reporting period, the Company completed machine-made paper production of 4.10 million tonnes,
                 representing an increase of 170,000 tonnes or 4.33% as compared with 3.93 million tonnes in 2012. Revenue from
                 principal operations amounted to RMB20,152.7955 million, up by RMB734.4101 million or 3.78% from 2012.
    14   SHANDONG CHENMING PAPER HOLDINGS LIMITED                    /     2013 Annual Report
    V Directors’ Report
    II.   Analysis of principal operations (Cont’d)
         2.       Revenue (Cont’d)
                  Whether revenue from sales in kind is higher than revenue from services
                 √ Yes □ No
                                                                                                                            Increase/
                 By industry                        Item                                2013                2012         decrease (%)
                 Machine-made paper
                  (’0,000 tonnes)                  Sales                                416                 395                 5.32%
                                                    Production output                    410                 393                 4.33%
                                                    Inventories                           39                  45               -13.33%
                  Explanation on why the related data was varied by more than 30%
                  □ Applicable √ Not Applicable
                  Material orders in hand of the Company
                  □ Applicable √ Not Applicable
                  Significant change in or adjustment of the products or services of the Company during the reporting period
                  □ Applicable √ Not Applicable
                  Sales to major customers of the Company
                 Total sales to top 5 customers (RMB)                                                                1,159,451,679.05
                 Total sales to top 5 customers as a percentage of the total sales for the year (%)                             5.69%
                  Information on top 5 customers of the Company
                  √ Applicable □ Not Applicable
                                                                                                                       As a percentage
                                                                                                                       of the total sales
                  No.     Name of customer                                                            Sales (RMB)       for the year (%)
                  1       SHANGHAI YAOJI PLAYING CARD CO., LTD.                                   389,138,742.02                 1.91%
                  2       INTERNATIONAL FOREST PRODUCTS                                           256,306,498.57                 1.26%
                  3       BEIJING MUCUN PAPER CO., LTD.                                           187,940,089.15                 0.92%
                  4       VITAL SOLUTIONS PTE LTD                                                 179,517,631.36                 0.88%
                  5       SHANDONG PROVINCE PUBLISHING FOREIGN
                            TRADE CO., LTD.                                                       146,548,717.95                 0.72%
                  Total   -                                                                    1,159,451,679.05                 5.69%
                                           2013 Annual Report            /        SHANDONG CHENMING PAPER HOLDINGS LIMITED                  15
      V Directors’ Report
      II.   Analysis of principal operations (Cont’d)
             3.  Cost
                  By industry
                                                                                                                                                              Unit: RMB
                                                                                       2013                                      2012
                                                                                            As a percentage of                        As a percentage of         Increase/
                  By industry                 Item                               Amounts operating costs (%)               Amounts operating costs (%)        decrease (%)
                  Machine-made paper          Raw materials                8,583,818,150.47            56.89%        8,937,680,153.84            57.86%           -0.97%
                                              Depreciation                   750,553,780.31             4.97%          835,613,946.74             5.41%           -0.44%
                                              Labour costs                   196,062,500.42             1.30%          157,709,922.20             1.02%            0.28%
                                              Energy and power             1,968,304,028.05            13.04%        1,893,067,781.92            12.25%            0.79%
                                              Chemicals                    2,285,170,540.42            15.14%        2,346,525,338.83            15.19%           -0.05%
                                              Other production costs       1,304,715,360.94             8.65%        1,277,613,441.39             8.27%            0.38%
                                              Subtotal                    15,088,624,360.62             100%        15,448,210,584.92             100%                 —
                  Power and steam             Raw materials                  950,923,905.70            84.23%          508,500,185.20            84.33%           -0.10%
                                              Depreciation                    90,305,114.81             8.00%           47,921,265.73             7.95%            0.05%
                                              Labour costs                    33,117,524.88             2.93%           20,637,762.46             3.42%           -0.49%
                                              Energy and power                   725,994.07             0.06%            1,876,044.44             0.31%           -0.25%
                                              Chemicals                          808,268.78             0.07%              976,450.67             0.16%           -0.09%
                                              Other production costs          53,068,781.97             4.70%           23,106,207.91             3.83%            0.87%
                                              Subtotal                     1,128,949,590.22             100%           603,017,916.41             100%                 —
                  Construction materials      Raw materials                  168,137,137.30            82.39%          220,811,751.70            73.27%            9.12%
                                              Depreciation                     2,411,328.71             1.18%           19,089,842.87             6.33%           -5.15%
                                              Labour costs                     7,425,294.19             3.64%           10,526,181.03             3.49%            0.15%
                                              Energy and power                15,233,571.16             7.46%           26,814,129.05             8.90%           -1.44%
                                              Chemicals                        2,069,485.59             1.01%            5,808,752.64             1.93%           -0.92%
                                              Other production costs           8,792,137.98             4.31%           18,334,270.30             6.08%           -1.77%
                                              Subtotal                       204,068,954.93             100%           301,384,927.59             100%
    16   SHANDONG CHENMING PAPER HOLDINGS LIMITED                                        /          2013 Annual Report
    V Directors’ Report
    II.   Analysis of principal operations (Cont’d)
          3.  Cost (Cont’d)
               By product
                                                                                                                                                       Unit: RMB
                                                                                 2013                                     2012
                                                                                      As a percentage of                       As a percentage of         Increase/
               By product              Item                                Amounts operating costs (%)              Amounts operating costs (%)        decrease (%)
               Light weight            Raw materials                   403,151,069.97            50.57%         507,950,556.55            48.86%            1.71%
                 coated paper          Accumulated depreciation         43,101,737.46             5.41%          51,339,028.14             4.94%            0.47%
                                       Labour costs                      9,700,447.50             1.22%          10,691,865.84             1.03%            0.19%
                                       Energy and power                106,700,158.31            13.39%         152,571,848.79            14.68%           -1.29%
                                       Chemicals                       162,546,030.80            20.39%         233,311,822.57            22.43%           -2.04%
                                       Other production costs           71,944,219.52             9.03%          83,744,330.02             8.06%            0.97%
                                       Subtotal                        797,143,663.55             100%        1,039,609,451.91             100%
               Duplex press paper      Raw materials                 1,214,355,314.27            57.79%       1,508,544,683.40            60.68%           -2.89%
                                       Accumulated depreciation        100,689,154.79             4.79%         122,719,701.81             4.94%           -0.15%
                                       Labour costs                     31,483,824.40             1.50%          29,052,082.36             1.17%            0.33%
                                       Energy and power                291,066,793.05            13.85%         326,870,055.15            13.15%            0.70%
                                       Chemicals                       245,562,795.30            11.69%         302,470,956.31            12.16%           -0.47%
                                       Other production costs          218,190,658.91            10.38%         196,472,313.58             7.90%            2.48%
                                       Subtotal                      2,101,348,540.72             100%        2,486,129,792.61             100%                 —
               Writing paper           Raw materials                   149,910,988.47            60.16%         180,898,992.93            68.10%           -7.94%
                                       Accumulated depreciation         10,907,314.44             4.38%           3,997,172.13             1.50%            2.88%
                                       Labour costs                      3,413,557.43             1.37%           6,123,857.73             2.31%           -0.94%
                                       Energy and power                 30,077,128.15            12.07%          37,581,044.15            14.15%           -2.08%
                                       Chemicals                        33,090,532.19            13.28%          22,894,310.91             8.62%            4.66%
                                       Other production costs           21,803,390.81             8.75%          14,122,914.39             5.32%            3.43%
                                       Subtotal                        249,202,911.49             100%          265,618,292.24             100%                 —
               News press paper        Raw materials                   771,076,094.95            69.90%         852,071,358.78            67.99%            1.91%
                                       Accumulated depreciation         70,407,567.04             6.38%          68,739,327.76             5.49%            0.89%
                                       Labour costs                      3,102,670.61             0.28%           3,761,372.30             0.30%           -0.02%
                                       Energy and power                135,995,525.13            12.33%         177,942,102.33            14.20%           -1.87%
                                       Chemicals                        23,578,983.71             2.14%          51,081,098.80             4.07%           -1.93%
                                       Other production costs           98,992,990.19             8.97%          99,588,746.51             7.95%            1.02%
                                       Subtotal                      1,103,153,831.64             100%        1,253,184,006.48             100%
                                               2013 Annual Report                       /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                              17
      V Directors’ Report
      II.   Analysis of principal operations (Cont’d)
            3.   Cost (Cont’d)
                 By product (Cont’d)
                                                                                                                                                       Unit: RMB
                                                                                 2013                                     2012
                                                                                        As a percentage of                       As a percentage of        Increase/
                    By product            Item                             Amounts      operating costs (%)         Amounts      operating costs (%)    decrease (%)
                    Paperboard            Raw materials                504,717,758.73              61.90%       385,462,371.32              75.07%         -13.17%
                                          Accumulated depreciation      50,755,273.73               6.23%        12,785,582.16               2.49%           3.74%
                                          Labour costs                   6,288,010.63               0.77%         2,887,586.26               0.56%           0.21%
                                          Energy and power             149,627,956.09              18.35%        64,353,647.64              12.53%           5.82%
                                          Chemicals                     56,329,994.64               6.91%        26,924,910.64               5.24%           1.67%
                                          Other production costs        47,623,145.79               5.84%        21,054,380.92               4.10%           1.74%
                                          Subtotal                     815,342,139.62               100%        513,468,478.94               100%                —
                    White paper board     Raw materials              1,100,225,284.60              63.30%       998,152,198.57              60.63%           2.67%
                                          Accumulated depreciation      75,261,256.47               4.33%       105,596,006.42               6.41%          -2.08%
                                          Labour costs                  42,515,456.75               2.45%         4,207,558.55               0.26%           2.19%
                                          Energy and power             260,320,599.03              14.98%       140,013,026.36               8.51%           6.47%
                                          Chemicals                    130,815,953.92               7.53%       261,022,549.61              15.85%          -8.32%
                                          Other production costs       128,908,644.65               7.42%       137,218,957.59               8.34%          -0.92%
                                          Subtotal                   1,738,047,195.43               100%      1,646,210,297.10               100%                —
                    Electrostatic paper   Raw materials                957,819,100.57              64.00%       860,183,425.70              70.18%          -6.18%
                                          Accumulated depreciation      80,479,976.88               5.38%        60,695,729.78               4.95%           0.43%
                                          Labour costs                  17,797,747.75               1.19%        11,416,394.06               0.93%           0.26%
                                          Energy and power             122,190,311.18               8.16%        63,678,054.97               5.20%           2.96%
                                          Chemicals                    156,499,910.35              10.46%       133,355,981.35              10.88%          -0.42%
                                          Other production costs       161,740,629.39              10.81%        96,368,721.89               7.86%           2.95%
                                          Subtotal                   1,496,527,676.12               100%      1,225,698,307.75               100%                —
                    Coated paper          Raw materials              1,698,992,285.99              43.98%     1,682,510,037.15              44.70%          -0.72%
                                          Accumulated depreciation     173,117,736.81               4.48%       271,583,736.25               7.22%          -2.74%
                                          Labour costs                  38,811,650.49               1.00%        23,953,033.14               0.64%           0.36%
                                          Energy and power             497,682,186.82              12.88%       449,106,353.39              11.93%           0.95%
                                          Chemicals                  1,123,166,129.58              29.07%     1,048,680,994.79              27.86%           1.21%
                                          Other production costs       331,667,388.72               8.58%       287,957,484.19               7.65%           0.93%
                                          Subtotal                   3,863,437,378.40               100%      3,763,791,638.91               100%                —
                    Other machine-        Raw materials              1,750,554,092.69              59.86%     2,257,093,872.24              69.35%          -9.49%
                      made paper          Accumulated depreciation     140,766,220.96               4.81%       122,365,618.94               3.76%           1.05%
                                          Labour costs                  45,331,938.71               1.55%        39,395,106.84               1.21%           0.34%
                                          Energy and power             352,474,902.16              12.05%       333,801,245.48              10.26%           1.79%
                                          Chemicals                    395,378,019.07              13.52%       272,498,936.32               8.37%           5.15%
                                          Other production costs       239,915,850.05               8.20%       229,345,539.16               7.05%           1.15%
                                          Subtotal                   2,924,421,023.65               100%      3,254,500,318.98               100%                —
    18   SHANDONG CHENMING PAPER HOLDINGS LIMITED                                   /      2013 Annual Report
    V Directors’ Report
    II.   Analysis of principal operations (Cont’d)
    3.    Cost (Cont’d)
         Major suppliers of the Company
                  Total purchases from top 5 suppliers (RMB)                                                          1,648,415,119.16
                  Total purchases from top 5 suppliers as a percentage of the total purchases for the year (%)                  9.90%
                  Information on top 5 suppliers of the Company
                  √ Applicable □ Not Applicable
                                                                                                                      As a percentage of
                                                                                                                      the total purchases
                  No.        Name of supplier                                                   Purchases (RMB)           for the year (%)
                  1          SHANDONG HEXIN CHEMICAL GROUP CO., LTD.                              377,138,678.17                  2.26%
                  2          ITOCHU HONG KONG LTD                                                 337,641,104.64                  2.03%
                  3          JIANGXI COAL SALES CO., LTD.                                         330,758,605.03                  1.99%
                  4          SILENUS INTERNATIONAL CO .,LTD                                       320,963,829.42                  1.93%
                  5          ZHANJIANG XINCHEN TRADING CO., LTD.                                  281,912,901.91                  1.69%
                  Total      -                                                                 1,648,415,119.16                  9.90%
             4.       Expenses
                                                                              Accrued during       Accrued during               Increase/
                      Item                                                          the year         the prior year          decrease (%)
                      Selling and distribution expenses                      1,129,145,035.51     1,144,489,246.04                -1.34%
                      Administrative expenses                                1,198,704,556.00     1,110,246,902.75                 7.97%
                      Finance expenses                                         930,604,174.96     1,092,760,015.04               -14.84%
                      Loss on impairment of assets                              24,104,912.81        70,250,158.94               -65.69%
                      Loss on impairment of assets                             175,938,431.91       -62,826,238.51               380.04%
                  (1)     Loss on impairment of assets decreased by 65.69% as compared to the corresponding period of the prior year,
                          mainly due to: stepping up efforts to collect proceeds and reduction of bad debt provision.
                  (2)     Income tax expense increased by 380.04% as compared to the corresponding period of the prior year, mainly
                          due to: improved profitability of the Company as compared to the prior year.
                                                2013 Annual Report       /        SHANDONG CHENMING PAPER HOLDINGS LIMITED                   19
      V Directors’ Report
      II.   Analysis of principal operations (Cont’d)
            5.   Research and development expenditure
                 The research and development expenditure for 2013 totalled RMB379.2612 million, representing an increase of
                 RMB85.5629 million or 29.13% as compared with RMB293.6983 million of the corresponding period of the prior
                 year. The research and development expenditure accounted for 2.59% of the net assets, representing an increase
                 of 0.54 percentage point as compared with 2.05% of the corresponding period of the prior year. The research and
                 development expenditure accounted for 1.86% of revenue, representing an increase of 0.37 percentage point as
                 compared with 1.49% of the corresponding period of the prior year.
                 With the rapid development from a traditional industry into a modern industry, the paper making industry is
                 characterised by large-scale equipment, high-speed operation, economy of scale, machinery with large production
                 capacity, large amount of time and labour input and high output levels. Production processes, technologies and
                 products must be adapted to market demand and the level of equipment. Research, development and application of
                 new technology are carried out constantly, and product portfolio adjustment is crucial in shifting its focus from the
                 traditional middle to low-end products to high-end, specialty products. The research and development activities of the
                 paper making industry are no longer confined to laboratory research and small-scale production applications, which
                 instead focus on the promotion of large-scale industrialisation. Most of the Company’s research and development
                 activities and investment are in the trial production and trial application stages. Raw materials consumption is high
                 during this process due to factors including high speed of machines, width and large production capacity.
                 In 2013, the development of the Twelve Five Year Plan entered a crucial stage. The Company actively carried out
                 research and development of new products and technologies, as well as promoted product portfolio adjustment. It
                 launched the research and development of new products and new technologies, including bio-pulping technology
                 (National Programs for Science and Technology Development, “863 Project”), the provincial innovation project of
                 coated kraft liner board, fluorescence-free cigarette board, development of digital printing specialty paper technology
                 and Takamatsu coated paper, high-end glassine paper, ASA sizing technology and filler modification technology,
                 which optimised the product portfolio, improved the paper product quality and enhanced market competitiveness,
                 thus injecting new impetus into the Company’s new development. During the reporting period, the pulp/paper testing
                 centre of the Company’s technology research institute passed the laboratory accreditation process of China National
                 Accreditation Service for Conformity Assessment (CNAS). Details of the major research and development projects of
                 the Company are as follows:
    20   SHANDONG CHENMING PAPER HOLDINGS LIMITED                     /     2013 Annual Report
    V Directors’ Report
    II.   Analysis of principal operations (Cont’d)
         5.   Research and development expenditure (Cont’d)
              (1)   High-end coated white linerboard technology development
                    Objectives of the research and development project: The project combined the guiding ideology of structural
                    adjustment of both the national and Shandong Province papermaking industry. According to the current and
                    future development needs of the domestic high-end packaging paper market, the project conducted research
                    on high-end coated white linerboard, which is produced by using OCC (waste cardboard paper pulp) and the
                    existing production system DIP (deinked pulp) as the main raw materials and supplemented with a small amount
                    of hardwood bleached chemical pulp, as an alternative to coated white paperboard and container paperboard
                    widely used currently. The project focused on research and development of domestic advanced clean
                    production technology and white linerboard sizing and new coating technology, with total water consumption of
                    only 10 m3 per tonne of paper (industry clean production evaluation radix: 30 m3 per tonne of paper).
                    Progress of the research and development project: This project has been classified as technological
                    innovative project of Shandong Province. Through project research and technology and relying on the existing
                    national level technology centre, post-doctoral research stations and the newly built production line which
                    reached the international advanced level, the Company developed a specialised surface sizing technology and
                    new natural levelling coating process. The coated white linerboard developed through the new technology and
                    process has good burst index, high transverse ring crush index and good binding force between layers, and
                    is not easily broken and layered. The paper surface has good pigment layer, uniform ink absorption and high
                    smoothness, and the printed surface is of low roughness and high strength. The product is not easily peeled off
                    and powdered out and with good printability, low water absorption on the front and back surface, outstanding
                    water resistant performance, and thus has strong competitiveness in the market. Two national patents have
                    been applied for this specialised technology, with one national practical new type patent has been granted. The
                    project has entered the finalisation and product acceptance phase.
                    Intended goals of the research and development project: The project used OCC and the DIP pulp from
                    the existing production system as the main raw materials, supplemented with a small amount of hardwood
                    bleached chemical pulp for the research and development of high-end coated white linerboard. The research
                    mainly included scientific and rational pulp-to-raw materials ratio process, wet cloth filling technology, dry and
                    wet strength enhancement technology, a special coating formulation and coating process and new cleaner
                    production technology. The Company intended to apply for one or more national invention patent in order to
                    obtain independent intellectual property rights. The quantitative range of the product is 110 to 220 g/m2. High-
                    end coated white linerboard as an upgrade alternative to the existing whiteboard wrapping paper in the market
                    will also replace similar imported products, thereby filling the gaps in the domestic market with its product
                    quality and technical specifications and production technology, which have reached the international advanced
                    level.
                    Expected impact of the research and development project on future development: The high-end coated
                    white linerboard, with the characteristics of lightness, smooth surface, good toughness, good surface printability
                    and elegant appearance, can be used in the manufacturing of a variety of gift box and carton box for high-
                    end merchandise. Its advantage in printing adaptability and paper performance also provides solutions to the
                    continued growth in demand for paper and packaging materials of various industries. Also, its lower material
                    and energy consumption can help save a large amount of resources, and promote the sustainable development
                    process of the Company and the industry.
                                       2013 Annual Report           /        SHANDONG CHENMING PAPER HOLDINGS LIMITED                    21
      V Directors’ Report
      II.   Analysis of principal operations (Cont’d)
            5.   Research and development expenditure (Cont’d)
                 (2)   Sub-topic of the National “863” Project “Research and production of enzyme in papermaking: “Optimisation of
                       process for using enzyme in papermaking and its industrialisation”
                       Objectives of the research and development project: The project focused on the demand for industrial enzyme
                       corresponding to the transformation and upgrade of the papermaking industry process. In response to the
                       core technical problems, including the poor performance, high cost and difficult application of using enzymes
                       in China’s papermaking industry, the project focused on the research and development of enzyme preparation
                       of xylanase, laccase, cellulase and lipase for papermaking and its engineering applications. The project strives
                       to achieve a breakthrough in key technologies, including high-throughput gene screening for enzyme used in
                       papermaking, the transformation of the enzyme protein structure function analysis and molecular design, high
                       protein expression, the large-scale preparation and compounded preparation of enzyme preparation, application
                       performance system evaluation and engineering application process, and develop xylanase and laccase for
                       making paper pulp and bleaching, new industrial enzymes for papermaking including fat enzyme for use in
                       deinking and cellulase applicable for process applications, develop a new process for green transformation and
                       upgrade of the typical papermaking industry process, and promote the large-scale application of enzyme in
                       pulping, bleaching and deinking of the papermaking industry, in order to provide important technical support for
                       the development of energy conservation and green economy.
                       Progress of the research and development project: Currently, the various task force units of the project
                       have been co-ordinated to conduct testing and research on the application of enzymes in the pulp and paper
                       process, especially on the applications of enzyme in chemical pulp bleaching and deinking, in order to provide
                       the conditions for large-scale production applications of specialised enzyme for pulping. Currently, the project
                       has achieved certain phasal result during the process with 1 piece of high standard essay being published in a
                       domestic major magazine.
                       Intended goals of the research and development project: Based on the existing pulping and bleaching
                       processes, the task force will carry out the screening, compounded preparation and preparation work for
                       enzymes used in papermaking, and further study the application of the enzymes developed by the task force
                       in the chemical pulp bleaching process, conducted pilot production and achieved large-scale applications,
                       build the demonstration ton-grade production line for the application of enzyme, improve the whiteness of pulp
                       bleaching and pulp strength by more than 5%, achieve the wastewater reuse rate of 80%, reduce the alkali
                       dosage by 60%, reduce the amount of chemical bleaching reagent by 20-40% to reach the expected goals of
                       the project, and apply for one invention patent.
                       Expected impact of the research and development project on future development: The implementation of the
                       project will provide an exemplary base for the green and low-pollution papermaking process in China, promote
                       co-operation between schools, businesses and research institutions in technological innovation, thereby
                       accelerating the technological achievements transformation and promoting industry-wide technological levels
                       and product quality improvement.
    22   SHANDONG CHENMING PAPER HOLDINGS LIMITED                      /     2013 Annual Report
    V Directors’ Report
    II.   Analysis of principal operations (Cont’d)
         5.   Research and development expenditure (Cont’d)
              (3)   Technology development of high-end glassine paper
                    Objective: As the pollution of environmental resources has become increasingly serious, the traditional non-dry
                    adhesive paper, due to its leaching PE adhesive film, on one hand causes environmental pollution as PE film
                    recycling is difficult and will not decompose easily in the natural environment even after a long time; on the other
                    hand, raw materials of PE film come from petroleum by-products, with the scarcity of petroleum resources, the
                    consumption of such raw material will also be shrinking. The grade and quality of products is a key factor for
                    the further development of enterprises. Glassine paper is a high-end specialty paper used in high-grade non-
                    dry paper products and widely used in the advertising and industrial sectors. Its market demand increases year
                    by year and has huge market potential. In the long run, glassine paper will gradually take the place of ordinary
                    non-dry paper. This project fully made use of the technological transformation of the existing culture paper
                    production line for the development of high-grade glassine paper, which will help optimising the Company’s
                    product portfolio, adding new profit growth point and has good market prospect.
                    Progress: Currently, the project has completed project technology validation and the procurement of specialty
                    equipment. The technology transformation is underway, and the next step will be to carry out the experimental
                    design and experimental research program simultaneously.
                    Intended goals: The project intends to select quality chemical bleaching pulp with recycled fibre and chemical
                    mechanical pulp, and combine with special mineral pigments and unique surface sizing process to create a
                    highly smooth (≥ 500s), good anti-oil high-grade non-dry paper product. The product will have higher strength,
                    improved bulk density and dimensional stability, soft colour, pure and natural appearance, lower manufacturing
                    costs, and is also environmental friendly.
                    Expected impact on future development: The implementation of this project and the resulted excellent product
                    quality can further optimise the product portfolio of the Company, increase the proportion of its high-end
                    products, add value to its products and enhance the Company’s market competitiveness. Meanwhile, the use of
                    recycled fibre pulp broadens the application such raw material, thus saving a large amount of native wood fibre
                    resources and further promoting the implementation of the process of environmental green paper making chain.
                                       2013 Annual Report            /        SHANDONG CHENMING PAPER HOLDINGS LIMITED                     23
      V Directors’ Report
      II.   Analysis of principal operations (Cont’d)
            6.   Cash flows
                                                                                                                         Unit: RMB
                                                                                                                             Increase/
                  Item                                                               2013                   2012          decrease (%)
                  Subtotal of cash inflows from operating activities    20,363,176,118.78     19,399,885,121.58                 4.97%
                  Subtotal of cash outflows from operating activities   19,240,559,317.87     17,443,018,643.59                10.31%
                  Net cash flows from operating activities               1,122,616,800.91      1,956,866,477.99               -42.63%
                  Subtotal of cash inflows from investing activities     1,926,791,350.79      1,020,659,994.81                88.78%
                  Subtotal of cash outflows from investing activities    3,837,739,389.14      3,666,784,910.10                 4.66%
                  Net cash flows from investing activities              -1,910,948,038.35     -2,646,124,915.29                27.78%
                  Subtotal of cash inflows from financing activities    23,126,276,064.56     25,318,157,575.12                -8.66%
                  Subtotal of cash outflows from financing activities   23,958,313,170.73     24,594,961,130.78                -2.59%
                  Net cash flows from financing activities                -832,037,106.17        723,196,444.34              -215.05%
                  Net increase in cash and cash equivalents             -1,617,017,256.49         26,501,565.92             -6201.59%
                 Explanation on why the related data varied by more than 30%
                 √ Applicable □ Not Applicable
                 (1)   Net cash flows from operating activities decreased by 42.63% as compared to the corresponding period of
                       the prior year mainly due to the increase of the proportion of cash payment for goods as the Company sought
                       support from upstream suppliers and reduced its costs.
                 (2)   Net cash flows from investing activities increased by 27.78% as compared to the corresponding period of the
                       prior year mainly due to recovery of investment with lower rate of return in order to improve capital utilisation
                       and strengthen our existing leading operations.
                 (3)   Net cash flows from financing activities decreased by 215.05% as compared to the corresponding period of the
                       prior year mainly due to better profitability of the Company and enhancement in capital utilisation efficiency so
                       as to lower capital utilisation costs.
                 Explanation on main reasons leading to the material difference between cash flows from operating activities during
                 the reporting period and net profit for the year
                 √ Applicable □ Not Applicable
                 Net cash flows from operating activities decreased by 42.63% as compared to the corresponding period of the prior
                 year but net profit attributable to the Company increased by 221.51% as compared to the corresponding period of
                 the prior year mainly due to the decreased in accounts payable and increase in accounts receivable during the year.
    24   SHANDONG CHENMING PAPER HOLDINGS LIMITED                      /    2013 Annual Report
    V Directors’ Report
    III. Components of principal operations
                                                                                                                                                      Unit: RMB
                                                                                                                                                  Increase/decrease of
                                                                                                   Increase/decrease      Increase/decrease            gross profit
                                                                                                        of revenue as      of operating costs               margin as
                                                                                                     compared to the          as compared to            compared to
                                                                                                       corresponding       the corresponding      the corresponding
                                                                                    Gross profit    period of the prior           period of the         period of the
                                                 Revenue      Operating costs        margin (%)               year (%)          prior year (%)          prior year (%)
           By industry
           Machine-made paper            18,244,191,565.62   15,088,624,360.62          17.30%                0.53%                  -2.33%                  2.42%
           Electricity and heat           1,519,119,225.58    1,128,949,590.22          25.68%               89.81%                  87.22%                  1.03%
           Construction materials           241,343,187.87      204,068,954.93          15.44%              -30.00%                 -32.29%                  2.85%
           Hotel                             36,324,584.14        8,589,278.93          76.35%              -24.85%                 -31.25%                  2.20%
           Others                           111,816,968.86       62,297,587.77          44.29%              719.32%                 493.74%                 21.17%
           By products
           Light weight coated paper        959,374,495.99     797,143,663.55           16.91%              -18.03%                 -23.32%                  5.74%
           Duplex press paper             2,573,322,197.99   2,101,348,540.72           18.34%              -11.05%                 -15.48%                  4.27%
           Writing paper                    307,750,040.04     249,202,911.49           19.02%               10.45%                  -6.18%                 14.35%
           Coated paper                   4,504,344,844.03   3,863,437,378.40           14.23%               11.51%                   2.65%                  7.40%
           News press paper               1,501,678,237.85   1,103,153,831.64           26.54%              -15.37%                 -11.97%                 -2.84%
           Paperboard                       812,352,574.23     815,342,139.62           -0.37%               54.13%                  58.79%                 -2.95%
           White paper board              2,161,704,531.76   1,738,047,195.43           19.60%                7.55%                   5.58%                  1.50%
           Electrostatic paper            1,906,857,070.30   1,496,527,676.12           21.52%               19.87%                  22.10%                 -1.43%
           Other machine-made paper       3,516,807,573.43   2,924,421,023.65           16.84%               -9.00%                 -10.14%                  1.06%
           Electricity and steam          1,519,119,225.58   1,128,949,590.22           25.68%               89.81%                  87.22%                  1.03%
           Construction materials           241,343,187.87     204,068,954.93           15.44%              -30.00%                 -32.29%                  2.85%
           Hotel                             36,324,584.14       8,589,278.93           76.35%              -24.85%                 -31.25%                  2.20%
           Others                           111,816,968.86      62,297,587.77           44.29%              719.32%                 493.74%                 21.17%
           By geographical segment
           Mainland China                17,419,575,119.36   14,112,022,512.66          18.99%                 4.61%                  2.02%                   2.06%
           Other countries and regions    2,733,220,412.71    2,380,507,259.81          12.90%                -1.18%                 -8.10%                   6.55%
       Under the circumstances that the statistics specification for the Company‘s principal operations data experienced
       adjustment in the reporting period, the principal operations data upon adjustment of the statistics specification at the end of
       the reporting period in the latest year.
       □ Applicable √ Not Applicable
                                           2013 Annual Report                   /     SHANDONG CHENMING PAPER HOLDINGS LIMITED                                           25
      V Directors’ Report
      IV. Five-year financial summary
          The following is the published summary of results and assets, liabilities and minority shareholders interests of the Group for
          the past five years as extracted from the published audited financial statements. This summary does not constitute a part of
          the audited financial statements. Financial summary is prepared in accordance with Hong Kong Accounting Standard (the
          data for 2009 to 2010 is prepared in accordance with International Accounting Standard, while the data from 2011 onwards
          is prepared in accordance with China Accounting Standards for Business Enterprises):
          1.      Consolidated results
                                                                                                                                             Unit: RMB’0,000
                                                                                  For the year ended 31 December
                                                                                                                 2010
                                                                                               China Accounting
                                                                                                   Standards for             International
                                                                                                       Business               Accounting
                                                        2013            2012              2011       Enterprises                Standard                2009
                  Revenue                            2,038,889       1,976,168       1,774,749           1,720,312             1,709,970            1,481,525
                  Profit/(loss) before tax              86,629          -1,614          69,899             156,235               159,781              120,838
                  Tax                                   17,594          -6,283          11,026              26,070                26,070               21,901
                  Profit/(loss) for the
                    current period                     71,066          22,103           60,827             116,334               119,034              86,295
                  Minority shareholders
                    interests                          -2,030         -17,435           -1,954              13,832                14,678              12,643
          2.      Consolidated assets, liabilities and minority shareholders interests
                                                                                                                                             Unit: RMB’0,000
                                                                                  For the year ended 31 December
                                                                                                                2010
                                                                                                 China Accounting
                                                                                                     Standards for             International
                                                                                                         Business               Accounting
                                                          2013            2012              2011       Enterprises                 Standard              2009
                      Total assets                    4,752,188       4,772,542        4,563,083           3,507,713             3,500,113            2,812,613
                      Total liabilities               3,288,353       3,338,000        3,064,305           1,981,693             2,003,482            1,371,842
                      Minority shareholders
                        interests                        59,847          58,592          145,915             172,441               172,342             173,570
                      Total equity attributable
                        to equity holders of
                        the parent company            1,403,989       1,375,950        1,352,862           1,353,579             1,324,289            1,267,202
                      Gearing ratio                     69.20%          69.94%           67.15%              56.50%                57.24%               48.77%
    26   SHANDONG CHENMING PAPER HOLDINGS LIMITED                              /     2013 Annual Report
    V Directors’ Report
    V.   Analysis of assets and liabilities (Cont’d)
        1.        Material changes of asset items
                                                                                                                                                                        Unit: RMB
                                                   As at the end of 2013                      As at the end of 2012
                                                                            As a                                      As a
                                                                percentage of                             percentage of           Change in
                                                 Amounts        total assets (%)          Amounts         total assets (%)    percentage (%)   Description of major changes
                Monetary funds            2,547,729,794.24                 5.36%   4,456,217,362.86                   9.34%          -3.98%    Monetary funds decreased
                                                                                                                                               mainly due to the issue of
                                                                                                                                               RMB3.8 billion corporate bonds
                                                                                                                                               on 28 December 2012 and some
                                                                                                                                               of the funds as at the end of the
                                                                                                                                               year not utilised for repayment of
                                                                                                                                               borrowings.
                Accounts receivable       3,102,643,083.54                 6.53%   3,602,955,051.18                   7.55%          -1.02%    Accounts receivable decreased
                                                                                                                                               mainly due to the strengthened
                                                                                                                                               control over proceeds collection
                                                                                                                                               and the decrease in turnover
                                                                                                                                               days for accounts receivable.
                Inventories               3,725,809,877.25                 7.84%   4,412,548,700.68                   9.25%          -1.41%    Inventories decreased mainly
                                                                                                                                               due to the decrease in goods in
                                                                                                                                               stock as a result of stepping up
                                                                                                                                               sales efforts by the Company.
                Long-term equity           115,477,214.86                  0.24%    356,796,777.78                    0.75%          -0.51%    Long-term equity investments
                  investments                                                                                                                  decreased mainly due to the
                                                                                                                                               decrease in long-term equity
                                                                                                                                               in v e s t m e n t s a r i s i ng f r om
                                                                                                                                               disposal of investments.
                Fixed assets             21,181,647,488.39             44.57% 19,751,339,991.06                  41.39%              3.18%     Fixed assets increased mainly
                                                                                                                                               due to the reclassification of the
                                                                                                                                               white coated linerboard project
                                                                                                                                               of the Company as fixed assets,
                                                                                                                                               as well as depreciation for the
                                                                                                                                               year, disposal of subsidiary,
                                                                                                                                               Yanbian Chenming, and the
                                                                                                                                               decrease of fixed assets as
                                                                                                                                               disposed of due to the relocation
                                                                                                                                               of Wuhan Chenming Plant I for
                                                                                                                                               environmental protection reason.
                                                  2013 Annual Report                      /            SHANDONG CHENMING PAPER HOLDINGS LIMITED                                           27
      V Directors’ Report
      V.   Analysis of assets and liabilities (Cont’d)
           1.   Material changes of asset items
                                                   As at the end of 2013                       As at the end of 2012
                                                                              As a                                         As a
                                                                   percentage of                                percentage of         Change in
                                                    Amounts       total assets (%)            Amounts          total assets (%)   percentage (%) Description of major changes
                Bills receivable            2,870,443,681.49                6.04%    1,852,478,364.46                   3.88%            2.16%     Bills receivable increased mainly
                                                                                                                                                   due to the increase in bills for
                                                                                                                                                   settlement as at the end of
                                                                                                                                                   the year and the decrease in
                                                                                                                                                   discount on bills receivable.
                Disposal of fixed assets     588,181,647.53                 1.24%        287,309,818.03                 0.60%            0.64%     D i s p o s a l o f f i x ed a s s e t s
                                                                                                                                                   increased mainly due to the
                                                                                                                                                   reclassification of assets into
                                                                                                                                                   disposal due to the relocation
                                                                                                                                                   of Wuhan Chenming Plant I for
                                                                                                                                                   environmental protection reason.
                Deferred income              507,653,388.38                 1.07%        376,938,086.60                 0.79%            0.28%     Deferred income tax assets
                 tax assets                                                                                                                        increased mainly due to provision
                                                                                                                                                   made for deferred income tax
                                                                                                                                                   assets as a result of temporary
                                                                                                                                                   losses of some companies under
                                                                                                                                                   the current market conditions.
           2.   Material changes of liability items
                                                                                                                                                                         Unit: RMB
                                                           2013                                         2012
                                                                              As a                                         As a
                                                                    percentage of                               percentage of         Change in
                                                    Amounts       total assets (%)            Amounts          total assets (%)   percentage (%) Description of major changes
                Short-term borrowings       9,818,885,237.85               20.66% 12,876,398,495.16                    26.98%           -6.32%     Short-term borrowings
                                                                                                                                                   decreased mainly due
                                                                                                                                                   t o r educ tion o f f i nanc ing
                                                                                                                                                   t h r ough shor t- t e rm l oans
                                                                                                                                                   by the Company in order to
                                                                                                                                                   lower finance expenses and
                                                                                                                                                   broadening financing sources.
                Bills payable                290,403,790.59                 0.61%    1,285,627,762.07                   2.69%           -2.08%     Bills payable decreased mainly
                                                                                                                                                   due to the decrease in bank
                                                                                                                                                   acceptance bills issued by the
                                                                                                                                                   Company for payment of goods.
                Other current liabilities   3,878,735,536.52                8.16%         17,659,498.56                 0.04%            8.12%     Other current liabilities increased
                                                                                                                                                   mainly due to the issuance of
                                                                                                                                                   short-term commercial paper of
                                                                                                                                                   RMB3.8 billion by the Company.
    28   SHANDONG CHENMING PAPER HOLDINGS LIMITED                                       /         2013 Annual Report
    V Directors’ Report
    V.   Analysis of assets and liabilities (Cont’d)
        3.   Assets and liabilities measured at fair value
                                                                                                                                                              Unit: RMB
                                                                    Profit or loss       Cumulative
                                                               from change in              fair value        Impairment       Purchases         Disposal
                                                               fair value during     change charged     provided during           during          during
             Item                           Opening balance           the period            to equity         the period      the period      the period   Closing balance
             Financial assets
             Consumable biological assets   1,169,269,054.15     11,221,828.76       189,043,642.16                        12,924,958.49   22,385,201.20 1,317,141,123.77
             Total                          1,169,269,054.15     11,221,828.76       189,043,642.16                        12,924,958.49   22,385,201.20 1,317,141,123.77
             Financial liabilities                      0.00              0.00                                                                                       0.00
             Whether there were any material changes on the measurement attributes of major assets of the Company during the
             reporting period
             □ Yes √ No
    VI. Analysis of Core Competitiveness
        The Company is a large enterprise which primary engages in forestry, pulping and paper-making operations. It is also the
        first listed company with three types of listed shares (i.e. A shares, B shares and H shares) in China. Compared with other
        enterprises in the industry, the Company has the following advantages:
                                            2013 Annual Report                         /            SHANDONG CHENMING PAPER HOLDINGS LIMITED                                 29
      V Directors’ Report
      VI. Analysis of Core Competitiveness (Cont’d)
          (1)   Scale advantages: As China’s largest state-owned paper making enterprise, after years of development, the Company
                has achieved annual paper production capacity of 8.00 million tonnes and is capable to compete with international
                papermaking enterprises in scale. Large-scale centralised production has provided the Company with obvious
                economic benefits, which are reflected not only in the manufacturing costs of products, but also in its strong market
                influence in raw material procurement, product pricing and industry policymaking.
          (2)   Product advantages: While the production scale of the Company expanded rapidly, its product mix also continued to
                optimise. In recent years, the Company has built the production lines for high-end coated paper, high-end light weight
                coated paper, high-end white paper board and high-end duplex press paper, and achieved higher technological
                content of products and added values as well as a higher gross profit margin. The product mix of the Company has
                changed from one that focused mainly on ordinary offset paper to a wide product range including electrostatic paper,
                duplex press paper, light weight coated paper, news press paper, coated paper, white paper board and household
                paper, and thus the Company has become the enterprise that offers the widest product range in China’s papermaking
                industry. Proportion of the Company’s high-end products will further increase in the future. Diversification and
                gentrification of the product mix has not only greatly enhanced the Company’s ability to withstand market risks, but
                also enabled the Company to maintain a relatively high profitability.
          (3)   Advantages in technical equipment: The Company’s overall technical equipment has reached the advanced
                international level. The main production equipment have been imported from internationally renowned manufacturers,
                including Metso and Ahlstrom of Finland, Fuyite of Germany, Andritz of Austria and ABB of the United States. Its
                equipment of advanced international level includes the world’s most advanced dilution headbox, folding net, single
                hanging dryer machine, thin film coating machine, non-contact hot air drying and two-sided soft dense burnishing
                machine, and have been equipped with advanced technical equipment including online paper disease monitoring
                system, caliper profiler control system and intelligent quality control system. The technical equipment used by the
                Company generally reflects the characteristics of being technology-intensive and the integration of mechanical and
                electrical in the papermaking industry nowadays. The degassing technology, wet end chemical technology, intelligent
                sheet lateral control technology, coating preparation technology, free-jet coating technology, multi-nip pressure
                balanced burnishing technology and independent developed processes of the slurry system have all reached the
                international advanced level.
          (4)   Research and innovation advantages: Leveraging its research strengths and relied on state-level enterprise technical
                centres and post-doctoral research stations, the Company has established a comprehensive intellectual property
                rights system, and has continuously enlarged its technological innovation capacity and research and development
                efforts to actively develop new products and proprietary technology with high technology content and added values.
                Meanwhile, Chenming Paper Technology Centre is actively engaged in technological cooperation with universities,
                research units and international advanced enterprises. The above have helped the Company establish a research and
                development network leveraging both the domestic and international advanced papermaking research bases, and
                guaranteed Company’s leading position in industry research in China.
    30   SHANDONG CHENMING PAPER HOLDINGS LIMITED                    /     2013 Annual Report
    V Directors’ Report
    VI. Analysis of Core Competitiveness (Cont’d)
       (5)   Comprehensive cost advantages: The Company has a relative advantage in comprehensive cost, which is mainly
             reflected in: first, the Company has optimised the operation of the production lines through stringent management,
             which has substantially lowered the waste of resources in evaporating, emitting, dripping or leaking, and the
             Company’s energy consumption per ton of paper was also controlled at a relatively low level; secondly, the Company
             has established several advanced pulp production lines, and has also increased the raw materials supply by launching
             the construction of the 700,000 tonnes of wood pulp project in Zhanjiang and the forestry paper integration project of
             Huanggang Chenming; thirdly, the Company has reduced costs through the construction of the captive power plant
             to ensure energy supply.
       (6)   Funding advantages: The papermaking industry is a capital-intensive industry, and funding is one of the most
             important factors for the development of the industry. The Company has high profitability and credit status, and has
             maintained long-term stable cooperative relations with its bankers, which provide the Company with an unobstructed
             indirect financing capacity. In recent years, the Company has made full use of indirect financing channels to
             accelerate its development. While the Company has increased borrowings, it has maintained higher returns on net
             assets, improved its earnings ratio, and leveraged the advantage of financial leverage. All these are in line with the
             goal of maximisation of shareholders’ wealth. Since its listing, the Company has maintained good operating results
             and a sound corporate governance structure. It has conducted several financing activities in domestic and foreign
             stock markets. The funds obtained have been applied effectively and has helped the Company create good market
             image, which has provided the Company with stronger abilities in direct financing in the stock market.
       (7)   Advantages in environmental regulation capacity: Over the years, the Company has firmly established “environmental
             protection first, scale expansion second” as the concept of development. The Company has ensured the
             enhancement of economic and environmental benefits simultaneously by giving equal importance to environmental
             protection and production. In recent years, the Company and its subsidiaries have constructed the pollution treatment
             facilities including the alkali recovery system, middle water treatment system, white water recovery system, red liquor
             comprehensive utilisation system and the sewage treatment plants, which guaranteed that the environment protection
             facilities can meet the demand of the rapid expansion of the Company.
                                      2013 Annual Report           /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                    31
      V Directors’ Report
      VII. Analysis of investments
          1.   External equity investments
               (1)   External investments
                                                                     External investments
                                                                             Investments during
                                    Investments during                        the corresponding
                             the reporting period (RMB)               period of prior year (RMB)                          Change (%)
                                        519,337,235.00                           669,306,351.20                             -22.41%
                                                                           Investees
                                                                                                                      The Company’s
                                                                                                                     share of interest
                     Names of the companies               Principal activities                                       in investees (%)
                     Zhanjiang Meilun                     Plant fostering, forest conservation, soil improvement,              100%
                       Pulp & Paper Co., Ltd.             forestry research, construction of raw material bases;
                                                          implementation, management and operation of pulp mill
                                                          construction; manufacture, production, processing and
                                                          sales of pulp and related products
                     Zhanjiang Chenming New-style         Production and sales of new-style wall materials, and                100%
                       Wall Materials Co., Ltd.           comprehensive utilisation of coal ash
                     Chenming GmbH                        Trading of machine-made paper                                        100%
                     Shandong Chenming Paper              Sales of machine-made paper, paper board, paper-                     100%
                       Group (Fuyu) Sales Co., Ltd.       making materials and accessories and paper machinery
                     Shouguang Hongxiang Printing         Pre-approval operation: Printing: forms and account                  100%
                       and Packaging Co., Ltd.            books; General operation: Processing and sales of:
                                                          paper and paper products, plastic products (excluding
                                                          agricultural film), apparel, packaging materials; export
                                                          and import operation for goods and technology within
                                                          the scoped as approved by the government
                     Chenming (HK) Limited                Export and import trade of paper products and market                 100%
                                                          research
                     Jiangxi Chenming Paper Co., Ltd.     Production and processing of machine-made paper,                     100%
                                                          paperboard, paper panel, paper products and paper-
                                                          making raw materials
                     Haicheng Haiming Mining              Processing and sales of magnetite and talc                            60%
                      Company Limited
                     Wuhan Chenming Wan                   Development of real estate and sales of commodity                     40%
                      Xing Real Estate Co., Ltd.          house
    32   SHANDONG CHENMING PAPER HOLDINGS LIMITED                   /        2013 Annual Report
    V Directors’ Report
    VII. Analysis of investments (Cont’d)
       2.   Entrusted wealth management, derivatives investments and entrusted loans
            (1)     Entrusted loans
                                                                                                                    Unit: RMB’0,000
                                                                                                                  Use of
                                               Related                                 Interest   Guarantor       proceeds by
                Borrower                       parties           Loan amount      rate of loans   or Collateral   borrowers
                Jiangxi Chenming               Yes                       20,000             6%  Not applicable Financing
                  Paper Co., Ltd.                                                                              liquidity
                    Total                          —                       20,000             — —                —
                    Disclosure date of approval                                      29 March 2012
                      of entrusted loans in
                      board meeting
                    Disclosure date of approval                                        30 May 2012
                      of entrusted loans
                      in general meeting
       3.   Use of proceeds
            (1)     The general use of proceeds
                                                                                                                    Unit: RMB’0,000
                Total proceeds                                                                                        380,000
                Total investment of proceeds during the reporting period                                              177,040
                Total cumulative investment of proceeds                                                               377,340
                Total proceeds of changed use during the reporting period                                                   0
                Total cumulative proceeds of changed use during the reporting period                                        0
                Ratio of total cumulative proceeds of changed use (%)                                                      0%
                    Description of the general use of proceeds
                    On 26 December 2012, the Company issued a total of 3,800 million corporate bonds totalling RMB3,800 million
                    with a face value of RMB100 each at an issue price of RMB100 per bond. The coupon rate was 5.65% and
                    the proceeds amounted to RMB3,800 million. After deducting expenses of RMB27 million, the net proceeds
                    available for use amounted to RMB3,773 million. During the reporting period, RMB1,770 million of the proceeds
                    were used, of which approximately RMB273 million was used to replenishing the liquidity and approximately
                    RMB1,497 million was used to repay bank borrowings and refinance short-term bank borrowings. As at 31
                    December 2013, RMB3,773 million of the proceeds were cumulatively used, of which approximately RMB273
                    million was used to replenishing the liquidity and approximately RMB3,500 million was used to repay bank
                    borrowings, most of which were used to refinance short-term bank borrowings.
                                       2013 Annual Report            /        SHANDONG CHENMING PAPER HOLDINGS LIMITED                 33
      V Directors’ Report
      VII. Analysis of investments (Cont’d)
          3.   Use of proceeds (Cont’d)
               (2)   The commitment of proceeds
                                                                                                                                                                                                           Unit: RMB’0,000
                                                                   Change                                                 Invested      Accumulated            Investment                            Return       Expected
                                                                   in project             Total              Total         amount            invested       progress as at           Expect         realised      return
                                                                   (including      committed           investment       during the      amount as at            the end of           date of      during the      being         Significant
                     Committed investment project                  partial         investment                after       reporting         the end of           the period      operation of       reporting      achieved      change
                     and excess proceeds                           change)         of proceeds       adjustment(1)          period       the period(2)       (%)(3)=(2)/(1       the project          period      or not        in project
                                                                                                                                                                         )
                     Committed investment project
                     Repayment of bank borrowings                     No                350,000           350,000        149,700            350,000                 100% Not applicable Not applicable            Yes           No
                     Financing liquidity                              No                 27,340            27,340         27,340             27,340                 100% Not applicable Not applicable            Yes           No
                     Subtotal of committed investment project —                        377,340           377,340        177,040            377,340                    —            —                           —            —
                     Excess proceeds
                     Total                                            —                377,340           377,340        177,040            377,340                    —                —                       —            —
                     Condition and reason for not achieving planned progress or                               No
                       expected return (by special item)
                     Description on significant change in feasibility of project                               No
                     Amount, use and utilisation of excess proceeds                                Not applicable
                     Change in place of implementation of investment project of proceeds           Not applicable
                     Adjustment on implementation method of investment project of proceeds        Not applicable
                     Pre-investment and swap of investment project of proceeds                     Not applicable
                     Temporary financing liquidity by idle proceeds                                Not applicable
                     Balance and reason for proceeds arising from project implementation           Not applicable
                     Use and direction of unused proceeds                                                      No
                     Issue or other condition existed in use and disclosure of proceeds                        No
    34   SHANDONG CHENMING PAPER HOLDINGS LIMITED                                                            /          2013 Annual Report
    V Directors’ Report
    VII. Analysis of investments (Cont’d)
    4.   Analysis of major subsidiaries and investees
        Information on major subsidiaries and investees
                                                                                                                                                                                     Unit: RMB’0,000
                                          Type of                        Principal products                                                                  Revenue from
        Name of companies                 companies    Industry          or services           Registered capital          Total assets      Net assets        operations    Operating profit   Net profit
        Zhanjiang Chenming Pulp &         Subsidiary   Pulp              Pulp and coated
           Paper Co., Ltd.                                               paper                  RMB3,000 million           1,262,459.60      386,286.14        427,719.00          59,083.87    46,250.70
        Jilin Chenming Paper Co., Ltd.    Subsidiary   Papermaking       Coated paper and
                                                                         writing paper        RMB1,500.00 million           300,062.92       118,219.85         13,707.01         -10,198.14       457.85
        Chenming (HK) Limited             Subsidiary   Trading of        Sales of paper
                                                       paper products    products, import of
                                                                         raw materials and
                                                                         processing              US$10.10 million           393,009.33       14,246.70         516,895.20           6,473.21     5,583.38
        Shandong Chenming Paper           Subsidiary   Trading of        Sales of paper
          Sales Company Limited                        paper products    products              RMB100.00 million            851,729.68       22,389.18        1,520,049.71         25,098.48    18,218.38
        Jiangxi Chenming Paper Co., Ltd. Subsidiary    Papermaking       Duplex press paper
                                                                         and coated paper       US$272.00 million           358,934.29       198,823.50        177,484.13           5,086.12     5,381.08
        Shandong Chenming                 Subsidiary   Electricity and   Generation and
          Power Supply Holdings                        steam             sales of electricity
          Co., Ltd.                                                      and steam            RMB99.5531 million             42,264.57       33,657.39          52,752.43           7,319.95     7,538.86
        Wuhan Chenming Hanyang            Subsidiary   Papermaking       Writing paper and
          Paper Holdings Co., Ltd.                                       news press paper RMB211.3670 million               290,425.38       45,383.08          90,456.77         -26,703.90     -5,239.58
        Shouguang Meilun Paper Co., Ltd. Subsidiary    Papermaking       Coated paper and
                                                                         household paper RMB2,200.00 million                974,447.03       141,342.59        415,819.09         -66,039.63    -49,638.75
                     Particulars of major subsidiaries and investees:
                     1.          In 2013, Jilin Chenming suspended all of its operations for relocation due to environmental protection reason.
                                 Loss on suspension and cost for disposal of assets were offset by the relocation subsidies. Wuhan Chenming
                                 Plant I conducted relocation. Loss on suspension and cost for disposal of assets were offset by the relocation
                                 subsidies. The sentiment for products of Plant II was low, resulting in low gross profit margin. Meilun white
                                 coated linerboard project fully commenced operation, and in the phase of market development.
                     2.          The sentiment for major products of Zhanjiang Chenming, including pulp and high-end duplex press paper, was
                                 high, resulting in high gross profit margin and better return. Jiangxi Chenming put greater efforts on technology
                                 research and development and approved as high-tech enterprise, resulting in an increase in gross profit of
                                 products. The profitability of Chenming Power Supply improved due to the continued low price of coal, the raw
                                 material.
                     3.          As the market gradually recovered during 2013, the gross profit margin of Sales Company and Chenming (HK)
                                 increased with profit realised.
                                                              2013 Annual Report                                    /             SHANDONG CHENMING PAPER HOLDINGS LIMITED                                   35
      V Directors’ Report
      VII. Analysis of investments (Cont’d)
          4.   Analysis of major subsidiaries and investees (Cont’d)
               Acquisition and disposal of subsidiaries during the reporting period
               √Applicable □ Not applicable
                                                                            Methods to acquire
                                             Purpose to acquire and         and dispose of
                                             dispose of subsidiaries        subsidiaries
                                             during the                     during the reporting Impact on overall production
               Name of companies             reporting period               period               and results
               Chenming GmbH                 Strengthen the sale works Capital contribution          Net profit for 2013 was -RMB16.40
                                             for paper product of the for establishment              million
                                             Company, further expand
                                             the market share of the
                                             Company’s products in
                                             Europe, and establish a
                                             wider and comprehensive
                                             distribution network
               Zhanjiang Meilun              Fully utilize the existing Capital contribution         Net profit for 2013 was –RMB0.40
                 Pulp & Paper Co., Ltd.      p u b l i c u t i l i t i e s a n d for establishment   million
                                             ancillary facilities as to
                                             diversif y the product
                                             portfolio, further reduce
                                             costs and increase
                                             Company’s risk-
                                             resistance ability
               Zhanjiang Chenming            S t r e n g t h e n Capital contribution                Net profit for 2013 was –RMB0.28
                 New-style Wall              comprehensive utilisation for establishment             million
                 Materials Co., Ltd.         of resources, proactively
                                             response to national
                                             policy on comprehensive
                                             utilisation of resources
                                             and meet with the local
                                             demand
               Yanbian Chenming              F u r t h e r i n c r e a s e t h e Transfer of equity Gain on disposal of equity interest was
                 Paper Co., Ltd.             proportion of high-end interest                        RMB13.04 million
                                             products and enhance
                                             economic benefits
                                             based on the Company’s
                                             development strategy on
                                             high-end products
               Wuhan Chenjian                Operational needs for Transfer of equity Loss on disposal of equity interest was
                New-style Wall               production            interest           RMB7.86 million
                Materials Co., Ltd.
    36   SHANDONG CHENMING PAPER HOLDINGS LIMITED                      /      2013 Annual Report
    V Directors’ Report
    VII. Analysis of investments (Cont’d)
       4.   Analysis of major subsidiaries and investees (Cont’d)
            Acquisition and disposal of subsidiaries during the reporting period (Cont’d)
                                                                           Methods to acquire
                                            Purpose to acquire and         and dispose of
                                            dispose of subsidiaries        subsidiaries
                                            during the                     during the reporting Impact on overall production
            Name of companies               reporting period               period               and results
            Wuhan Xingzhilian               Operational needs for Cancellation                     No effect on results for 2013
             Paper Company                  production
             Limited
            Shanghai Runchen                Lower investment and Transfer of equity Disposal of assets does not affect the
              Equity Investment Fund        enhance capital utilisation interest    net profits
              Co., Ltd.                     in order to protect the
                                            interest of the Company
                                            and shareholders
            Jilin Chenming Waste            Operational needs for Cancellation                     No effect on results for 2013
               Collection Co., Ltd.         production
            Shandong Chenming Paper F a c i l i t a t e o p e r a t i o n , Capital contribution   No effect on results for 2013
              Group (Fuyu) Sales    m a x i m i z e t h e e d g e s for establishment
              Co., Ltd.             of integrated sale and
                                    strengthen market
                                    expansion
            Shouguang Hongxiang             Expand the industry chain Acquisition of equity Net profits realised for 2013 was
              Printing and Packaging        o f t h e C o m p a n y a n d interest          RMB10.89 million
              Co., Ltd.                     increase revenue
            Wuhan                           F u l l y u t i l i z e t h e Loss of control          Gain on loss of control was RMB18.32
             Chenming Wan                   influence of Hubei                                     million
             Xing Real                      Zheshang in real estate
             Estate Co., Ltd.               development, facilitate
                                            the reconstruction of
                                            old plants of Wuhan
                                            Chenming, explore
                                            and use land in an
                                            efficient way, optimize
                                            overall environment in
                                            Wuhan Economic and
                                            Technology Development
                                            Zone, expand the industry
                                            chain of the Company
                                            and enhance the
                                            sustainable profitability of
                                            the Company
                                       2013 Annual Report              /        SHANDONG CHENMING PAPER HOLDINGS LIMITED                  37
      V Directors’ Report
      VII. Analysis of investments (Cont’d)
          5.   Highlights of major investments not financed by the proceeds
                                                                                                                           Unit: RMB’0,000
                                                                         Accumulated
                                                                                actual
                                                                          investments
                                                             Investment    made as of
                                                      Total made during     the end of
                                                   planned the reporting the reporting       Progression       Revenue
               Name of project                  investment        period        period        of projects      from projects
               600,000 tonnes white               260,000        8,964.90       257,827.22          100%       Capital transfer conducted
                 coated linerboard project                                                                     during the reporting period,
                                                                                                               currentl y at the market
                                                                                                               development stage.
               Relocation of                      230,000       93,690.83       221,857.03           96%       Trail production commenced
                Jilin Chenming                                                                                 in December 2013. As of the
                                                                                                               end of the reporting period,
                                                                                                               capital t ransfer has not
                                                                                                               conducted yet.
               350,000 tonnes high-end            183,000       12,262.54        12,262.54            7%       Not completed
                 packaging paper project
                 of Jiangxi Chenming
               Magnesite mining                    50,000       26,694.06        46,305.95           93%       Not completed
               180,000 tonnes paper               132,300       31,376.06        31,376.06           24%       Not completed
                 cup project
               190,000 tonnes high-end            309,700       28,495.90        28,495.90            9%       Not completed
                 cultural paper project
               Forestry paper integration         348,510          992.33        13,079.53            4%       Not completed
                 project of Huanggang
                 Chenming
               Total                            1,513,510      202,476.62       611,204.23             —      —
               Index of temporary announcement disclose in designated website                http://www.cninfo.com.cn/
      VIII. Estimate of the operating results from January to March 2014
          Warning of cumulative net profit for the period between the beginning of the year to the end of the next reporting period
          being projected to be at a loss or expected to have material changes as compared to the corresponding period of prior year
          and its explanation
          □Applicable √ Not applicable
    38   SHANDONG CHENMING PAPER HOLDINGS LIMITED                      /       2013 Annual Report
    V Directors’ Report
    IX. Special purpose vehicle controlled by the Company
        There was no special purpose vehicle controlled by the Company during the reporting period.
    X.   Outlook on the future development of the Company
        1.   Competition overview and development trend of the industry
             The industry to which the Company belongs is the paper making industry, which is a light industry. The paper
             making industry is an important basic raw materials industry which is closely related to the national economy and
             social development. The paper making industry features capital and skills intensive characteristics with prominent
             economy of scale. Its growth rate is strongly and positively correlated to that of GDP. In respect of the international
             and domestic economic development, global diversification and economic globalisation further develop and a
             new round of adjustment to the industry structure has commenced. Every country focuses on real economic
             development generally. Advance in technology has brought significant breakthrough. China continued to implement
             its proactive fiscal policy and stable monetary policy. The national economy will maintain stable and rapid growth. The
             development conditions for the paper making industry are gradually improving. In respect of the industry, the growth
             rate of the downstream demand of the domestic paper making industry was still at a low level since the beginning of
             2013. The weak domestic demand persisted with the overall profitability in the paper making industry hovered around
             at a low level. However, the development conditions for paper making industry are gradually improving in the long
             run. The National Development and Reform Commission, Ministry of Industry and Communication and State Forestry
             Administration jointly issued the Twelfth Five-Year Plan for the Development of the Paper Making Industry, which
             clearly states the general direction of “controlling total volume, promoting concentration, optimising raw materials
             and reducing energy consumption and emission”, from which the Company is expected to benefit in the long run.
             Elimination of outdated production capacity and the stricter environment protection policy will forced some small and
             medium-sized enterprises to leave the industry, thereby lowering the pressure of the new production capacity on the
             supply in the industry to a certain extent. A higher concentration ratio will be secured due to slowdown in the growth
             of the supply in the paper making industry and elimination of outdated production capacity, which is conducive to a
             proactive increase in price proposed by enterprises.
             In recent years, the Company is committed to the integrated development of forestry, pulp and paper with a longer
             industry chain and more comprehensive paper types. During the reporting period, the Company carried out capacity
             expansion on paper types with better prospects. The Company’s direction of development was in line with the
             requirements of the development plan of the entire paper making industry. Meanwhile, the Company entered into
             the financial and energy industries by establishing a financial company and a financing company, and engaging in
             magnesite mining, thereby expanding its industry chain with a more rationalised industry positioning, which further
             strengthened the Company’s competitiveness and development potential. As the economy and industry gradually
             recover, it is expected that the result of the Company will record stable growth. The Company’s future performance is
             what the market can look forward to.
                                      2013 Annual Report           /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                    39
      V Directors’ Report
      X.   Outlook on the future development of the Company (Cont’d)
           2.   Development strategy of the Company
                (1)   The Company will adjust its product structure and focus on developing the production of high-end paper
                      product. Several projects of the Company have commenced operation upon completion. They are the high-end
                      low weight coated paper project of production capacity of 800,000 tonnes, the high-end culture paper project of
                      production capacity of 450,000 tonnes and the high-end white coated linerboard project of production capacity of
                      600,000 tonnes. The Company has also invested in the high-end household paper project of production
                      capacity of 136,000 tonnes, the high-end packaging paper project of production capacity of 350,000 tonnes,
                      the high-end cultural paper project of production capacity of 190,000 tonnes and the paper cup project of
                      production capacity of 180,000 tonnes. The Company will take this opportunity to further upgrade its products
                      for a higher end market and strive to gradually become one of the leading companies in the global paper making
                      industry within a period of time.
                (2)   The Company will eliminate the raw material bottlenecks encountered during the development of the Company
                      and strengthen the Company’s product cost control. The Company will focus on the construction of Zhanjiang
                      pulp project and ancillary raw material bases, as well as the construction of Huanggang Chenming pulp project
                      and ancillary raw material bases. The Company will establish the “forestry-pulp-paper integration” chain
                      industry, thereby eliminating the limitations of upstream resources on the Company and enhancing Company’s
                      sustainable development.
                (3)   The Company will pay all its attention to its environmental protection works, aiming to achieve harmonious
                      development with energy consumption and emission reduction. Upon implementation of the new national
                      environmental protection standards and the greater emphasis on environment regulation, the Company will
                      endeavour to develop the recycle economy. The Company will strive to maximise its resource utilisation by
                      waste exchange and recycling. Meanwhile, the Company will make greater efforts to construct environment
                      friendly projects and strive to achieve its waste emission target.
                (4)   The Company will enhance the technology innovation and staff training. When compared with international
                      paper making enterprises, the Company is weak in terms of existing technology and human resources. On the
                      one hand, the Company adheres to internal training as well as external recruitment in order to enhance the
                      overall quality of the team. On the other hand, it strives to develop its own technology and strengthen its own
                      innovation ability.
                (5)   Enhance corporate management and improve operational quality. Firstly, to implement the management
                      concept of “to manage people with system and to work up to the standard”, and improve all systems and
                      processes to enhance implementation capability. Secondly, to improve equipment automation and information
                      technology management, and implement post setting and staffing according to advanced international
                      standards. Third, to deepen the reform of the remuneration system, improve the performance appraisal system,
                      establish different promotion channels and ranks. Fourth, to strengthen the management awareness of the
                      management staff and improve their ability to identify and solve problems
                (6)   Develop domestic and international markets and expand development potential. First, to implement a proactive
                      and rational marketing strategy, timely adjust product structure according to market changes, further expand
                      the Company’s market share domestically and internationally through innovative sales and marketing and
                      services. Second, to strengthen sales and marketing management with the help of management advisory
                      body, take the lead in implementing a new management mode within the sales system, adjust the product
                      management structure, strengthen the management of market segmentation, increase training efforts and build
                      up a quality sales force. Thirdly, to optimise the international marketing network, strengthen overseas sales
                      force and expand export volumes. Fourth, to commence e-commerce business, accelerate the construction of
                      virtual terminal market, carry out customer-facing e-commerce business and expand sales channels through
                      on-line marketing.
    40   SHANDONG CHENMING PAPER HOLDINGS LIMITED                    /     2013 Annual Report
    V Directors’ Report
    X.   Outlook on the future development of the Company (Cont’d)
        3.   Operating plan for 2014
             (I)     Corporate Management. First, the Company will firmly establish and strictly implement the working principles
                     of “team building, strict management, outstanding business performance, achieving good results”. Second, the
                     Company will adopt four measures in corporate management, as follows: ① revise the existing management
                     system by making it simple, effective, and easy to implement in order to create the basic conditions for strict
                     management; ② enhance team building by preparing good training materials, adopting strict examinations,
                     employment of qualified employees and dismissal of unqualified employees; ③ strengthen strict and careful
                     management, with special emphasis on “strict” and “careful”; and ④ improve incentive schemes by innovative
                     incentives and adoption of appointment through competition to further mobilise the enthusiasm of the cadres
                     and staff.
             (II)    Operation and management. The Company will increase efficiency by optimising product structure and
                     increase investment in high-efficiency areas. It will make reference to advanced corporate marketing incentives,
                     improve performance appraisal systems to fully arouse the enthusiasm of sales staff. It will implement system
                     optimisation, strictly control risk, and will claim on those who are subject to criminal liability for causing risks to
                     and infringing the Company’s interests in pursuit of personal gain in the business operation of the Company.
                     The Company aims to reduce inventory and costs to proactively respond to the market through measures
                     including market research and timely developed marketing strategies. The Company will also enhance new
                     product promotion and establish professional sales teams for high value-added products including thermal
                     paper and glassine paper to increase the revenue of the Company.
             (III)   Production management. Firstly, the Company places great emphasis on the operation of production upgrade
                     projects and new production projects. It focuses on the management of its 800,000 tonnes coated paper
                     project, 600,000 tonnes bleached kraft liner board project, Jilin Chenming’s environmental protection relocation
                     project, Meilun’s paper additives projects and Wuhan’s specialty paper upgrade and household paper
                     projects to accelerate growth in efficiency. Secondly, it will speed up product restructuring and new product
                     development, complete the development of new products including glassine paper and thermal paper, enrich
                     product structure, improve the ability to respond to the market, and increase sales of new products and high
                     value-added products. Thirdly, special emphasis will be placed on technology development and application to
                     improve the Company’s core competitiveness. Research on the use of fibre reinforced and filler modification
                     technology as well as new alternative adhesives technology will be conducted to reduce costs and increase
                     efficiency. Fourthly, it will implement strict equipment management to eliminate serious accidents involving
                     equipment. Fifthly, the Company will continue to implement post setting and staffing and reduce labour costs
                     through post consolidation and improvement in automation.
             (IV)    Project management. Firstly, the Company will revise and improve its original project management system to
                     make the system fully reflect the principle for project construction of “careful planning, casting quality products,
                     striving for progress and effectiveness verification”. Secondly, the Company will enhance the professional
                     skills of project personnel by encouraging them to learn outside the Company and engage them to learn in the
                     Company. Thirdly, it will adopt strict requirements from the pre-feasibility studies to process control, and from
                     construction company tenders to selection of equipment suppliers to ensure the overall quality of the project.
                     Fourthly, it will specific clear project details and quality objectives, highlight project staff’s accountability and
                     implement a strict reward and punishment system. The Company will focus on implementing the following
                     tasks: ① for projects under construction including Jiangxi Chenming’s 350,000 tonnes high-grade packaging
                     paper, Zhanjiang Chenming’s 180,000 tonnes paper cup sheets and 190,000 tonnes culture paper projects, the
                     Company will ensure comprehensive control and assessment, as well as strict quality and cost control to ensure
                     timely commencement of production; ② projects under planning and pending approval including Huanggang
                     Chenming’s integrated forestry, pulp and paper project will undergo repeated verification and optimisation to
                     ensure that these projects will become world-class quality products.
                                         2013 Annual Report             /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                       41
      V Directors’ Report
      X.   Outlook on the future development of the Company (Cont’d)
           3.   Operating plan for 2014 (Cont’d)
                (V)   Other important tasks. Firstly, the Company will accelerate the establishment of finance company to ensure
                      timely commencement of operation. Secondly, the Company will apply for the establishment of finance leasing
                      company to make full use of foreign funds and reduce finance costs. Thirdly, it will reduce finance costs by
                      increasing use of foreign funds, expanding financing channels and improving capital use efficiency. Fourthly, it
                      aims to achieve economic efficiency by increasing trade volume through import and export companies,
                      developing new customer sources, establishing strategic partnerships and controlling quality supplies. Fifthly, it
                      will reduce inventory, promote the business with manufacturers, merchants and banks and improve contract
                      compliance rate to reduce capital use and financing costs.
           4.   Capital requirements, source of funds and plan for usage
                The Company’s new projects were unable to make profit on a timely basis due to market reasons. At present, the
                Company has higher leverage. Fluctuation of the state deposit and lending interest rates will directly cause fluctuation
                of interests undertaken by the Company so as to affect the Company’s profitability. Therefore, the Company specifies
                the following measures:
                Firstly, the Company will further improve its international marketing network, improve its organisation structure of its
                overseas companies, adjust its sales channels and achieve economy of scale by increasing trade volume through
                import and export companies, developing new customer sources, establishing strategic partnerships and controlling
                quality supplies. It will reduce inventory, promote the business with manufacturers, merchants and banks and improve
                contract compliance rate to reduce capital use and financing costs.
                Secondly, the Company will accelerate the progress of cross-border financing, make full use of the financing platform
                of the Hong Kong market, increase Hong Kong Chenming’s credit line and reduce finance costs by increasing use of
                foreign funds, expanding financing channels and improving capital use efficiency.
                Thirdly, the Company will speed up the establishment of the Group’s finance company to enhance the centralised
                management of the Group’s fund and improve the efficiency of capital use so as to further increase the Group’s fund
                settlement, management, investment and financing ability, thus reducing its financing cost.
                Fourthly, the Company will establish a finance leasing company to promote the Group’s diversification, further expand
                the Company’s business scope and cultivate new profits to increase the Company’s risk aversion capability.
                Fifthly, the Company will actively expand its financing channels, establish strategic partnerships with financial
                institutions and leverage on the geographical advantages of its subsidiaries to maintain low cost financial institutions
                credit limits.
    42   SHANDONG CHENMING PAPER HOLDINGS LIMITED                     /     2013 Annual Report
    V Directors’ Report
    X.   Outlook on the future development of the Company (Cont’d)
        5.   Risk factors likely to be faced and the measures to be taken
             As a basic raw materials industry of the national economy, the paper making industry’s overall efficiency has a
             strong correlation with the national macroeconomic performance, and is therefore a cyclical industry. The national
             macroeconomic performance will have a greater impact on the market demand for paper products, which will further
             affect the product price and cost of raw materials, and will ultimately affect the operating results of the papermaking
             enterprises, including the Company. There still exist some uncertainties and complexities in China’s future
             macroeconomic trends. Thus, the Company still faces the risk of earnings level being affected by macroeconomic
             fluctuations.
             Operational risk. The major raw materials used by the Company are wood pulp and waste paper. The Company’s
             products mainly comprised of high-end paper, and as the State encouraged the increase of the proportion of wood
             pulp used by the industry, wood pulp, thus, has accounted for a higher proportion of the production cost, at about
             70%. Waste paper is only used in some low-end products, which account for about 20% of the total procurement
             cost. The relatively high market price fluctuations of wood pulp and waste paper have affected the production cost of
             the Company’s machine-made paper products, and thus have an impact on the performance of the Company.
             Hence, the Company will focus on the construction of Zhanjiang pulp project and ancillary raw material bases, as
             well as the construction of Huanggang Chenming pulp project and ancillary raw material bases. The Company will
             establish the “forestry-pulp-paper integration” chain industry, thereby eliminating the limitations of upper-stream
             resources on the Company and enhancing Company’s sustainable development.
             Industry risk. With the rapid growth of the national economy, economic globalisation and China’s accession to the
             WTO, China’s papermaking industry has been facing increasingly fierce competition. After years of development,
             the domestic enterprises have possessed scale strength and financial strength to further expand their business
             scale and improve the technology level and product quality. Domestic papermaking enterprises have launched
             new projects, introduced advanced equipment, expanded production capacity and promoted sales. International
             renowned papermaking enterprises also directly set up production base in China through sole proprietorship or joint
             venture, and participated directly in the domestic market competition by leveraging on their advantages in scale and
             technology. In addition, the tariff reduction after China’s accession to the WTO has further exacerbated the impact
             of the international market. The fierce competition in the domestic papermaking industry will certainly affect the
             Company’s future operating results.
             Hence, the Company will work on technology R&D and application and focus on the development of high-end paper
             products, thereby enhancing our core competitiveness.
             Policy risk. On 30 December 2011, the National Development and Reform Commission, the Ministry of Industry
             and the State Forestry Administration jointly issued the “12th Five-Year Plan” of the papermaking industry, which
             has stipulated the guiding ideology, basic principles, development objectives, major tasks, key projects, policy
             initiatives and planning implementation for the industry development during the 12th Five-Year period. At present, the
             industry has entered into an important transition period, and the mode which supported the rapid development of the
             papermaking industry in the past has currently faced the dual pressures of resources and environment. From the point
             of view of China’s policy, China will change the mode of growth through optimising the layout of the papermaking
             industry and the raw material structure and product structure, in order to promote a modern papermaking industry
             based on recycling by integrating the forestry and papermaking industry, which will have an impact on the operating
             results of the Company.
             Elimination of outdated production capacity and stricter environment protection policy has forced some of the SMEs
             exited the industry. Hence, the Company is expected to record long-term revenue.
                                      2013 Annual Report           /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                    43
      V Directors’ Report
      X.   Outlook on the future development of the Company (Cont’d)
           5.   Risk factors likely to be faced and the measures to be taken (Cont’d)
                Environmental risk. The papermaking industry is a polluting industry. With the rising awareness of environment
                protection in the society and the industry, more stringent environmental protection policies of the industry have been
                implemented. A multi-pronged approach has been adopted to promote industrial restructuring, and the papermaking
                industry has entered into an important transition period of development. The higher emission standard is bound to
                increase the Company’s environmental protection cost and may result in the slowing down of scale expansion, thus
                affecting its production and operation.
                The Company always strive to achieve harmonious development with energy consumption and emission reduction.
                The Company will endeavour to develop the recycle economy. The Company will strive to maximise its resource
                utilisation by waste exchange and recycling. Meanwhile, the Company will make greater efforts to construct
                environmentally friendly projects and strive to achieve its waste emission target.
                Interest rate risk. In recent years, greater fluctuations of the Renminbi benchmark lending rate level have an impact on
                the Company’s cost of debt financing. The People’s Bank of China may continue to adjust the level of the benchmark
                interest rate according to the macroeconomic trends, which may cause greater volatility in the Company’s finance
                expenses, thus affecting its operating results.
                The financial department of the Company will continue to monitor the rate level of the Group.
                Exchange rate risk. The value of Renminbi is affected by the domestic and international economic and political
                environment, and the supply and demand for Renminbi. As an import and export enterprise, the exchange rate
                of Renminbi against other currencies in future will affect the Company’s operating results. The foreign currency
                transactions of the Company are mainly denominated in US$. The operations of raw material imports, product exports
                and US$ borrowings of the Company will face the risk of exchange rate changes.
                The financial department of the Company is responsible for monitoring the Group’s foreign currency transactions and
                scale of assets and liabilities denominated in foreign currency, aiming to minimise the exchange rate risk.
      XI. Opinions of the Board of Directors and the Supervisory Committee regarding the “modified
          auditor’s report” for the reporting period issued by the accountants
           Ruihua Certified Public Accountants had audited the 2013 financial report of the Company and issued a standard
           unqualified auditors’ report.
      XII. Reason for changes in accounting policies, accounting estimates and accounting methods as
           compared to the financial report for the prior year
           In accordance with the requirements of “Notice on the issuance of ‘Accounting Standard for Business Enterprises No. 39
           – Fair Value Measurement’” (Cai Kuai [2014] No. 6), “Notice on the issuance of amendment to ‘Accounting Standard for
           Business Enterprises No. 30 – Presentation of Financial Statements’” (Cai Kuai [2014] No. 7), “Notice on the issuance of
           amendment to ‘Accounting Standard for Business Enterprises No. 9 – Employee Benefits’” (Cai Kuai [2014] No. 8)”, and
           “Notice on the issuance of amendment to ‘Accounting Standard for Business Enterprises No. 33 – Consolidated Financial
           Statements’” (Cai Kuai [2014] No. 10)” and “Notice on the issuance of ‘Accounting Standard for Business Enterprises No.
           40 – Joint Arrangement’” (Cai Kuai [2014] No. 11)”, entities listed overseas are encouraged to adopt the five accounting
           standards published or amended in 2014 early., As a result, the Group will adopt the five accounting standards above early
           with effect from 1 January 2013 as approved by the Fourth Meeting of the Seventh Session of the Board of the Company.
           The changes in accounting policies arising from the adoption of the above accounting standards by the Group do not have
           any effect on the financial statements for the reporting period.
    44   SHANDONG CHENMING PAPER HOLDINGS LIMITED                     /     2013 Annual Report
    V Directors’ Report
    XIII. Reason for retrospective restatement to correct major accounting errors during the reporting
         period
       No retrospective restatement was made to correct major accounting errors during the reporting period.
    XIV. Reason for changes in scope of the consolidated financial statements as compared to the
        financial report for the prior year
       1.   During the year, five more companies were consolidated as compared to the prior year and the details are
            as follows:
            During the reporting period, the Company established four companies through investments, namely Chenming GmbH,
            Zhanjiang Meilun Pulp & Paper Co., Ltd., Zhanjiang Chenming New-style Wall Materials Co., Ltd. and Shandong
            Chenming Paper Group (Fuyu) Sales Co., Ltd., respectively; and acquired Shouguang Hongxiang Printing and
            Packaging Co., Ltd. through business combination not under common control.
            (1)   In order to push forward with the Company’s sales of paper products, further expand the Company’s products’
                  share in the European market, and establish a broader and more comprehensive marketing network, the
                  Company decided to set up a sales company in Germany. On 7 January 2013, the Company obtained “Overseas
                  Investment certificate” approved by the Ministry of Commerce, which ratified our establishment of Chenming
                  GmbH with its registered capital of EUR25,000. The Company may make more investments timely based on the
                  operations of the new company. It was included in the scope of consolidation since March 2013.
            (2)   In order to make full use of ancillary facilities of public works, realise diversification of the product mix of
                  the Company, and further lower the costs and increase the Company’s capability to resist risks, the fifth
                  extraordinary meeting of the six session of the Board passed the “Resolution in relation to establishment of
                  Zhanjiang Meilun Pulp & Paper Co., Ltd.” with its registered capital amounting to RMB100.00 million and the
                  company was included in the scope of consolidation since January 2013.
            (3)   In order to strengthen comprehensive utilisation of resources and actively respond to national policy for
                  resource utilisation, we decided to, based on local needs, set up Zhanjiang Chenming New-style Wall Materials
                  Co., Ltd., which was invested by Zhanjiang Chenming, a wholly-owned subsidiary of the Company, with its
                  registered capital amounting to RMB10.00 million. The company was included in the scope of consolidation
                  since March 2013.
            (4)   In order to extend the Company’s business chain, reduce its product packaging costs and increase its revenue,
                  the second extraordinary meeting of the seventh session of the Board approved the “Resolution on acquisition
                  of equity interest in Hongxiang Printing” and entered into an equity transfer agreement with Song Peijun, Tian
                  Changzhi and Zhang Bo respectively on the acquisition of 100% equity interest in Shouguang Hongxiang
                  Printing and Packaging Co., Ltd. at a consideration of RMB2.73 million. The consideration for the acquisition of
                  equity interest was arrived based on the assessed value of Hongxiang Printing as at the base date, i.e. 30 April
                  2013.
            (5)   In order to improve its business operation, fully leverage the advantage of centralised sales and step up efforts
                  to develop the market, the second extraordinary meeting of the seventh session of the Board passed the
                  “Resolution on establishment of Fuyu Sales Company” with registered capital amounting to RMB1.00 million.
                  The company was included in the scope of consolidation since November 2013.
                                      2013 Annual Report           /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                   45
      V Directors’ Report
      XIV. Reason for changes in scope of the consolidated financial statements as compared to the
           financial report for the prior year (Cont’d)
          2.   During the year, six companies were deconsolidated as compared to the prior year and the details are as
               follows:
               During the reporting period, The Company lost its control over Yanbian Chenming Paper Co., Ltd., Wuhan Chenjian
               New-style Wall Materials Co., Ltd., Shanghai Runchen Equity Investment Fund Co., Ltd. and Wuhan Chenming Wan
               Xing Real Estate Co., Ltd. due to disposal of equity interest during the period. Therefore, the above three companies
               ceased to be included in the scope of consolidation. The registration of Wuhan Xingzhilian Paper Company Limited
               and Jilin Chenming Waste Collection Co., Ltd. was cancelled according to actual needs of operations during the
               period. Therefore, the above two companies ceased to be included in the scope of consolidation.
               (1)   On 26 April 2013, the seventeenth meeting of the six session of the Board of Directors of the Company passed
                     “Resolution in relation to disposal of equity interests in Shanghai Runchen. On the same day, the Company
                     entered into an equity transfer agreement with Shanghai Ruibao Environmental Technology Co., Ltd. to
                     transfer 98.36% equity interest in Shanghai Runchen Equity Investment Fund Co., Ltd. at a consideration of
                     RMB300.9160 million. The Company lost its control over Shanghai Runchen and Shanghai Runchen ceased to
                     be included in the scope of consolidation effective from 26 April 2013.
               (2)   On 15 May 2013, the Company entered into an equity transfer agreement with Yanbian Shixian Bailu Paper
                     Co., Ltd and Yanbian State-owned Assets Management Co., Ltd. to transfer its 49% and 51% equity interest in
                     Yanbian Chenming Paper Co., Ltd., respectively, at a consideration of RMB54.00 million and RMB56.00 million.
                     The Company lost its control over Yanbian Chenming and Yanbian Chenming ceased to be included in the
                     scope of consolidation effective from 15 May 2013.
               (3)   On 31 January 2013, Wuhan Chenming Hanyang Paper Holdings Co., Ltd., a subsidiary of the Company,
                     entered into an equity transfer agreement with Hubei Zhongjian Haohua Environment Protection Co., Ltd. to
                     transfer its 51% equity interest in Wuhan Chenjian New-style Wall Materials Co., Ltd. at a consideration of
                     RMB5.10 million. The Company lost its control over Chenjian Company and Chenjian Company ceased to be
                     included in the scope of consolidation.
               (4)   On 27 September 2013, the second extraordinary meeting of the seventh session of the Board approved the
                     Resolution on the joint development of real estate project by Wuhan Chenming and Hubei Zheshang. On 27
                     September 2013, the Framework Contract on the Contracted Real Estate Development and the Supplementary
                     Agreement of the Framework Contract on the Contracted Real Estate Development were entered into among
                     Wuhan Chenming Hanyang Paper Holdings Co., Ltd., Wuhan Chenming Wan Xing Real Estate Co., Ltd.
                     (hereinafter referred to as the “Project Company”) (both are subsidiaries of the Company) and Hubei Zheshang
                     Wan Xing Investment Co., Ltd., whereby the Project Company changed from a wholly-owned subsidiary of
                     the Company’s subsidiary, Wuhan Chenming, to a 40%-owned associate of the Company. The Company
                     lost its control over the Project Company and the Project Company ceased to be included in the scope of
                     consolidation.
               (5)   Jilin Chenming Waste Collection Co., Ltd. had been inactive for many years. With a view to saving relevant
                     expenses, the Board of Jilin Chenming agreed to cancel the registration of Jilin Waste. Assets and liabilities of
                     Jilin Waste were consolidated into Jilin Chenming for audit on 30 May 2013. Since the date of the registration
                     cancellation of Jilin Waste, being 25 June 2013, this company ceased to be included in the scope of
                     consolidation.
               (6)   According to the Company’s strategic plans and needs of production and operation, the household paper
                     project was assigned to Wuhan Chenming for investment and development, so as to reduce relevant
                     expenses. It was resolved at the fourteenth meeting of the fifth session of the Board of Wuhan Chenming that
                     the registration of Wuhan Xingzhilian Paper Company Limited was approved to be cancelled. The relevant
                     registration cancellation procedures were completed on 18 March 2013. Since the date of the registration
                     cancellation of Wuhan Xingzhilian, this company ceased to be included in the scope of consolidation.
    46   SHANDONG CHENMING PAPER HOLDINGS LIMITED                   /     2013 Annual Report
    V Directors’ Report
    XV. Distribution of profit and dividend payment by the Company
       During the reporting period, formulation, implementation and adjustment of profit distribution policy, especially cash
       dividend policy
       √ Applicable □ Not applicable
       During the reporting period, the Company further defined its cash dividend policy based on the its actual operations in
       accordance with the related requirements of China Securities Regulatory Commission, Shenzhen Stock Exchange and
       Shandong branch of China Securities Regulatory Commission. The dividend decision mechanism and dividend supervision
       and control mechanism were well defined. The amendments to the profit distribution policy set out in the Articles of
       Association, which was approved by the Thirteenth Meeting of the Sixth Session of the Board of the Company convened on
       21 August 2012 and 2012 Second Extraordinary General Meeting convened on 5 November 2012, respectively. Independent
       Directors issued their separate opinions accordingly.
       The 2012 Profit Distribution Plan as considered and approved by the 2012 general meeting was implemented and
       completed on 12 July 2013
       The Company implemented its profit distribution policy in strict compliance with the Articles of Association. Its cash
       dividend policy was formulated and implemented in compliance with the requirements of the Articles of Association and the
       resolution of the general meeting with well-defined and clear dividend distribution criteria and proportion. The legal interests
       of the small shareholders were fully protected as the related decision making process and mechanism were in place,
       the duties of independent Directors were well-defined so that they played a role, and the small shareholders were given
       opportunities to sufficiently voice their opinion and make requests.
       Particulars of Cash Dividend Policy
       Was it in compliance with the requirements of the Articles of Association and the resolution                              Yes
         of the general meeting?
       Was the dividend distribution criteria and proportion well-defined and clear?                                             Yes
       Was the related decision making process and mechanism in place?                                                           Yes
       Did independent Directors fulfil their duties and play their role?                                                        Yes
       Were the small shareholders given opportunities to sufficiently voice their opinion and                                   Yes
         make requests and were the legal interests of the small shareholders fully protected?
       Were conditions and procedures legal and transparent in respect of cash dividend                                          Yes
         policy with adjustments and changes?
       The proposed profit distribution plans or profit distribution plans and the proposals on conversion of capital reserves into
       share capital over or the conversion plans in the past three years (the reporting period inclusive)
       (1)   The 2013 proposed profit distribution plan
             Based on the number of the shares as at the dividend distribution registration date, a cash dividend of RMB3.00 was
             to be paid to all shareholders for every 10 shares held (tax inclusive). Based on the total share capital of 1,975,471,967
             shares of the Company as at 31 December 2013, cash dividend for 2013 amounted to RMB592,641,590.10 (tax
             inclusive), which represented 83.39% of the net profit attributable to shareholders of the Company as set out in the
             2013 consolidated financial statements prepared in accordance with Accounting Standards for Business Enterprises.
                                         2013 Annual Report          /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                     47
      V Directors’ Report
      XV. Distribution of profit and dividend payment by the Company (Cont’d)
          (2)   The 2012 profit distribution plan
                On 15 May 2013, the Company convened 2012 annual general meeting and considered and approved the 2012 profit
                distribution plan. There were 2,062,045,941 shares in the total share capital of the Company as at 31 December 2012.
                After deduction of treasury shares of 86,573,974 shares to be cancelled under the repurchase of B shares of the
                Company, the total share capital entitled to this distribution amounted to 1,975,471,967 shares which were entitled
                to this distribution. Based on the 1,975,471,967 shares and a cash dividend of RMB0.60 (tax inclusive) to be paid to
                shareholders for every 10 shares held, a total cash dividend of RMB118, 528,318.02 (tax inclusive) was distributed.
          (3)   The 2011 profit distribution plan
                The 2011 profit distribution plan was considered and approved by the 2011 annual general meeting of the Company
                on 29 May 2012. Based on the total share capital of 2,062,045,941 shares of the Company as at 31 December 2011,
                a cash dividend of RMB1.5 was to be paid to all shareholders for every 10 shares held (tax inclusive). Distribution of
                cash dividend under such distribution amounted to RMB309, 306,891.20 (tax inclusive).
                Cash dividends of the Company over the past three years
                                                                                                                              Unit: RMB
                                                                                                      Net profit     As a percentage
                                                                                                attributable to            of net profit
                                                                                           shareholders of the          attributable to
                                                                                              Company in the       shareholders of the
                                                                                                 consolidated         Company in the
                                                                               Amount of financial statements            consolidated
                                                                          cash dividends       during the year                 financial
                Year of distribution                                       (tax inclusive)      of distribution        statements (%)
                2013                                                    592,641,590.10         710,655,331.72                 83.39%
                2012                                                    118,528,318.02         221,034,822.54                 53.62%
                2011                                                    309,306,891.20         608,271,256.29                 50.85%
                The Company made a profit and had positive retained profit during the reporting period without cash dividend being
                proposed
                □ Applicable √ Not applicable
    48   SHANDONG CHENMING PAPER HOLDINGS LIMITED                    /     2013 Annual Report
    V Directors’ Report
    XVI. Proposals on profit distribution and conversion of capital reserves into share capital during this
        reporting period
         Numbers of bonus share per 10 shares (share(s))                                                                             0
         Dividend distribution per 10 shares (RMB) (tax inclusive)                                                                3.00
         Share base of the distribution proposal (shares)                                                                1,975,471,967
         Total cash dividend (RMB) (tax inclusive)                                                                      592,641,590.10
         Distributable profits (RMB)                                                                                  4,741,638,941.58
         Percentage of cash dividend to total profits distribution (%)                                                           100%
       Cash dividend policy:
       The Company proactively implemented cash dividend. The Company shall distribute dividend by way of cash providing that
       there are sufficient cash flow to meet the Company’s normal operations and long-term development. Accumulated profit
       distribution in cash over the recent three years shall not be less than 30% of profit distributable annually realised over the
       past three years.
       Particulars of profit distribution and conversion of capital reserves into share capital
       Please refer to XV. herein for particulars of profit distribution proposal for 2013.
    XVII. Fulfilment of Social Responsibility
       The Company established its corporate governance structure in accordance with the requirements of the Companies Law,
       Securities Law, Articles of Association and other relevant laws and regulations and the actual situations of the Company.
       There is a clear separation of powers and responsibilities between the general meeting, the Board, the Supervisory
       Committee and the management which is accountable to the general manager. The management system under the
       structure is characterised by a separation of ownership and operation, a separation of the decision-making, execution
       and supervisory powers, as well as the co-existence of the general meeting, the Board, the Supervisory Committee. Strict
       provisions on the rights, duties and responsibilities of the general meeting, the Board, the Supervisory Committee and
       general manager have been stipulated. The Company has placed great emphasis on the fulfilment of social responsibility
       and goes beyond the concept of “profit as the only goal”. While creating value for shareholders during the process of
       production, operation and business development, the Company, in line with the development of the State and the society,
       has strived to reach a compromise between economic benefits and social benefits, short-term benefits and long-term
       benefits, as well as corporate development and social development, with the aim to achieve a healthy and harmonious
       development between the Company and its employees, the Company and the society, and the Company and the
       environment.
       In seeking to maximise the interests of shareholders, the Company places great emphasis on the protection of the
       legitimate interests of creditors, strictly fulfils the obligations under the contracts signed with creditors, timely disclose
       material information associated with the Company, and actively protect creditors’ right to know. In its major operating
       decision-making process, the Company fully considers the legitimate interests of creditors, particularly by adopting policies to
       maintain the financial stability of the Company to ensure its financial security.
       The Company adheres to the “people-oriented” concept. In the process of business expansion, the Company also
       vigorously implements talent cultivation strategies, improves employment mechanism, establishes comprehensive
       training programs and goals, enhances engagement and training of talents, sincerely cares for, understands and respects
       employees, and strives to create a good working environment and living environment for all kinds of talents that encourages
       them to achieve outstanding performance. Regarding employment mechanism, the Company insists on placing the right
       people to the right positions. It actively establishes a talents development platform to provide opportunities for the talents,
       and establishes an “open, fair and just” competition mechanism for the selection, employment and training of talents.
       Efforts have been made to enhance employees’ sense of belonging, maximise staff enthusiasm and motivation, so that
       each employee achieves a high degree of harmony between personal career advancement and company development, thus
       achieving the goal of “to hire good talents, to make good use of talents”. This has given full play to all kinds of talents and
       continues to bring vigour and vitality to the scientific, healthy and sustainable development of the Company.
                                        2013 Annual Report               /      SHANDONG CHENMING PAPER HOLDINGS LIMITED                   49
      V Directors’ Report
      XVII. Fulfilment of Social Responsibility (Cont’d)
           The mission of the Company is to produce the top quality paper and pay back the society faithfully. The Company is
           committed to becoming a first-class international papermaking enterprise, and persisted in leveraging science for innovation
           and development. The Company has continued to promote innovative corporate management, enhance product quality and
           strengthen new product development efforts, in order to produce high quality paper product with high technology content to
           meet the demand of the society, and ultimately building a world-class national paper brand and creating environment
           friendly and quality social wealth. “Pay back the society faithfully” is the best interpretation of the Company’s efforts in
           fulfilling social responsibilities and a realisation of the Company’s mission of “building a world-class paper manufacturing
           enterprise”. While striving for outstanding operating results, the Company insists on sharing its achievements with the
           society, and is committed to maintain harmony and unity in line with the development of the society and continuously
           promote the economic development and progress of the society, in order to pay back and contribute to the society with
           outstanding operating performance.
           “Good faith, Win-Win and Sharing” is the most solemn commitment of the Company to the society and its customers.
           It is also the criteria for enterprises to adapt to market competition, the key to obtain the highest market share and the
           cornerstone for the Company to achieve greater development. The Company always upholds its faith and strives to reach a
           win-win situation by considering problems from the point of view of customers and upholding the principle of management,
           operation and service with integrity. All these have enabled the Company to give full play to the brand impact and continue
           to improve product quality and service standards, thereby gaining the trust of and achieving long-term cooperation with
           customers and business partners, and achieving the effective unity of economic benefits and social benefits.
           The Company is committed to building an ecological friendly first-class international papermaking enterprise with sustainable
           development. As the leading papermaking enterprise in China, the Company is always committed to the development of
           green ecological paper, actively eliminating outdated production capacity, introducing highly efficient, energy-saving and
           environmental friendly world-class high-end production lines, as well as promoting corporate transformation and upgrade.
           Meanwhile, the Company has also installed high standard, high quality environmental protection facilities and vigorously
           developed raw material forest base, which highlights the concept of promoting green ecology and recycling economy.
           The Company adheres to the core values of “good faith, win-win and sharing”. Chenming regards good faith as the
           cornerstone of development and the Company’s brand. The Company puts its brand reputation foremost and adheres
           to the principle of customer first, quality first, and continuously improves product quality and provides quality services to
           seek to establish a mutual trust and harmonious social relations and build a good corporate image. Chenming participates
           in the national paper making industry with a high degree of social responsibility. It participates in market competition and
           seeks opportunities for development, which leads to mutually beneficial resources sharing with customers, employees and
           society, thus achieving mutual progress and mutual development as well as the win-win strategy of environmental benefits,
           social benefits and economic benefits.
    50   SHANDONG CHENMING PAPER HOLDINGS LIMITED                      /     2013 Annual Report
    V Directors’ Report
    XVII. Fulfilment of Social Responsibility (Cont’d)
        The Company adheres to the principle of leaving a blue sky and clean water for the future generations while creating
        wealth for the society. To keep corporate development in line with environment and resources protection, the Company is
        committed to integrated development of forestry, pulp and paper by promoting recycling economy and the development of
        green ecological paper, thus gaining the support of the society and creating the conditions for the healthy and
        sustainable development for the Company. The Company always adheres to the mission of “environmental protection
        first, scale expansion second” guideline and makes the pollution treatment as our “live or die project”. Thus, we have
        invested heavily in technology innovation to fully implement cleaner production and resource recycling. In recent years,
        with a total investment of more than RMB3,000 billion, the Company introduced the world’s most advanced technology
        of environmental protection, and built the facilities of alkali recovery, water recycle and other environmental protection
        projects. Among them, the alkali recovery system which supports the 3,000 kWh generators with daily capacity of treating
        450 tonnes of black liquor, a daily capacity of treating 135,000 cubic meters middle water and 130,000 cubic meters of
        water reuse. All the emission indicators are superior to the relevant emission standard required by the government. The
        Company is the first in the industry in China which passed ISO14001 environmental management system certification.
        The Company has been named the environmental friendly enterprise, the recycling economy exemplary enterprise, the
        outstanding energy efficiency unit and the outstanding unit in comprehensive utilisation of resources of Shandong province,
        which reflects its outstanding achievements in both economic development and environment protection. The Company
        will further strengthen environmental construction, increase investments in scientific research, ensure the proper operation
        of environmental protection facilities and fully improve the supervision and management, with an aim to achieving a stable
        development on the basis of a simultaneous development of production and ecology.
        The support and practice of charity has become a tradition of the Company. Over the years, in the face of major sudden
        onset natural disasters, the Company responded promptly by making charitable donations. In addition to charitable
        donations, the Company’s care for and responsibility towards the society are also demonstrated by its active participation
        in public welfare activities. In recent years, the amount of charitable donations made by the Company totalled more than
        RMB20 million and the Company was named the “Most Caring Donating Enterprise”.
        Are listed companies and their subsidiaries within the heavily-polluted industry as require by the national environmental
        protection authority?
             Yes   □ No
        1.   During the reporting period, there were no significant environmental problems and rectification.
        2.   During the reporting period, major pollutants such as wastewater, waste gas and factory noise were emitted after
             meeting the required standards.
        3.   During the reporting period, the environmental protection facilities operated properly.
        4 During the reporting period, in accordance with relevant provision set out in “Clean production promotion Law” and
             “Disclosure of Environmental Information (Trial)”, the Company, combined with its actual situation, has prepared
             environmental pollution emergency plans, hazardous waste emergency plans and radioactive emergency plans.
             Data related to major pollutants’ emission were published in the environmental protection column of the Company’s
             website in a timely manner. The Company’s environmental work has been at the forefront of the industry over the past
             years.
        5. During the reporting period, the Company’s environmental protection facilities and production facilities performed
             properly. Currently, environmental protection facilities being operated mainly include anaerobic reactor, primary
             sedimentation tank, aeration tank, secondary settling tank, sludge thickener, depth treatment works (wastewater
             treatment); Desulfurisation and denitrification equipment, electrostatic precipitators (gas treatment). We set up a
             specific post for facilities, which are managed and maintained by a designated person. Operational and examination
             records are complete and the operation is normal.
                                       2013 Annual Report            /        SHANDONG CHENMING PAPER HOLDINGS LIMITED                 51
          V Directors’ Report
          XVII. Fulfilment of Social Responsibility (Cont’d)
                 Do listed companies and their subsidiaries have other significant social security issues?
                 □ Yes           No
                 Any administrative penalties during the reporting period?
                 □ Yes           No
          XVIII. Registration report on reception of research investigations, communications and interviews during the
                reporting period
                                                                      Class
                                  Place of         Manner             of parties                                      Main topics of discussion
         Date of reception        reception        of reception       accommodated        Parties accommodated        and information provided
         09 July 2013             The Company’s   On-site            Institution         Minsheng Tonghui Asset Recent production and
                                  conference       research                               Management Co., Ltd.        operation of the Company
                                  room             investigation                                                      and development
                                                                                                                      of the industry
         13 September 2013        The Company’s   On-site            Institution         Everbright Prumerica Fund   Recent production and
                                  conference       research                               Management                  operation of the Company
                                  room             investigation                          Company Limited             and development
                                                                                                                      of the industry
         31 October 2013          The Company’s   On-site            Institution         Pacific Asset Management    Recent production and
                                  conference       research                               Co., Ltd,                   operation of the Company
                                  room             investigation                          Ping An Asset Management and development
                                                                                          Co., Ltd.                   of the industry
         14 November 2013         The Company’s   On-site            Institution         Standard Chartered          Recent production and
                                  conference       research                               Bank (Hong Kong) Ltd.       operation of the Company
                                  room             investigation                                                      and development
                                                                                                                      of the industry
         15 November 2013         The Company’s   On-site            Institution         Harvest Fund                Recent production and
                                  conference       research                               Management Co., Ltd.        operation of the Company
                                  room             investigation                                                      and development
                                                                                                                      of the industry
         20 November 2013         The Company’s   On-site            Institution         Greenwoods Asset            Recent production and
                                  conference       research                               Management Co., Ltd.        operation of the Company
                                  room             investigation                                                      and development
                                                                                                                      of the industry
         05 December 2013         The Company’s   On-site            Institution         Macquarie Funds             Recent production and
                                  conference       research                               Management Hong Kong        operation of the Company
                                  room             investigation                          Limited                     and development
                                                                                                                      of the industry
         19 December 2013         The Company’s   On-site            Institution         Reliance Securities         Recent production and
                                  conference       research                               Investments Trust Co. Ltd., operation of the Company
                                  room             investigation                          Haitong International       and development
                                                                                          Securities Company Limited of the industry
         27 December 2013         The Company’s   On-site            Other               Bao Jian Shi Bao            The company’s
                                  conference       research                                                           development history and
                                  room             investigation                                                      current situation
    52       SHANDONG CHENMING PAPER HOLDINGS LIMITED                            /      2013 Annual Report
    V Directors’ Report
    XIX. Securities interests held by Directors, Supervisors and Chief Executives under the SFO of
        Hong Kong
       As at 31 December 2013, interests of the Company or its associated corporations (within the meaning of the Part XV of
       SFO) held by each of the Directors, Supervisors and Chief Executives of the Company under section 352 of the SFO are set
       out as follows:
       The Company
                                                                                                                                  Number of shares
                                                                                                                                 (A shares) held as
                                                                                                                                   at the end of the
                                                                                                                                   reporting period
       Name                                                     Position                                                                    (shares)
       Directors
       Chen Hongguo (Note 1)                                    Chairman and General Manager                                               6,334,527
       Yin Tongyuan                                             Executive Director and Vice Chairman                                       2,423,640
       Li Feng                                                  Executive Director                                                           471,818
       Geng Guanglin                                            Executive Director                                                           437,433
       Hou Huancai                                              Executive Director                                                           628,915
       Zhou Shaohua                                             Executive Director                                                           123,007
       Cui Youping                                              Non-Executive Director
       Wang Xiaoqun                                             Non-Executive Director                                                              —
       Wang Aiguo                                               Independent Non-Executive Director                                                  —
       Zhang Zhiyuan                                            Independent Non-Executive Director                                                  —
       Zhang Hong                                               Independent Non-Executive Director                                                  —
       Pan Ailing                                               Independent Non-Executive Director                                                  —
       Supervisors
       Gao Junjie                                               Supervisor                                                                     39,606
       Wang Ju                                                  Supervisor                                                                         —
       Yang Hongqin                                             Supervisor                                                                         —
       Yin Qixiang                                              Supervisor                                                                         —
       Guo Guangyao                                             Supervisor                                                                         —
       Associated corporations
                                                                                 Number of shares
                                                                                        held at the                                 Number of
                                                                                  beginning of the                          shares held at the
                                           Name of associated                     reporting period          Change during end of the reporting
       Name                 Position       corporations                                     (shares)         the period +/-     period (shares)
                                           Shouguang Chenming
       Chen Hongguo                        Holdings Company Limited                    231,000,000                         —           231,000,000
                            Chairma
       n
       Note 1: Save for the 6,334,527 A shares held personally, Chen Hungguo is deemed to be interested in the 429,348 A shares held by his spouse, Li
                 Xueqin.
       Note 2: Chen Hongguo and his spouse, Li Xueqin, collectively hold 43% equity interests in Shouguang Henglian Enterprise Investment Co. Ltd.,
                (hereinafter referred to as “Shouguang Henglian”), as a result, Shouguang Henglian is deemed to be controlled by Chen Hongguo. As such,
                the 231,000,000 shares in Chenming Holdings (approximately 13.71% of the total share capital of Chenming Holdings) held by Shouguang
                Henglian is also deemed to be held by Chen Hongguo.
                                           2013 Annual Report                /         SHANDONG CHENMING PAPER HOLDINGS LIMITED                             53
      V Directors’ Report
      XIX. Securities interests held by Directors, Supervisors and Chief Executives under the SFO of
           Hong Kong (Cont’d)
          Save as disclosed above, as at 31 December 2013, none of each of the Directors, Supervisors or chief executives of the
          Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its
          associated corporations which were required to be filed in the register of the Company required to be maintained pursuant
          to section 352 of the SFO or which were required to be notified to the Company and the Hong Kong Stock Exchange
          pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as contained in Appendix 10 to the
          Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (hereinafter referred to as the “Hong Kong
          Listing Rules”).
          As at 31 December 2013, none of each of the Directors, Supervisors or chief executives or their respective spouses or
          children under the age of 18 held or exercised any rights to subscribe for the share capital or debentures of the Company or
          its associated corporations.
      XX. The Company’s substantial shareholders’ and other persons’ interest in shares or
          debentures under the SFO of Hong Kong
          As at 31 December 2013, the following shareholders (other than the directors, supervisors or chief executives of the
          Company) had interests or short positions in the Company’s shares and underlying shares as shown in the share register
          maintained by the Company in accordance with Section 336 of the SFO:
                                                                                                       Approximate shareholding
                                                                                                        as a percentage of (%)
                                                            Number of shares
          Name                                              held (shares)                       Total share capital     Class of shares
          Shouguang Chenming Holdings
            Company Limited                                 206,403,657 A shares (L)                         10.45                18.54
          Agreed repurchase earmarked account
             at GF SECURITIES CO., LTD.                          86,600,000 A shares (L)                        4.38                7.78
           The National Social Security Fund Council             35,570,000 H shares (L)                        1.80                9.09
          (L)– Long position            (S) – Short position            (P) – Lending pool
          Save as disclosed above, as at 31 December 2013, no other person had interests or short positions in the Company’s
          shares or underlying shares as recorded in the register maintained under section 336 of the SFO.
      XXI. Interests in competing business
          None of the Directors or controlling shareholders of the Company was interested in any business which competes or is
          likely to compete with the businesses of the Company and its subsidiaries.
      XXII. Directors’ interests in material contracts
          None of the Company or any of its subsidiaries entered into any material contracts, in which Directors had significant
          interests (either directly or indirectly), that subsisted at the end of the financial year or at any time during the reporting
          period.
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    V Directors’ Report
    XXIII. Directors and Senior Management’s Remuneration and the Five Highest Paid Individuals
        Details of directors and senior management’s remuneration and those of the five highest paid individuals in the Company
        and its subsidiaries are set out in part III of section VIII and part IX of section XI.
        In 2013, the Company has 30 senior management in total, which include directors, supervisors and senior management.
        The remuneration of senior management falls within the following ranges:
    Range of remuneration                                                                                            Number
    RMB 4.8million to RMB 5.2million                                                                                      1
    RMB 3.6million to RMB 4.0million
    RMB 3.2million to RMB 3.6million                                                                                       1
    RMB 2.8million to RMB 3.2million                                                                                       1
    RMB 2.4million to RMB 2.8million                                                                                       1
    RMB 1.6million to RMB 2.0million                                                                                       1
    RMB 1.2million to RMB 1.6million                                                                                       2
    RMB 0.8million to RMB 1.2million                                                                                       5
    RMB 0.8million below                                                                                                  18
    XXIV. Directors’ rights to purchase shares or debentures
        At no time during the year was the Company or any of its subsidiaries a party to any arrangements to enable the Directors
        to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.
    XXV. Transfer into reserves
        The Company’s contributed surplus is distributable to shareholders in accordance with the Companies Act. As of 31
        December 2013, the Company’s reserves available for cash distribution and/or distribution in specie amounted to
        approximately RMB5,379,887,056.23 (2012:RMB4,766,116,549.03) are set out in part II Financial Statements of section XI
        Financial Report.
    XXVI. Purchase, sale and redemption of shares
        During the year ended 31 December 2013, the Company repurchased in Shenzhen Stock Exchange 86,573,974 B shares
        in total, at a consideration of HK$330,911,185.31 (representing the average price paid for purchasing shares being
        HK$3.8223). All these shares have been cancelled upon the repurchase.
        During the year ended 31 December 2013, the Company repurchased in Hong Kong Stock Exchange 11,484,500 H
        shares in total, at a consideration of HK$39,230,260.00 (representing the average price paid for purchasing shares being
        HK$3.4159). All these shares have yet to be cancelled upon the repurchase.
        Save as disclosed above, the Company and its subsidiaries did not purchase, sell or redeem any listed securities of the
        Company during the reporting period.
    XXVII.          Pre-emptive rights
        In accordance with the Articles of Association and the PRC laws, there are no rules requiring the Company to grant existing
        shareholders pre-emptive rights on newly issued shares of the Company in proportion to their shareholdings.
                                       2013 Annual Report          /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                   55
      V Directors’ Report
      XXVIII.         Sufficiency of public float
          As at the date of this annual report, based on the information that is publicly available to the Company and within the
          knowledge of the Directors, the Company has maintained a sufficient prescribed amount of public float as required under
          the Hong Kong Listing Rules.
      XXIX. Audited by the Audit Committee
          The audited consolidated financial statements of the Company for the year ended 31 December 2013 has been audited by
          the Audit Committee of the Company.
      XXX. Going Concern Basis
          The Company is a major conglomerate focusing on forestry.pulp and paper, with comparative advantages in scale, product,
          technology and equipment, research and innovation, overall costs, capital and environmental management capabilities. In
          recent years, the Company has been committed to the development of integrated forestry, pulp and paper development,
          with a longer industry chain and a more comprehensive range of paper products. The development path of the Company is
          in line with development planning requirements of the entire paper making industry. The Company has also established a
          finance company and a finance leasing company as well as conducted magnesite mining. The participation in the financial
          and energy sectors broadened the Company’s industry chain and rationalised the industrial layout, thus enhancing its going
          concern ability.
          The company has a good sustained profitability. In 2013, the Company achieved operating income of RMB20.389billion,
          net profit attributable to shareholders of listed company was RMB711 million and net cash flow from operating activities
          was RMB1,123 million. Meanwhile, the Company always places emphasis on the interests of and return to shareholders, and
          has paid generous cash dividends for several years. With the improvement of the economic situation, the future
          performance of the Company is worth looking forward to.
          In addition, as of the end of December 2013, the Company obtained a comprehensive credit line of RMB44.9 billion from
          major financial institutions, of which unused credit line amounted to RMB31.0 billion, which provided important support to
          the Company’s business development. As an A-share, B-share and H-share listed company, the Company has convenient
          financing channels. The establishment of the Group’s finance company will enhance the centralised management of the
          Group’s fund and improve the efficiency of capital use so as to further increase the Group’s fund settlement, management,
          investment and financing ability, thereby reducing its financing cost and improve its debt structure.
          The auditors of the Company have prepared the 2013 annual financial report on a going concern basis, and have issued a
          standard unqualified audit opinion (see Financial Report section).
          Therefore, the Board believes the Company has the ability to continue as a going concern.
      XXXI. Closure of register of members
          The register of members of the Company will be closed from 7, April 2014 (Monday) to 9, May 2014 (Friday), (both days
          inclusive), during which no transfer of shares of the Company will be registered. In order to be eligible to attend and vote
          at the annual general meeting to be held on Friday, 9 May 2014, all transfer documents accompanied by the relevant share
          certificate(s) must be lodged with the Company’s Hong Kong share registrar and transfer office, Computershare Hong Kong
          Investor Services Limited at shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong
          for registration not later than 4:30 p.m. on 4, April 2014 (Friday).
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    VI Material Matters
    I.    Material litigation and arbitration
         □ Applicable                        √ Not applicable
         The Company had no material litigation and arbitration during the reporting period.
    II.   Media criticism
         √ Applicable                       □ Not applicable
         Descriptions on media criticism                                                                                                          Disclosure Date                                          Disclosure index
         Clarification on media criticism regarding the                                                                                           26 February 2013                                         http://www.cninfo.com.cn, announcement
           Company relating to matters such as                                                                                                                                                             no.: 2013-016
           “alleged discharge of waste water,
           delay in reclassifying construction in progress
           as fixed assets and reliance on government grants”
         Explanation on results of “280,420 production                                                                                           26 July 2013                                             http://www.cninfo.com.cn, announcement
           capacity of the Company and its subsidiaries                                                                                                                                                    no.: 2013-062
           was listed in a list prescribing the first
           batch of industrial enterprises which are to shed
           their backward production capacity for 2013
           published by the Ministry of Industry and
           Information Technology of the PRC”
    III. Matters related to bankruptcy and reorganisation
         During the reporting period, there were no matters related to bankruptcy and reorganisation.
    IV. Asset transactions
         1.         Acquisition of assets
                                                                                                                                                                                               Ratio of the
                                                                                                                                                                                                   net profit
                                                                                                                                                                                               contribution
                                                                                                                                                                                          to the Company                              Relationship with the
                                                                               Transaction                                                                      Effect on profit and loss of the asset(s)            Connected        party(ies) involved
                 Counterparty(ies)                                           consideration                                      Effect on operation of          of the Company               over total net          transaction      (Applicable to              Disclosure
                 or ultimate controller(s)      Asset(s) acquired              (RMB’0,000)      Progress (Note 2)              the Company (Note 3)            (Note 4)                          profit (%)              or not      connected transaction)      Date (Note 5)      Disclosure index
                 Yanbian Shixian Bailu          6350mm paper                       20,400        Asset title and liability      Able to further leverage        The asset being in                   The asset               No       Not applicable              16 May 2013        http://www.cninfo.com.
                   Papermaking Co., Ltd.        machine                                          were transferred.              the advantage of the            the installation and               being in the                                                                      cn
                                                                                                                                existing equipment of           commissioning phase            installation and
                                                                                                                                the Company and at the          and no effect on the           commissioning
                                                                                                                                same time able to save          financial position and                    phase
                                                                                                                                the costs of acquisition.       operating results during
                                                                                                                                                                the reporting period.
                 Song Peijun, Tian              100% equity interest in               273        Asset title and liability      Expand the industrial           The acquisition of equity             1.52%                  No       Not applicable              30 September http://www.cninfo.com.
                   Changzhi                     Shouguang Hongxiang                              were transferred.              chains and increase             interest in Hong Xiang                                                                            2013         cn
                   and Zhang Bo                 Printing and Packaging                                                          revenue                         Printing has an impact
                                                Co., Ltd.                                                                                                       on net profits of the
                                                                                                                                                                Company, up by RMB
                                                                                                                                                                2.41million
                                                                                 2013 Annual Report                                                         /                    SHANDONG CHENMING PAPER HOLDINGS LIMITED                                                                                     57
      VI Material Matters
      IV. Asset transactions (Cont’d)
          2.   Disposal of assets
                                                                                                Net profit
                                                                                                contribution                                    Ratio of the
                                                                                                to the                                             net profit
                                                                                                Company                                         contribution                                      Relationship
                                                                                                from the                                                to the                                            with
                                                                                                beginning of                                    Company of                                        counterparty
                                                                                                the period up                                     disposal of                                              (ies)     Relevant        Relevant
                                                                                  Transaction   to the                                           assets over                         Connected (applicable           asset title       liability
                                                                                consideration   disposal date   Effect on the disposal to            total net   Pricing basis        transaction to connected     transferred     transferred
               Counterparty(ies)         Asset disposed of        Disposal Date (RMB’0,000)    (RMB’0,000)    the company (note 3)                profit (%)   of asset disposal         or no transaction)           or not          or not Disclosure date Disclosure index
               Yanbian Shixian           49% equity interest in   15 May 2013           5,400 -192.53           Net profit increased by              0.76% Based on the                     No                             Yes           Yes 16 May 2013 http://www.cninfo.com.
                 Bailu Papermaking       Yanbian Chenming                                                       RMB5.43 million due to                      appraised price                                                                                  cn
                 Co., Ltd                Paper Co., Ltd.                                                        asset disposal, in line with                of an appraisal
                                                                                                                the development strategy                    agency
                                                                                                                of high-end products,
                                                                                                                capable of improving
                                                                                                                economic efficiency.
               Yanbian State-owned       51% equity interest in   15 May 2013           5,600 -200.39           Net profit increased by              0.80% Based on the                     No                             Yes           Yes 16 May 2013 http://www.cninfo.com.
               Assets Investment         Yanbian Chenming                                                       RMB5.65 million due to                      appraised price                                                                                  cn
               Management Co., Ltd.      Paper Co., Ltd.                                                        asset disposal, in line with                of an appraisal
                                                                                                                the development strategy                    agency
                                                                                                                of high-end products,
                                                                                                                capable of improving
                                                                                                                economic efficiency.
               Hubei Zhongjian Haohua 51% equity interest in      2 March 2013           510 -28.21             Net profit decreased by             -0.56% Based on the                     No                             Yes           Yes                     Not applicable
                 Environment           Wuhan Chenjian                                                           RMB4.00 million due to                      appraised price
                 Protection Co., Ltd.  New - style Wall                                                         asset disposal.                             of an appraisal
                                       Materials Co., ltd.                                                                                                  agency
               Shanghai Ruibao         98.36% equity interest     26 April 2013      30,091.6 56.46             Net profit remained                     0% Based on the                     No                             Yes           Yes 27 April 2013 http://www.cninfo.com.
                 Environmental.        in Shanghai Runchen                                                      unchanged due to asset                      audited net assets                                                                                cn
                 Technology Co., Ltd.) Equity Investment                                                        disposal, conducive                         as at 31 March
                                       Fund Co., Ltd.                                                           to protect the interests of                 2013
                                                                                                                the Company and
                                                                                                                shareholders, reducing
                                                                                                                investment risk, improving
                                                                                                                capital utilisation
                                                                                                                efficiency.
               Wuhan Chenming            60% equity interest in   5 December            6,000 -721.2            Net profit increased by              1.31% Based on the                     No                             Yes           Yes 27 September http://www.cninfo.com. cn
                Wan Xing Real            Wuhan Chenming           2013                                          RMB9.33 million due to                      audited net assets                                                                 2013
                Estate Co., Ltd.         Wan Xing Real Estate                                                   asset disposal, in line with                as at 30 November
                                         Co., Ltd.                                                              the development                             2013
                                                                                                                strategy of diversified
                                                                                                                products..
    58   SHANDONG CHENMING PAPER HOLDINGS LIMITED                                                                              /                  2013 Annual Report
    VI Material Matters
    V.   Implementation of the equity incentive plan of the Company and its effect
        There was no implementation of the equity incentive plan of the Company during the reporting period.
    VI. Significant related party transactions
        1.       Related party transactions associated with day-to-day operation
                                                                                    Subject                                                     Amount of     Percentage
                                                                    Types of the    matter of the    Pricing basis of             Price of   related party as the amount            Settlement of Available market
                                               Related party       related party    related party   the related party       related party    transactions        of similar         related party price of similar          Disclosure         Disclosure
                 Related party                 relationship        transactions     transactions         transactions       transactions      (RMB ’0000 transactions (%)           transactions      transactions              Date               index
                 Anhui Time                    Associate           Sale             Machine-made      Market price           Market price          2,152.24            0.14% Bank acceptance         Not applicable Not applicable Not applicable
                   Source                                                           paper        and authorisation                                                            and telegraphic
                   Corporation                                                                     from the Board                                                                     transfer
                 Total                                                                                             -                  -          2,152.24               -                  -                 -                 -                  -
                 Description of return of bulk sales in details                                     Nil
                 Necessity and continuity of related party transactions and the reason              Expand the sales operations in Anhui and improve the Company’s sales performance.
                  for trade with related party instead of other counterparties in the market
                 Effect of related party transactions on the independence of the Company            No effect
        2.       Related creditors’ rights and debts transactions
                 Whether non-operating related creditors’ rights and debts transactions existed?
                □ Yes             √ No
                                                                                                                                                                                                                  Amount
                                                                                                                                                          Whether the                                            incurred
                                                                                                       Type of creditor’s                                non-operating                     Opening                during                    Closing
                                                                                                       rights and debts                                   capital being                     balance           the period                    balance
                Related party                                     Related party relationship                                     Reason                   used or not                    (RMB ’0000)         (RMB ’0000)               (RMB ’0000)
                Anhui Time Source Corporation                     Associate                            Creditors’ rights        In the ordinary          No                                1,573.91                    84.09              1,658.00
                                                                                                       due from a                course of
                                                                                                       related party             business
                Jiangxi Jiangbao Media                            Associate                            Creditors’ rights        In the ordinary          No                                       2.16                 -2.16                      0
                   Colour Printing Co. Ltd.                                                            due from a                course of
                                                                                                       related party             business
                Wuhan Chenming Wan Xing                           Associate                            Creditors’ rights        In the ordinary          No                                                     55,196.46                55,196.46
                 Real Estate Co., Ltd.                                                                 due from a                course of
                                                                                                       related party             business
                Arjo Wiggins Chenming                             Associate                            Creditors’ rights        In the ordinary          No                                  129.09                                         129.09
                  Special Paper Co., Ltd.                                                              due from a                course of
                                                                                                       related party             business
                Shouguang Hengtai Enterprise                      A company invested by                Creditors’ rights        In the ordinary          No                                                          1,866.87             1,866.87
                  Investment Company Limited                      senior management                    due to a                  course of
                                                                                                       related party             business
                 Effect of related creditors’ rights              The above related creditors’ rights and debt amounts occurred in the ordinary course of business, with risks being kept under control by the
                   and liabilities on the operating                Company and thus, had no effect on the operating results and financial position of the Company.
                   results and financial position
                   of the Company
                                                                      2013 Annual Report                                         /           SHANDONG CHENMING PAPER HOLDINGS LIMITED                                                                        59
      VI Material Matters
      VI. Significant related party transactions (Cont’d)
          3.   Other significant connected party transactions
               On 6 February 2013, the Company convened the 8th extraordinary meeting of the sixth session of the Board, in
               which “Resolution on capital increase in Haiming Mining and introduction of the shareholder” was passed. The
               current registered capital of Haiming Chenming was relatively limited and did not commence any revenue generating
               operation. Having considered operational risks and capital requirements for future projects of Haiming Chenming, the
               Company decided to increase the capital of Haiming Chenming to RMB240 million upon discussion with shareholders,
               which benefited the Company and shareholders as a whole and shareholders could share all risks and work together.
               The Company, Liaoning BeiHai Industries Group Co., Ltd. and Shouguang Hengtai Enterprise Investment Company
               Limited made capital contributions in the amounts of RMB74.00 million, RMB42.00 million and RMB24.00 million
               respectively to the registered capital of Haiming Chenming. Upon completion of the increase in capital, the registered
               capital of Haiming Mining increased to RMB240 million, which was owned as to 60%, 30% and 10% by the Company,
               BeiHai Industries and Hengtai Enterprise respectively. As the Chairman and some of the directors, supervisors and
               senior management of the Company had equity interest in Hengtai Enterprise, the capital contributions by Hengtai
               Enterprise to Haiming Mining constituted a connected transaction. The capital increase and introduction of new
               shareholders of Haiming Mining was completed on 13 March 2013. The registered capital of Haiming Mining changed
               to RMB240 million.
               Relevant information regarding the tentative announcement disclosure website for significant connected party
               transactions
                                                                   Disclosure date of the         Name of the tentative
               Name of tentative announcement                      tentative announcement         announcement disclosure website
               Announcement in respect of capital increase in      7 February 2013                http://www.cninfo.com.cn
                 Haiming Mining and connected transaction
      VII. Material contracts and implementation
          1.   Custody, contracting and leasing
               (1)   Custody
                     During the reporting period, no assets of other companies were in the custody of the Company or vice versa.
                     Projects contributed profit or loss over 10% of the total profit of the Company during the reporting period
                     □ Applicable   √ Not applicable
               (2)   Contracting
                     During the reporting period, the Company did not contract other companies’ assets or vice versa. Projects
                     contributed profit or loss over 10% of the total profit of the Company during the reporting period
                     □ Applicable   √ Not applicable
               (3)   Leasing
                     During the reporting period, the Company did not lease other companies’ assets or vice versa.
                     Projects contributed profit or loss over 10% of the total profit of the Company during the reporting period
                     □ Applicable   √ Not applicable
    60   SHANDONG CHENMING PAPER HOLDINGS LIMITED                     /     2013 Annual Report
    VI Material Matters
    VII. Material contracts and implementation (Cont’d)
       2.      Guarantees
               During the reporting period, the Company did not provide any guarantee to external parties (excluding those provided
               to its subsidiaries) and did not provide any guarantees against the rules and regulations.
               During the reporting period, the Company provided guarantee to its subsidiaries with respect to application of bank
               loans. The guarantee amount incurred was RMB 3,121.0385 million. As of 31 December 2013, the actual balance
               of the guarantee provided by the Company to its subsidiaries amounted to RMB 2,959.3928 million, representing
               21.08% of the equity attributable to shareholders of the listed company for 2013.
                                                                                                                                                                                                                                                                       Unit: RMB’0,000
                                                                                                              External guarantees provided by the Company (excluding guarantees provided for subsidiaries
                                                                                   Date of the related                                                                                                                                                                                   Guarantee to
                                                                                  announcement disclosing                        Amount of        Guarantee date                               Guarantee                                                                                        related
               Name of obligor                                                    the guarantee amount                           guarantee        (agreement date)                              provided Type of guarantee                           Term           Fulfilled or not     parties or not
                                                                                                                                   Guarantees provided by the Company for subsidiaries
                                                                               Date of the related                                                                                                                                                                                     Guarantee to
                                                                               announcement disclosing the                    Amount of         Guarantee date                              Guarantee                                                                                        related
            Name of obligor                                                    guarantee amount                               guarantee         (agreement date)                             provided        Type of guarantee                    Term           Fulfilled or not      parties or not
            Zhanjiang Chenming Pulp & Paper Co., Ltd.                             28 March 2012                                  300,000        24 May 2012                                 127,981.25 General guarantee                        3 years                       No             Yes
            Zhanjiang Chenming Pulp & Paper Co., Ltd.                             21 August 2013                                 200,000        -                                                   - General guarantee                       3 years                       No             Yes
            Jiangxi Chenming Paper Co., Ltd.                                      21 December 2012                                20,000        21 December 2012                                  7,500 General guarantee                       3 years                       No             Yes
            Jiangxi Chenming Paper Co., Ltd.                                      27 March 2013                                  200,000        -                                                   - General guarantee                       3 years                       No             Yes
            Huanggang Chenming Pulp & Paper Co., Ltd.                             15 November 2013                               304,000        -                                                   - General guarantee                       3 years                       No             Yes
            Huanggang Chenming Arboriculture Co., Ltd.                            25 February 2010                                16,000        08 July 2010                                         - General guarantee                       3 years                      Yes             Yes
            Huanggang Chenming Arboriculture Co., Ltd.                            30 March 2011                                   20,000        19 September 2011                                 2,960 General guarantee                       3 years                       No             Yes
            Huanggang Chenming Arboriculture Co., Ltd.                            28 March 2012                                   20,000        27 June 2012                                      2,600 General guarantee                       3 years                       No             Yes
            Shouguang Meilun Paper Co., Ltd.                                      24 August 2010                                  79,473        10 September 2010                            14,632.56 General guarantee                        5 years                       No             Yes
            Shouguang Meilun Paper Co., Ltd.                                      29 October 2010                                600,000        24 September 2013                             4,877.52 General guarantee                        3 years                       No             Yes
            Shouguang Chenming Art Paper Co., Ltd.                                28 March 2012                                   10,000        -                                                   - General guarantee                       3 years                       No             Yes
            Jilin Chenming Paper Co., Ltd.                                        28 March 2012                                  100,000        -                                                   - General guarantee                       3 years                       No             Yes
            Jilin Chenming Paper Co., Ltd.                                        27 March 2013                                   50,000        -                                                   - General guarantee                       3 years                       No             Yes
            Chenming (HK) Limited                                                 29 October 2010                                 50,000        13 April 2011                                   50,000 General guarantee                        3 years                       No             Yes
            Chenming (HK) Limited                                                 28 March 2012                                  500,000        -                                                   - General guarantee                       3 years                       No             Yes
            Shandong Chenming Paper Sales Company Limited                         27 October 2011                                400,000        07 June 2013                                 81,387.95 General guarantee                        3 years                       No             Yes
            Shouguang Chenming Import and Export Trade Co., Ltd.                  28 March 2012                                  200,000        -                                                   - General guarantee                       3 years                       No             Yes
            Zhanjiang Meilun Paper Co., Ltd.                                      27 March 2013                                   50,000        -                                                   - General guarantee                       3 years                       No             Yes
            Guangdong Huirui Investment Co., Ltd.                                 16 November 2013                                 4,000        28 November 2013                                  4000 General guarantee                        2 years                       No             Yes
            Total amount of guarantee provided for subsidiaries approved during the reporting period (B1)                        808,000                                           Total amount of guarantee provided for subsidiaries during the reporting period (B2)                 312,103.85
            Total amount of guarantee provided for subsidiaries approved as at the end of the reporting period (B3)            3,107,473                                           Total balance of guarantee provided for subsidiaries as at the end of the reporting period (B4)      295,939.28
            Total amount of guarantee provided by the Company (the sum of the above two main categories)
            Total amount of guarantee approved during the reporting period (A1+B1)                                               808,000                                           Total amount of guarantee provided during the reporting period (A2+B2)                               312,103.85
            Total amount of guarantee approved as at the end of the reporting period (A3+B3)                                   3,107,473                                           Total balance of guarantee provided as at the end of the reporting period (A4+B4)                    295,939.28
            The percentage of total amount of guarantee provided (A4+B4) to the net assets of the Company                                                                                                                                                                                 21.08%
            Of which:
            Amount of guarantee provided for shareholders, beneficial controllers and its related parties (C)                                                                                                                                                                                    0
            Amount of guarantee directly or indirectly provided for obligors with gearing ratio over 70% (D)                                                                                                                                                                                160,458
            Total amount of guarantee provided in excess of 50% of net assets (E)                                                                                                                                                                                                                0
            Sum of the above three amount of guarantee (C+D+E)                                                                                                                                                                                                                              160,458
                                                                            2013 Annual Report                                                     /                 SHANDONG CHENMING PAPER HOLDINGS LIMITED                                                                                             61
      VI Material Matters
      VII. Material contracts and implementation (Cont’d)
          3.   Other material contracts
                                                                                             Appraised
                                                                               Book value value of the
                                                                               of subject subject
                                                                               asset of the asset of the Name of                                                  Related       Related
               Name of the              Name of party          Date of the     contract      contract      appraisal                                  Transaction party         party
               company entering         involved in the        contract        (RMB’0,000) (RMB ’0,000) institute     Appraisal                     price       transaction   transaction   Progress as at the end
               into contract            contract               entered into    (if any)      (if any)      (if any)     date (if any) Pricing basis (RMB’0,000 or not          or not        of the reporting period
               Guangdong Huirui         Zhanjiang City        6 February 2013 Not            Not           Not          Not           Not           Not           No            Not           The project involved in this contract
                Investment Co., Ltd.    Construction Project                  applicable     applicable    applicable   applicable    applicable    applicable                  applicable    launched on 30 December 2013.
                                        Administration Bureau
      VIII. Performance of undertakings
          1.   Undertakings made by the Company and shareholders interested in 5% or more of the shares of the
               Company made in the reporting period or prior periods but subsisting to the reporting period
                                                 Party involved in                                                                                                                                          Particulars on
               Undertaking                       undertaking                  Details of undertaking                                                    Undertaking date         Term                       the performance
               Undertaking on shareholding
                 structure reformation
               Undertaking made in offering
                 documents or shareholding
                 alternation documents
               Undertaking made during
                 asset reconstruction
               Undertaking made on initial Shouguang Chenming                 (1) According to the plan on defective properties of the                  16 January 2008          During the period          Strictly implemented
                 public offering or refinancing Holdings Co., Ltd, the        Company, Shouguang Chenming Holdings Company Limited has                                           when Chenming
                                                controlling shareholder       guaranteed and undertaken that: according to the application of                                    Holdings was the
                                                of the Company                the Company, for defective property(ies) owned by the Company                                      major shareholder
                                                                              and its holding company which situated in the administrative area                                  of the Company
                                                                              of Shouguang city, Shouguang Chenming Holdings will purchase
                                                                              it(them) and have it(them) being transferred to itself pursuant to
                                                                              the law in accordance with the result of the related asset valuation
                                                                              if the Company decides to transfer and dispose of it(them) and
                                                                              there is no other transferee; (2) before the Company transfers
                                                                              and disposes of the defective properties pursuant to the law, if
                                                                              the defects cause the Company to incur any economic losses
                                                                              (including but not limited to damages, penalties and relocation
                                                                              costs), Shouguang Chenming Holdings will bear such economic
                                                                              losses; (3) during the corrective activities taken to the defective
                                                                              properties of buildings and land of subsidiaries of the Company
                                                                              situated outside the local areas (including the administrative
                                                                              area of Shouguang city), the economic losses such as penalties
                                                                              or relocation costs implemented by competent administrative
                                                                              authorities and borne by the subsidiaries arising from defects of
                                                                              insufficient title documents shall be paid pursuant to the law by
                                                                              Shouguang Chenming Holdings after verification.
    62   SHANDONG CHENMING PAPER HOLDINGS LIMITED                                                      /           2013 Annual Report
    VI Material Matters
    VIII. Performance of undertakings (Cont’d)
       1.   Undertakings made by the Company and shareholders interested in 5% or more of the shares of the
            Company made in the reporting period or prior periods but subsisting to the reporting period (Cont’d)
                                         Party involved in                                                                                                                         Particulars on
            Undertaking                  undertaking               Details of undertaking                                                   Undertaking date   Term                the performance
                                         Shouguang Chenming        (1) Shouguang Chenming Holdings shall not engage, whether                22 May 2008        During the period   Strictly
                                         Holdings Co., Ltd, the    solely, jointly, or by representing itself or any other persons or                          when Chenming       implemented
                                         controlling shareholder   companies, and shall not procure its associates (as defined in                              Holdings was the
                                         of the Company            The Listing Rules of Hong Kong Stock Exchange) to engage, in                                major shareholder
                                                                   any business which competes with the business of the Company                                of the Company
                                                                   and its subsidiaries (“Chenming Group” or “we”) directly or
                                                                   indirectly, in any country and region which our business exists (or
                                                                   any part of the world if in any form of electronics business), or in
                                                                   any business that directly or indirectly competes with Chenming
                                                                   Group’s business which we operate from time to time (including
                                                                   but not limited to any business in the form of sole proprietorship,
                                                                   joint ventures or acquisitions, or holding interests directly or
                                                                   indirectly in such enterprises, or by any other means); (2) in the
                                                                   event that Shouguang Chenming Holdings is required by its
                                                                   business to, whether solely, jointly, or by representing itself or any
                                                                   other persons or companies, engage in business which directly
                                                                   or indirectly competes against Chenming Group’s business,
                                                                   or obtain any business opportunity which directly or indirectly
                                                                   competes against Chenming Group’s business, it shall endeavour
                                                                   to procure that Chenming Group shall have priority to obtain
                                                                   the right to operate such business or to obtain such business
                                                                   opportunity; (3) if Shouguang Chenming Holdings is in breach of
                                                                   the abovementioned undertakings, it shall indemnify us for any
                                                                   loss caused by such breach and the Company shall have the
                                                                   right to acquire all businesses of Shouguang Chenming Holdings,
                                                                   which directly or indirectly compete with the businesses of our
                                                                   Group, at market price or cost price (whichever price is lower);
                                                                   (4) Shouguang Chenming Holdings shall not make use of its
                                                                   position as the controlling shareholder (as defined in The Listing
                                                                   Rules of Hong Kong Stock Exchange) of our Group (or jointly or
                                                                   representing other persons or companies) jeopardise the legal
                                                                   interests of Chenming Group and its shareholders.
            Other undertakings made to
              minority shareholders
              of the Company
            Does the undertaking         Yes
              performed timely?
                                                   2013 Annual Report                           /              SHANDONG CHENMING PAPER HOLDINGS LIMITED                                              63
      VI Material Matters
      IX. Engagement or dismissal of accounting firms
          Current accounting firm engaged
           Name of the domestic accounting firm                                  Ruihua Certified Public Accountants
                                                                                   (special general partnership)
           Remuneration of the domestic accounting firm (RMB’ 0,000)            260
           Continued term of service of the domestic accounting firm             1 year
           Name of certified public accountants of the                           Wang Chuanshun and Jing Chuanxuan
            domestic accounting firm
          Whether to appoint another accounting firm during the period
          √ Yes   □ No
          Whether to appoint another accounting firm during the audit period
          □ Yes   √ No
          Whether to fulfil procedures for approval regarding the change of another accounting firm
          √ Yes   □ No
          Explanation on the appointment and change of another accounting firm
          The proposal for the engagement of the auditors for the year 2013 has been considered and approved on the 2012 Annual
          General Meeting held on 15 May, 2013. It was resolved to re-appoint RSM China CPA (Special General Partnership) as the
          auditors for the financial audit of the Company for 2013. The Company received a letter on the Change of RSM China CPA
          (Special General Partnership) into Ruihua CPA (Special General Partnership) from RSM in July 2013, which set out that
          RSM had merged with Crowe Horwath CPA and it was named as Ruihua CPA (Special General Partnership) after the
          merger. After the establishment of Ruihua, the staff and the business of RSM are transferred to Ruihua and RSM provides its
          service to its clients under the name of Ruihua. All the contracts previously entered into by RSM with the Company
          remain valid and Ruihua will succeed to and perform the corresponding duties, rights and obligations. The proposal for
          the change of the auditors was considered and approved at the 2013 First Extraordinary General Meeting on 21 August
          2013, pursuant to which the Company appointed Ruihua CPA (Special General Partnership) as the auditors of the
          Company for 2013. For more details, please refer to the related announcements disclosed by the Company on
          http://www.cninfo.com.cn/ on 2 Aug 2013 and 22 Aug 2013.
          Particulars on recruitment of accounting firms, financial consultants or sponsors for internal control and auditing purposes
          √ Applicable    □ Not applicable
          During the year, the Company engaged RSM China Certified Public Accountants as the internal control and auditing firm of
          the Company. The Company paid RMB600,000 for internal control and auditing fees during the period.
          The Company engaged King & Wood Mallesons(Qingdo)Law Firm as its annual legal advisor and paid RMB100,000 for
          legal advisory fees during the period.
    64   SHANDONG CHENMING PAPER HOLDINGS LIMITED                      /     2013 Annual Report
    VI Material Matters
    X.   Opinions of the Supervisory Committee and Independent Shareholders (if applicable)
        regarding the “modified auditor’s report” for the reporting period issued by the accounting firm
        Ruihua Certified Public Accountants has conducted audit of the Company’s 2013 annual financial report, and issued a
        standard unqualified auditor’s report.
    XI. Suspension in trading or delisting upon publication of annual report
        There was no suspension in trading or delisting following the disclosure of the Company’s annual report.
    XII. Explanation of other material matters
        1.    Official Reply of China Banking Regulatory Commission on the Establishment of Finance Company
              On 25 November 2013, the Company received the “Official Reply of the China Banking Regulatory Commission on
              the Establishment of Finance Company within Group Enterprise by Shandong Chenming Paper Holdings Limited” (Yin
              Jian Fu No. [2013]596)(the “Official Reply”) issued by the China Banking Regulatory Commission (the “CBRC”). Please
              refer to the relevant announcement (Announcement No.: 2013-108) of the Company dated 26 November 2013.
        2.    Results on Issuance of 2013 Short-term Commercial Paper
              The first tranche of the 2013 short-term commercial paper of the Company was issued by means of public offering
              on the National Inter-Bank Bond Market on 11 September 2013. The bond issue is amounted to RMB1,800 million,
              each with a nominal amount of RMB100, for a term of 365 days. All the proceeds from the issuance of short-term
              commercial paper were credited to the account on 12 September 2013 for refinancing of bank loans.
              The public issue of the 2013 second tranche of short-term commercial paper in the national inter-bank bond market
              was launched by the Company on 24 October 2013. The amount of the issue was RMB2,000 million for a term of
              365 days. The nominal amount of each commercial paper is RMB100. The proceeds from this tranche of short-term
              commercial paper issue were fully received on 25 October 2013 to be used for refinancing of bank borrowings.
        3.    The First Tranche of the 2013 Private Placement Notes
              The issue of the first tranche of the 2013 private placement notes was launched by the Company on 22 April 2013.
              The amount of the issue was RMB1,500 million for a term of 3 years. The nominal amount of each note is RMB100.
              The proceeds were used for refinancing of bank borrowings, so as to reduce financing costs and further adjust debt
              structure.
                                       2013 Annual Report            /       SHANDONG CHENMING PAPER HOLDINGS LIMITED                   65
        VI Material Matters
    XII. Explanation of other material matters (Cont’d)
                  4.     Information disclosure index for 2013
                                                                                                                 Websites of publication
              Announcement No. Subject matter                                              Date of publication   and their path
              2013-001          Third Announcement on Repurchase of B Shares               11 January 2013       http://www.cninfo.com.cn
                                  and Reduction of Registered Capital
              2013-002          Announcement on Notice of 2013 First Bondholder            11 January 2013       http://www.cninfo.com.cn
                                  Meeting of “11 Chenming Bond”
              2013-003          Indicative Announcement on Agreed Repurchase               23 January 2013       http://www.cninfo.com.cn
                                  Type Securities Trading by a Shareholder
              2013-004          Announcement on Failure to Convene 2013                    29 January 2013       http://www.cninfo.com.cn
                                  First Bondholder Meeting of “11 Chenming Bond”
              2013-005          Announcement on Estimated Annual Results for 2012          31 January 2013       http://www.cninfo.com.cn
              2013-006          Indicative Announcement on receipt of subsidies            31 January 2013       http://www.cninfo.com.cn
              2013-007          2012 Corporate Bonds Listing Announcement                  1 February 2013       http://www.cninfo.com.cn
              2013-008          Announcement on Resolutions of the Seventh Interim         2 February 2013       http://www.cninfo.com.cn
                                  Meeting of the Sixth Session of the Board of Directors
              2013-009          Announcement on External Investment                        2 February 2013       http://www.cninfo.com.cn
              2013-010          Indicative Announcement on contract entered into           7 February 2013       http://www.cninfo.com.cn
                                  by Guangdong Huirui
              2013-011          Indicative Announcement on Change of                       7 February 2013       http://www.cninfo.com.cn
                                  Name of Controlling Subsidiary
              2013-012          Announcement on Resolutions of the Eighth Interim          7 February 2013       http://www.cninfo.com.cn
                                  Meeting of the Sixth Session of the Board of Directors
              2013-013          Connected Transaction in relation to Capital Increase      7 February 2013       http://www.cninfo.com.cn
                                  in Haiming Mining
              2013-014          Announcement on External Investment                        7 February 2013       http://www.cninfo.com.cn
              2013-015          Announcement on External Investment                        7 February 2013       http://www.cninfo.com.cn
              2013-016          Indicative Announcement on Media Coverage                  26 February 2013      http://www.cninfo.com.cn
              2013-017          Indicative Announcement on Progress of                     28 February 2013      http://www.cninfo.com.cn
                                  Repurchase of Part of B shares
              2013-018          Announcement on Implementation of                          28 February 2013      http://www.cninfo.com.cn
                                  Repurchase of Part of B shares
              2013-019          Announcement on Resolutions of the Sixteenth Meeting       28 February 2013      http://www.cninfo.com.cn
                                  of the Sixth Session of the Board of Directors
              2013-020          Announcement on Resolutions of the Thirteenth Meeting      28 February 2013      http://www.cninfo.com.cn
                                  of the Sixth Session of the Board of Directors
              2013-021          Notice of 2012 Annual General Meeting                      28 February 2013      http://www.cninfo.com.cn
              2013-022          Announcement in respect of Provision of Guarantee for      28 February 2013      http://www.cninfo.com.cn
                                  the General Banking Facilities of
                                  Controlling Subsidiaries
              2013-023          Announcement in respect of Provision of Financial          28 February 2013      http://www.cninfo.com.cn
                                  Support to Several Controlling Subsidiaries
              2013-024          2012 Annual Report summary                                 28 February 2013      http://www.cninfo.com.cn
              2013-025          Announcement on Entitlement of High-tech Enterprises       3 April 2013          http://www.cninfo.com.cn
    66    SHANDONG CHENMING PAPER HOLDINGS LIMITED                      /      2013 Annual Report
    VI Material MattersXII. Explanation of other material matters (Cont’d)
    4.   Information disclosure index for 2013 (Cont’d)
                                                                                                            Websites of publication
          Announcement No. Subject matter                                             Date of publication   and their path
          2013-026         Indicative Announcement on Refunds upon Receipt            3 April 2013          http://www.cninfo.com.cn
                             of Tax Revenue
          2013-027         Indicative Announcement on Progress of                     3 April 2013          http://www.cninfo.com.cn
                             Repurchase of Part of B shares
          2013-028         Announcement on Estimated Results for                      3 April 2013          http://www.cninfo.com.cn
                             the First Quarter of 2013
          2013-029         Indicative Announcement on Progress of                     12 April 2013         http://www.cninfo.com.cn
                             Repurchase of Part of B shares
          2013-030         Announcement on Additional Resolution of                   26 April 2013         http://www.cninfo.com.cn
                             2012 shareholders’ meeting
          2013-031         Indicative Announcement on Notice of 2012                  26 April 2013         http://www.cninfo.com.cn
                             Annual General Meeting
          2013-032         Announcement on Issue of Dedicated Private                 26 April 2013         http://www.cninfo.com.cn
                             Debt Financing Instruments
          2013-033         Announcement on Resolutions of Seventeenth                 27 April 2013         http://www.cninfo.com.cn
                             meeting of the Sixth session of the Board
          2013-034         Announcement on Disposal of Equity                         27 April 2013         http://www.cninfo.com.cn
                             Interest in Shanghai Runchun
          2013-035         2013 First Quarter Report                                  27 April 2013         http://www.cninfo.com.cn
          2013-036         Indicative Announcement                                    3 May 2013            http://www.cninfo.com.cn
          2013-037         Indicative Announcement on Progress of                     4 May 2013            http://www.cninfo.com.cn
                             Repurchase of Part of B shares
          2013-038         Indicative Announcement                                    7 May 2013            http://www.cninfo.com.cn
          2013-039         Indicative Announcement on Progress of                     15 May 2013           http://www.cninfo.com.cn
                             Repurchase of Part of B shares
          2013-040         Announcement on Resolutions of the Ninth Interim           16 May 2013           http://www.cninfo.com.cn
                             Meeting of the Sixth Session of the Board of Directors
          2013-041         Announcement on Disposal of Equity Interest in             16 May 2013           http://www.cninfo.com.cn
                             Yanbian Chenming and Acquisition of Assets
          2013-042         Announcement on Resolutions of 2012 Annual                 16 May 2013           http://www.cninfo.com.cn
                             General Meeting
          2013-043         Announcement on Resolutions of the First Meeting           17 May 2013           http://www.cninfo.com.cn
                             of the Seventh Session of the Board of Directors
          2013-044         Announcement on Resolutions of the First Meeting           17 May 2013           http://www.cninfo.com.cn
                             of the Seventh Session of the Supervisory Committee
          2013-045         Indicative Announcement on Progress of Repurchase          24 May 2013           http://www.cninfo.com.cn
                             of Part of B shares
          2013-046         Indicative Announcement on Receipt of Incentive Fund       25 May 2013           http://www.cninfo.com.cn
          2013-047         Indicative Announcement                                    28 May 2013           http://www.cninfo.com.cn
          2013-048         Indicative Announcement on Progress of Repurchase          6 June 2013           http://www.cninfo.com.cn
                             of Part of B shares (I)
          2013-049         Indicative Announcement on Progress of Repurchase          6 June 2013           http://www.cninfo.com.cn
                             of Part of B shares (II)
          2013-050         Announcement on Resolutions of the First Interim           28 June 2013          http://www.cninfo.com.cn
                             Meeting of the Seventh Session of the Board
                             of Directors
                                    2013 Annual Report              /        SHANDONG CHENMING PAPER HOLDINGS LIMITED                  67
        VI Material Matters
              2013-051    Announcement on External Investment                     28 June 2013     http://www.cninfo.com.cn
              2013-052    Announcement on External Investment                     28 June 2013     http://www.cninfo.com.cn
              2013-053    Notice on 2013 first extraordinary general meeting      28 June 2013     http://www.cninfo.com.cn
              2013-054    Notice of 2013 First Domestic Listed Share Class        28 June 2013     http://www.cninfo.com.cn
                            Meeting and 2013 First Overseas Listed Share
                            Class Meeting
              2013-055    Indicative Announcement on Receipt of Incentive Fund    28 June 2013     http://www.cninfo.com.cn
              2013-056    Announcement on 2013 Dividend Payment in respect        28 June 2013     http://www.cninfo.com.cn
                            of “11 Chenming Bond”
              2013-057    Announcement on the Implementation of                   3 July 2013      http://www.cninfo.com.cn
                            Equity Distribution for 2012
              2013-058    Indicative Announcement on Progress of Repurchase       3 July 2013      http://www.cninfo.com.cn
                            of Part of B shares
              2013-059    Announcement on Notice of 2013 First Bondholder         5 July 2013      http://www.cninfo.com.cn
                            Meeting of “12 Chenming Bond”
              2013-060    Announcement on Notice of 2013 First Bondholder         5 July 2013      http://www.cninfo.com.cn
                            Meeting of “12 Chenming Bond”
              2013-061    Announcement on Interim Results for 2013                11 July 2013     http://www.cninfo.com.cn
              2013-062    Indicative Announcement                                 26 July 2013     http://www.cninfo.com.cn
              2013-063    Indicative Announcement on Change of Auditors           2 August 2013    http://www.cninfo.com.cn
              2013-064    Announcement on Additional Resolution of 2013           2 August 2013    http://www.cninfo.com.cn
                            first extraordinary general meeting
              2013-065    Notice on 2013 first extraordinary general meeting      2 August 2013    http://www.cninfo.com.cn
              2013-066    Announcement on External Investment                     2 August 2013    http://www.cninfo.com.cn
              2013-067    Announcement of Provision of Guarantee to Zhanjiang     2 August 2013    http://www.cninfo.com.cn
                            Chenming for Increase in General Banking Facilities
              2013-068    Notice on 2013 First Class Meeting for Shareholders     2 August 2013    http://www.cninfo.com.cn
                            of Domestic Listed Shares and 2013 First Class
                            Meeting for Shareholders of Overseas Listed Shares
              2013-069    Indicative Announcement on Progress of Repurchase       2 August 2013    http://www.cninfo.com.cn
                            of Part of B shares
              2013-070    Indicative Announcement on bid for land of              17 August 2013   http://www.cninfo.com.cn
                            Controlling Subsidiary
              2013-071    2013 Interim Report Summary of Shandong Chenming        22 August 2013   http://www.cninfo.com.cn
                            Paper Holdings Limited
              2013-072    Announcement on Repurchase of H shares                  22 August 2013   http://www.cninfo.com.cn
                            and Reduction of Registered Capital
              2013-073    Announcement on Resolutions of the Second Meeting       22 August 2013   http://www.cninfo.com.cn
                            of the Seventh Session of the Board of Directors
              2013-074    Announcement on Resolutions of the 2013                 22 August 2013   http://www.cninfo.com.cn
                            First Extraordinary General Meeting
    68    SHANDONG CHENMING PAPER HOLDINGS LIMITED               /      2013 Annual Report
    VI Material MattersXII. Explanation of other material matters (Cont’d)
    4.   Information disclosure index for 2013 (Cont’d)
                                                                                                           Websites of publication
          Announcement No. Subject matter                                            Date of publication   and their path
          2013-075         Announcement on Resolutions of the 2013 First Class       22 August 2013        http://www.cninfo.com.cn
                             Meeting for Holders of Domestic Listed Shares
                             (A shares and B shares) and Resolutions of
                             the 2013 First Class Meeting for Holders of
                             Overseas Listed Shares (H shares)
          2013-076         Notice of Meeting for Holders of First Tranche of         22 August 2013        http://www.cninfo.com.cn
                             2012 Medium-term Notes
          2013-077         Announcement on Failure to Convene 2013                   29 August 2013        http://www.cninfo.com.cn
                             First Bondholder Meeting of “11 Chenming Bond”
          2013-078         Announcement on Failure to Convene 2013                   29 August 2013        http://www.cninfo.com.cn
                             First Bondholder Meeting of “12 Chenming Bond”
          2013-079         Announcement on Approval of Registration on               30 August 2013        http://www.cninfo.com.cn
                             Short-term Commercial Paper
          2013-080         Indicative Announcement on Progress of                    5 September 2013      http://www.cninfo.com.cn
                             Repurchase of Part of B shares
          2013-081         Announcement on Resolution of Meeting for Holders         5 September 2013      http://www.cninfo.com.cn
                             of the First Tranche of the 2012 Medium-term Notes
          2013-082         Announcement on Resolution of Meeting for Holders of      5 September 2013      http://www.cninfo.com.cn
                             the First Tranche of the 2013 Private Placement Notes
          2013-083         Second Announcement on Repurchase of H Shares             7 September 2013      http://www.cninfo.com.cn
                             and Reduction of Registered Capital
          2013-084         Announcement on Results on Issuance of First              13 September 2013     http://www.cninfo.com.cn
                             Tranche of 2013 Short-term Commercial Paper
          2013-085         Third Announcement on Repurchase of H Shares              23 September 2013     http://www.cninfo.com.cn
                             and Reduction of Registered Capital
          2013-086         Announcement on Resolutions of the Second Interim         30 September 2013     http://www.cninfo.com.cn
                             Meeting of the Seventh Session of
                             the Board of Directors
          2013-087         Announcement on External Investment                       30 September 2013     http://www.cninfo.com.cn
          2013-088         Announcement on External Investment                       30 September 2013     http://www.cninfo.com.cn
          2013-089         Announcement on External Investment                       30 September 2013     http://www.cninfo.com.cn
          2013-090         Announcement of Provision of Guarantee to                 30 September 2013     http://www.cninfo.com.cn
                             Huanggang Chenming
          2013-091         Announcement on Acquisition of Equity Interest            30 September 2013     http://www.cninfo.com.cn
                             in Hongxiang Printing
          2013-092         Announcement on External Investment                       30 September 2013     http://www.cninfo.com.cn
          2013-093         Notice on 2013 second extraordinary general meeting       30 September 2013     http://www.cninfo.com.cn
          2013-094         Announcement on Resolutions of the Third Meeting          30 September 2013     http://www.cninfo.com.cn
                             of the Seventh Session of the Board of Directors
          2013-095         Indicative Announcement on Progress of Repurchase         9 October 2013        http://www.cninfo.com.cn
                             of Part of B shares
          2013-096         Indicative Announcement on Receipt of Subsidy             11 October 2013       http://www.cninfo.com.cn
                                   2013 Annual Report              /        SHANDONG CHENMING PAPER HOLDINGS LIMITED                  69
        VI Material Matters
          4.   Information disclosure index for 2013 (Cont’d)
                                                                                                               Websites of publication
               Announcement No. Subject matter                                           Date of publication   and their path
               2013-097         Announcement on Estimated Results for                    15 October 2013       http://www.cninfo.com.cn
                                  the Nine Months Ended 30 September 2013
               2013-098         2013 Third Quarter Report                                28 October 2013       http://www.cninfo.com.cn
               2013-099         Announcement on Additional Resolution of                 29 October 2013       http://www.cninfo.com.cn
                                  2013 second extraordinary general meeting
               2013-100         Notice on 2013 second extraordinary general meeting      29 October 2013       http://www.cninfo.com.cn
               2013-101         Announcement on Provision of Guarantee to                29 October 2013       http://www.cninfo.com.cn
                                  Guangdong Huirui by Zhanjiang Chenming
               2013-102         Announcement on Results on Issuance of Second            29 October 2013       http://www.cninfo.com.cn
                                  Tranche of 2013 Short-term Commercial Paper
               2013-103         Indicative Announcement on Progress of Repurchase        2 November 2013       http://www.cninfo.com.cn
                                  of Part of B shares
               2013-104         Indicative Announcement on Progress of Repurchase        6 November 2013       http://www.cninfo.com.cn
                                  of Part of H shares
               2013-105         Announcement on Resolutions