Cango Inc.
Annual Report 2023

Plain-text annual report

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F (Mark One) ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR Date of event requiring this shell company report For the transition period from to Commission file number 001-38590 Cango Inc. (Exact name of Registrant as specified in its charter) Cayman Islands (Jurisdiction of incorporation or organization) 8F, New Bund Oriental Plaza II 556 West Haiyang Road, Pudong New Area Shanghai 200124 People’s Republic of China (Address of principal executive offices) Yongyi Zhang, Chief Financial Officer Telephone: +86 21 3183 5087 Email: ir@cangoonline.com At the address of the Company set forth above (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class American Depositary Shares, each representing two Class A ordinary shares Class A Ordinary Shares, par value US$0.0001 per share* Trade symbol CANG N/A Name of each exchange on which registered New York Stock Exchange New York Stock Exchange * Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares. Securities registered or to be registered pursuant to Section 12(g) of the Act None (Title of Class) Table of Contents Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act None (Title of Class) Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 144,857,131 Class A ordinary shares were outstanding as of December 31, 2023 72,978,677 Class B ordinary shares were outstanding as of December 31, 2023 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes☐ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Emerging growth company ☐ If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐ † The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark which basis of accounting the registration has used to prepare the financial statements included in this filing: U.S. GAAP ☒ International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ Other ☐ If “Other” has been checked in response to the previous question, indicate by check mark which consolidated financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). ☐ Yes ☒ No (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No Table of Contents PART I. Table of Contents IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ITEM 1. OFFER STATISTICS AND EXPECTED TIMETABLE ITEM 2. KEY INFORMATION ITEM 3. ITEM 4. INFORMATION ON THE COMPANY ITEM 4A. UNRESOLVED STAFF COMMENTS ITEM 5. ITEM 6. ITEM 7. ITEM 8. ITEM 9. ITEM 10. ADDITIONAL INFORMATION ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES OPERATING AND FINANCIAL REVIEW AND PROSPECTS DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS FINANCIAL INFORMATION THE OFFER AND LISTING PART II. CONTROLS AND PROCEDURES [RESERVED] ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS ITEM 15. ITEM 16. ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT ITEM 16B. CODE OF ETHICS ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT ITEM 16G. CORPORATE GOVERNANCE ITEM 16H. MINE SAFETY DISCLOSURE ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS ITEM 16J. ITEM 16K. CYBERSECURITY INSIDER TRADING POLICY PART III. ITEM 17. ITEM 18. ITEM 19. FINANCIAL STATEMENTS FINANCIAL STATEMENTS EXHIBITS i Page 4 4 4 4 63 96 97 116 127 127 128 129 136 137 140 140 140 140 141 141 141 141 141 142 142 143 143 143 143 143 146 146 146 146 Table of Contents CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-F Except where the context otherwise requires, references in this annual report to: ● “ADSs” are to our American depositary shares, each of which represents two Class A ordinary shares, and “ADRs” are to the American depositary receipts that evidence our ADSs; ● “CAGR” are to compound annual growth rate; ● “Can Gu Long” are to Can Gu Long (Shanghai) Information Technology Consultation Service Co., Ltd., a company established under the law of the PRC and our wholly-owned subsidiary; ● “car buyers” are to individuals who have purchased a car; ● “China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Taiwan, the Hong Kong Special Administrative Region and the Macao Special Administrative Region; ● “consolidated affiliate” are to a subsidiary of the Group’s consolidated VIEs, namely Shanghai Cango and Shanghai Yungu; ● “dealers” are to points of sale that are licensed to engage in retail automobile transactions; ● “Didi Chuxing” are to DiDi Global Inc., a company organized under the laws of the Cayman Islands, and its affiliates; ● “exposure at risk” are to the amount of outstanding principal of specified financing transactions as of a specified date; ● “financial institutions” are to (i) banks and (ii) financing lease companies licensed by the Ministry of Commerce of the PRC; ● “financing transactions” are to loans and financing leases; financing transactions facilitated through Cango platform include financing transactions funded by financial institutions and financing transactions funded by Shanghai Chejia; the “amount of financing transactions” refer to the principal amount of financing transactions facilitated through Cango platform in a specified period; ● “lower-tier cities” are to cities in China that are not tier-one and tier-two cities; ● “M1+ overdue ratio” are to (i) exposure at risk relating to financing transactions for which any installment payment is 30 to 179 calendar days past due as of a specified date, divided by (ii) exposure at risk relating to all financing transactions which remain outstanding as of such date, excluding amounts of outstanding principal that are 180 calendar days or more past due; ● “M3+ overdue ratio” are to (i) exposure at risk relating to financing transactions for which any installment payment is 90 to 179 calendar days past due as of a specified date, divided by (ii) exposure at risk relating to all financing transactions which remain outstanding as of such date, excluding amounts of outstanding principal that are 180 calendar days or more past due; ● “MYbank” are to Zhejiang E-Commerce Bank Co., Ltd., a limited liability company established under the laws of the PRC; ● “OEMs” are to automotive original equipment manufacturer; ● “ordinary shares” are to our Class A ordinary shares, par value US$0.0001 per share, and Class B ordinary shares, par value US$0.0001 per share; ● “registered dealers” are to dealers who are registered with Cango platform; ● “RMB” or “Renminbi” are to the legal currency of China; 1 Table of Contents ● “Shanghai Cango” are to Shanghai Cango Investment and Management Consultation Service Co., Ltd., a company established under the law of the PRC and one of the Group’s consolidated VIEs; the Group primarily conducts its operations through the consolidated VIEs and their respective subsidiaries; ● “Shanghai Chejia” are to Shanghai Chejia Financing Lease Co., Ltd. (formerly translated as “Shanghai Autohome Financing Lease Co., Ltd.”), a company organized under the law of the PRC and the Group’s consolidated affiliate; ● “Shanghai Yungu” are to Shanghai Yungu Haoche Electronic Technology Co., Ltd, a company organized under the law of the PRC and one of the Group’s consolidated VIEs; ● “the Group” are to Cango Inc., Shanghai Cango, Shanghai Yungu and their respective subsidiaries; ● “tier-one and tier-two cities” refer to (i) tier-one cities in China, namely Beijing, Shanghai, Guangzhou and Shenzhen and (ii) tier-two cities in China, namely (a) Tianjin and Chongqing, (b) the provincial capital cities except for Guangzhou, Yinchuan, Xining and Lhasa and (c) several prefecture-level cities, namely, Qingdao, Foshan, Dalian, Ningbo, Suzhou, Wuxi, Xiamen, Dongguan and Wenzhou; ● “US$,” “U.S. dollars,” or “dollars” are to the legal currency of the United States; ● “VIE” are to variable interest entity; ● “we,” “us,” “our company” and “our” are to Cango Inc. and/or its subsidiaries, as the context requires; Cango Inc. is not a Chinese operating company but a Cayman Islands holding company with operations primarily conducted through contractual arrangements with the consolidated VIEs based in China, namely Shanghai Cango and Shanghai Yungu, and the respective subsidiaries of Shanghai Cango and Shanghai Yungu; and ● “WeBank” are to Shenzhen Qianhai WeBank Co., Ltd., a limited liability company established under the laws of the PRC. The translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report were made at a rate of RMB7.0999 to US$1.00, the exchange rates set forth in the H.10 statistical release of the Federal Reserve Board on December 29, 2023. We make no representation that the Renminbi or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On April 12, 2024, the noon buying rate for Renminbi was RMB7.2374 to US$1.00. We listed our ADSs on the New York Stock Exchange under the symbol “CANG” on July 26, 2018. 2 Table of Contents FORWARD-LOOKING INFORMATION This annual report on Form 20-F contains statements of a forward-looking nature. All statements other than statements of historical facts are forward-looking statements. These forward-looking statements are made under the “safe harbor” provision under Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and as defined in the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. These forward-looking statements relate to, among others: ● our goal and strategies; ● our expansion plans; ● our future business development, financial condition and results of operations; ● our expectations regarding demand for, and market acceptance of, our solutions and services; ● our expectations regarding keeping and strengthening our relationships with dealers, financial institutions, insurance brokers and companies, car buyers and other platform participants; and ● general economic and business conditions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. You should read these statements in conjunction with the risks disclosed in “Item 3. Key Information—D. Risk Factors” of this annual report and other risks outlined in our other filings with the Securities and Exchange Commission, or the SEC. Moreover, we operate in an emerging and evolving environment. New risks may emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of such risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we have referred to in this annual report completely and with the understanding that our actual future results may be materially different from what we expect. 3 Table of Contents PART I. ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not Applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not Applicable. ITEM 3. KEY INFORMATION Our Corporate Structure Cango Inc. is not a Chinese operating company but a Cayman Islands holding company with operations mainly conducted through Shanghai Cango and Shanghai Yungu, or the consolidated VIEs, and their subsidiaries. As we engage in value-added telecommunications services, or VATS, namely value-added online services for platform participants, we currently conduct business operations in China through the consolidated VIEs, and rely on contractual arrangements among Can Gu Long, the consolidated VIEs and their shareholders to control the business operation of the consolidated VIEs. Investors in our ADSs do not hold equity interest in the Group’s operating entities in China, but instead hold an equity interest in Cango Inc., a Cayman Islands holding company. As used in this annual report, “we,” “us,” “our company” and “our” are to Cango Inc. and/or its subsidiaries, “the Group” refers to Cango Inc., Shanghai Cango, Shanghai Yungu and their respective subsidiaries, and “consolidated affiliate” refers to a subsidiary of the consolidated VIEs. We control the consolidated VIEs through a series of contractual arrangements with the consolidated VIEs, their shareholders and Can Gu Long, as described in more detail below, which collectively enables us to: ● receive substantially all the economic benefits of our consolidated VIEs; and ● have an exclusive option to purchase all or part of the equity interests in the equity interest in or all or part of the assets of the consolidated VIEs when and to the extent permitted by PRC law. These contractual arrangements include equity interest pledge agreements, power of attorney, exclusive business cooperation agreement and exclusive option agreement. As a result of the contractual arrangements, we are considered the primary beneficiary of these companies for accounting purposes, and we have consolidated the financial results of these companies in the Group’s consolidated financial statements. However, we do not own equity interest in the consolidated VIEs. Furthermore, Cango Inc., as our holding company, does not conduct operating activities. We are subject to risks associated with our contractual arrangements with the consolidated VIEs. Our company and its investors may never have a direct ownership interest in the businesses that are conducted by the consolidated VIEs. The contractual arrangements may not be as effective as direct ownership in providing us with control over the consolidated VIEs. If the consolidated VIEs or their shareholders fail to perform their respective obligations under these contractual arrangements, we could be limited in our ability to enforce these contractual arrangements. There are very few precedents and little formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law. If we are unable to maintain control, we would not be able to continue to consolidate the financial results of these entities in the Group’s financial statements. See “—D. Risk Factors— Risks Relating to Our Corporate Structure—We rely on contractual arrangements with our consolidated VIEs and their shareholders to operate the Group’s business, which may not be as effective as direct ownership in providing operational control and otherwise have a material adverse effect as to the Group’s business” and “—D. Risk Factors—Risks Relating to Our Corporate Structure—The shareholders of our consolidated VIEs may have potential conflicts of interest with us, which may materially and adversely affect the Group’s business and financial condition.” 4 Table of Contents There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with the consolidated VIEs and their nominee shareholders. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or the consolidated VIEs are found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have certain discretion in accordance with the applicable laws and regulations to take action in dealing with such violations or failures. The majority of the Group’s assets, along with several material licenses to conduct business in China, are held by the consolidated VIEs and their subsidiaries. In addition, the majority of the Group’s revenues are generated by the consolidated VIEs and their respective subsidiaries. An event that results in the deconsolidation of the consolidated VIEs would have a material effect on the Group’s operations and cause the value of the ADSs of our company to diminish substantially or even become worthless. See “—D. Risk Factors—Risks Relating to Our Corporate Structure—If the PRC government deems that the contractual arrangements in relation to our consolidated VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.” The Group also faces various legal and operational risks and uncertainties associated with being based in or having its operations primarily in China and the country’s complex and evolving laws and regulations. For example, the Group faces risks associated with regulatory approvals on offerings conducted overseas by and foreign investment in China-based issuers, the use of consolidated VIEs, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact the Group’s ability to conduct certain businesses, accept foreign investments, or list on a U.S. or other foreign exchange outside of China. These risks could result in a material adverse change in the Group’s operations and the value of our ADSs, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to significantly decline. See “—D. Risks Factors— Risks Relating to Doing Business in China.” Holding Foreign Companies Accountable Act The Holding Foreign Companies Accountable Act, as amended, or the HFCA Act, was signed into law on December 18, 2020 and amended pursuant to the Consolidated Appropriations Act, 2023 on December 29, 2022. Under the HFCA Act and the rules issued by the SEC and the U.S. Public Company Accounting Oversight Board, or the PCAOB, thereunder, if we have retained a registered public accounting firm to issue an audit report where the registered public accounting firm has a branch or office that is located in a foreign jurisdiction and the PCAOB has determined that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction, the SEC will identify us as a “covered issuer”, or SEC-identified issuer, shortly after we file with the SEC a report required under the Securities Exchange Act of 1934, or the Exchange Act (such as our annual report on Form 20-F), that includes an audit report issued by such accounting firm; and if we were to be identified as a SEC-identified issuer for two consecutive years, the SEC would prohibit our securities (including our shares or ADSs) from being traded on a national securities exchange or in the over-the-counter trading market in the United States. In December 2021, the PCAOB made its determinations, or the 2021 determinations, pursuant to the HFCA Act that it was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China or Hong Kong, including our auditor, Ernst & Young Hua Ming LLP. After we filed our annual report on Form 20-F for the fiscal year ended December 31, 2021 that included an audit report issued by Ernst & Young Hua Ming LLP on April 26, 2022, the SEC conclusively identified us as an SEC- identified issuer on May 26, 2022. Following the Statement of Protocol signed between the PCAOB and the China Securities Regulatory Commission and the Ministry of Finance of the PRC in August 2022 and the on-site inspections and investigations conducted by the PCAOB staff in Hong Kong from September to November 2022, the PCAOB Board voted in December 2022 to vacate the previous 2021 determinations, and as a result, our auditor, Ernst & Young Hua Ming LLP, was no longer a registered public accounting firm that the PCAOB was unable to inspect or investigate completely as of the date of our annual report for the fiscal year ended December 31, 2022, or the 2022 annual report, and we were not identified as a SEC-identified issuer in 2023 after we filed the 2022 annual report. On November 30, 2023, the PCAOB announced that it had completed its inspections on registered public accounting firms headquartered in mainland China and Hong Kong for 2023 with the complete access required under the HFCA Act. As such, we do not expect to be identified as a SEC-identified issuer in 2024 either. However, the PCAOB may change its determinations under the HFCA Act at any point in the future. See “—D. Risks Factors—Risks Relating to Doing Business in China—If the PCAOB determines that it is unable to inspect or investigate completely our auditor at any point in the future, our ADSs may be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, as amended, or the HFCA Act, and any such trading prohibition on our ADSs or threat thereof may materially and adversely affect the price of our ADSs and value of your investment.” 5 Table of Contents PRC Licenses, Permissions and Approvals We conduct business operations mainly through the consolidated VIEs and their respective subsidiaries in China. Our operations in China are governed by PRC laws and regulations. The Group has obtained all requisite permissions and approvals that are material to the Group’s operations in China as of the date hereof, including (i) the VATS license held by Shanghai Yungu to conduct the internet content provider (ICP) services and online data and transaction processing services, (ii) the VATS license held by Shanghai Yungu to conduct the service provider (SP) services, (iii) the filing with Shanghai Administration for Market Regulation by Shanghai Yungu to conduct used car transaction services, (iv) the filing with Shanghai Municipal Commission of Commerce by Shanghai Yungu to conduct auction business, (v) the governmental approval for, and the license held by, Cango Financing to conduct financing guarantee service, and (vi) the license held by Fushun Insurance Brokerage Co., Ltd. to conduct insurance brokerage service. See “Item 4. Information on the Company—B. Business Overview—PRC Licenses, Permits and Approvals” for more details. In connection with our previous issuance of securities to foreign investors, under current PRC laws, regulations and regulatory rules, as of the date of this annual report, we, our subsidiaries, the consolidated VIEs and consolidated affiliates, (i) have not received any requirement from competent PRC governmental authorities to obtain permissions from the China Securities Regulatory Commission, or the CSRC, (ii) have not received any requirement from competent PRC governmental authorities to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, and (iii) have not received or were denied such requisite permissions by any PRC authority. However, the PRC government has promulgated new laws, regulations or relevant drafts and indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. For more detailed information, see “Item 4. Information on the Company—B. Business Overview—Regulations—M&A Rules and Overseas Listings” and “Item 4. Information on the Company—B. Business Overview—Regulations—Regulation Related to Cybersecurity, Internet Information Security and Privacy Protection.” According to these new laws and regulations and the draft laws and regulations if enacted in their current forms, in connection with our future offshore offering activities, we may be required to fulfill filing and reporting procedures with or obtain approval from the CSRC, and may be required to go through cybersecurity review by the PRC authorities. However, given the uncertainties regarding interpretation, implementation and enforcement of relevant rules and regulations, as well as other factors beyond our control, we cannot assure you that we have obtained or will be able to obtain and maintain all requisite licenses, permits, filings and registrations. See “—D. Risk Factors—Risks Relating to Our Industry and Business—If the Group is unable to safeguard the security of the confidential information of car buyers, dealers or third parties it collaborates with and adapt to the relevant regulatory framework as to protection of such information, the Group’s business and operations may be adversely affected” and “—D. Risk Factors —Risks Relating to Doing Business in China—Changes and developments in the PRC legal system and the interpretation and enforcement of PRC laws, rules and regulations may subject us to uncertainties.” Cash Transfers within Our Corporate Structure Cango Inc. is a Cayman Islands holding company with operations mainly conducted through the consolidated VIEs and their respective subsidiaries. We have established controls and procedures for cash flows within the Group. Each transfer of cash between our Cayman Islands holding company, a subsidiary, the consolidated VIEs or the consolidated affiliates is subject to internal approval. For the years ended December 31, 2021, 2022 and 2023, our company did not provide any capital contribution to our subsidiaries. For the years ended December 31, 2021, 2022 and 2023, our company provided loans of US$21 million, nil and US$6 million, net, respectively, to our subsidiaries, and received repayments of nil, US$63 million and nil, net, respectively. For the years ended December 31, 2021, 2022 and 2023, our company paid cash dividends of RMB955 million, RMB1,871 million and nil to our shareholders and ADS holders. For the years ended December 31, 2021, 2022 and 2023, there were no other material assets transferred, and there were no dividends or distributions between the Company, the Company’s subsidiaries and the consolidated VIEs for the periods presented. For the years ended December 31, 2021, 2022 and 2023, the consolidated VIEs and the consolidated affiliates provided capital contributions of RMB200 million, RMB74 million and nil, respectively, to other subsidiaries of the consolidated VIEs. For the years ended December 31, 2021, 2022 and 2023, the consolidated VIEs and the consolidated affiliates provided loans of RMB365 million, RMB451 million and nil, respectively, to other subsidiaries of the consolidated VIEs. When the consolidated VIEs declare and distribute profits to us, such payments will be subject to withholding tax, which will increase our tax liability and reduce the amount of cash available to our company. 6 Table of Contents Restrictions on Transfer of Funds The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Under PRC laws and regulations, our PRC subsidiary is subject to certain restrictions with respect to paying dividends or otherwise transferring any of its net assets offshore to us. Relevant PRC statutory laws and regulations permit payments of dividends by the VIEs and subsidiaries of the VIEs incorporated in PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In particular, under PRC laws, rules and regulations, our PRC subsidiary is required to set aside at least 10% of its net income each year to fund certain statutory reserves until the cumulative amount of such reserves reaches 50% of its registered capital. These reserves, together with the registered capital, are not distributable as cash dividends. In addition, the consolidated results of operations reflected in the consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors of the subsidiary. The PRC entities are also subject to similar statutory reserve requirements. These reserves can only be used for specific purposes and are not transferable to the Company in the form of loans, advances or cash dividends. Amounts restricted that include paid in capital and statutory reserve funds, as determined pursuant to PRC accounting standards and regulations, were RMB5,621 million and RMB4,806 million (US$677 million) as of December 31, 2022 and 2023, respectively. Furthermore, we are subject to restrictions on currency exchange. The Renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, including loans we may secure from our PRC subsidiary. Currently, our PRC subsidiary may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, the SAFE and other relevant PRC governmental authorities. Since a significant amount of our future revenues and cash flow will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize cash generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders, including holders of our ADSs, and may limit our ability to obtain foreign currency through debt or equity financing for our onshore subsidiaries. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to us. For certain Cayman Islands, PRC and United States federal income tax considerations in connection with an investment in our ADSs and Class A ordinary shares, see “Item 10. Additional Information—E. Taxation.” Summary Financial Information Related to the Consolidated VIEs The following condensed consolidated financial statement information presents information related to Cango Inc., or the Parent, which is a Cayman Islands holding company, the consolidated VIEs and our subsidiaries as of December 31, 2022 and 2023 and for 2021, 2022 and 2023. 7 Table of Contents The following tables present the condensed consolidated schedule of results of operation data for the periods indicated. For the year ended December 31, 2023 Subsidiaries (other than WFOE) VIEs Eliminating Consolidated adjustments total Parent WFOE Third-party revenues Intra-Group revenues Total revenues Third-party costs and expenses Intra-Group costs and expenses Total costs and expenses Operating (loss)/income Income/(loss) from non-operations Share of loss of subsidiaries Contractual interests in VIEs and VIEs’ subsidiaries(1) Net (loss)/income Third-party revenues Intra-Group revenues Total revenues Third-party costs and expenses Intra-Group costs and expenses Total costs and expenses Operating (loss)/income Income/(loss) from non-operations Share of loss of subsidiaries Contractual interests in VIEs and VIEs’ subsidiaries(1) Net (loss)/income — — — (6,435) — (6,435) (6,435) 61,500 (5,408) (87,530) (37,873) 43 — 43 (2) — (2) 41 2,189 — — 2,230 (RMB in thousands) — — — (16,822) — (16,822) (16,822) 9,184 — — (7,638) 1,701,876 — 1,701,876 (1,752,411) — (1,752,411) (50,535) (36,995) — — (87,530) — — — — — — — — 5,408 87,530 92,938 1,701,919 — 1,701,919 (1,775,670) — (1,775,670) (73,751) 35,878 — — (37,873) For the year ended December 31, 2022 Parent WFOE WFOE) VIEs Subsidiaries (other than — — — (7,443) — (7,443) (7,443) 37,172 (9,705) (1,131,232) (1,111,208) 37 — 37 (2) — (2) 35 6,356 — — 6,391 (RMB in thousands) — — — (20,065) — (20,065) (20,065) 3,969 — — (16,096) 1,980,416 — 1,980,416 (2,900,087) — (2,900,087) (919,671) (211,561) — — (1,131,232) Eliminating Consolidated adjustments total — — — — — — — — 9,705 1,131,232 1,140,937 1,980,453 — 1,980,453 (2,927,597) — (2,927,597) (947,144) (164,064) — — (1,111,208) For the year ended December 31, 2021 Subsidiaries (other than WFOE) VIEs Eliminating Consolidated adjustments total Parent WFOE Third-party revenues Intra-Group revenues Total revenues Third-party costs and expenses Intra-Group costs and expenses Total costs and expenses Operating (loss)/income (Loss)/income from non-operations Share of loss of subsidiaries Contractual interests in VIEs and VIEs’ subsidiaries(1) Net (loss)/income — — — (10,080) — (10,080) (10,080) (21,063) (15,118) 37,717 (8,544) 28 — 28 (1) — (1) 27 (262) — — (235) (RMB in thousands) — — — (18,054) — (18,054) (18,054) 3,171 — — (14,883) 3,921,688 — 3,921,688 (3,916,831) — (3,916,831) 4,857 32,860 — — 37,717 — — — — — — — — 15,118 (37,717) (22,599) 3,921,716 — 3,921,716 (3,944,966) — (3,944,966) (23,250) 14,706 — — (8,544) Note: (1) It represents the primary beneficiary’s share of loss generated from the VIEs and their subsidiaries. 8 Table of Contents The following tables present the condensed consolidated schedule of balance sheets data as of the dates indicated. As of December 31, 2023 Subsidiaries Parent WFOE (other than WFOE) VIEs (RMB in thousands) Eliminating adjustments Consolidated total Cash and cash equivalents Restricted cash - current Other current assets Total current assets Restricted cash – non-current Investment in subsidiaries Contractual interest in the consolidated VIEs Other non-current assets Total non-current assets Amounts due from the parent Amounts due from subsidiaries (other than WFOE) Amounts due from WFOE Amounts due from VIEs and VIEs’ subsidiaries Amounts due from group companies Total assets Amounts due to the parent Amounts due to subsidiaries (other than WFOE) Amounts due to WFOE Amounts due to VIEs and VIEs’ subsidiaries Amounts due to group companies Other current liabilities Other non-current liabilities Total liabilities 681,383 — 366,659 1,048,042 — 50,291 2,616,729 — 2,667,020 — 423,885 — — 423,885 4,138,947 — — — — — 321,970 — 321,970 1,225 500 77,979 79,704 — — — — — — — — 45 45 79,749 — — — 1,561 1,561 355 — 1,916 9 44,572 293,424 — 167,300 211,872 — — — 722 722 — 675,767 — — 675,767 888,361 423,885 675,767 — — 1,099,652 689 42 1,100,383 1,683,842 567,135 2,544,401 583,380 — — 180,489 763,869 — — 1,561 — 1,561 3,309,831 — — 45 — 45 454,729 53,849 508,623 — 1,020,604 1,684,342 — 1,179,073 — 3,884,019 — 583,380 — — (50,291) — (2,616,729) 181,211 — 764,591 (2,667,020) — — (1,099,652) (1,561) (45) (1,101,258) (3,768,278) (423,885) (675,767) (45) (1,561) (1,101,258) — — (1,101,258) — — — — 4,648,610 — — — — — 777,743 53,891 831,634 Table of Contents Cash and cash equivalents Restricted cash - current Other current assets Total current assets Restricted cash – non-current Investment in subsidiaries Contractual interest in the consolidated VIEs Other non-current assets Total non-current assets Amounts due from the parent Amounts due from subsidiaries (other than WFOE) Amounts due from WFOE Amounts due from VIEs and VIEs’ subsidiaries Amounts due from group companies Total assets Amounts due to the parent Amounts due to subsidiaries (other than WFOE) Amounts due to WFOE Amounts due to VIEs and VIEs’ subsidiaries Amounts due to group companies Other current liabilities Other non-current liabilities Total liabilities As of December 31, 2022 Subsidiaries Parent WFOE (other than WFOE) VIEs (RMB in thousands) Eliminating adjustments Consolidated total 85,823 — 1,154,357 1,240,180 — 54,820 2,978,731 — 3,033,551 — 402,664 — — 402,664 4,676,395 — 34,503 — — 34,503 319,983 — 354,486 1,810 — 72,406 74,216 — — — 166 166 — — — 40 40 74,422 — — — 351 351 — — 351 22,662 — 147,116 169,778 — — — 1,452 1,452 34,503 268,622 152,689 3,564,859 3,986,170 750,877 — — 755,989 1,506,866 — — — — — — (54,820) (2,978,731) 37,424 (2,996,127) (34,503) 378,917 152,689 4,938,738 5,470,344 750,877 — — 795,031 1,545,908 — 656,474 — — 690,977 862,207 402,664 656,474 — — 1,059,138 18 1,433 1,060,589 — 351 — 351 5,493,387 — — 40 — 40 2,211,067 162,008 2,373,115 (1,059,138) (351) (40) (1,094,032) (4,090,159) (402,664) (690,977) (40) (351) (1,094,032) (166) — (1,094,198) — — — — 7,016,252 — — — — — 2,530,902 163,441 2,694,343 10 Table of Contents The following tables present the condensed consolidated schedule of cash flow data for the periods indicated. For the year ended December 31, 2023 Parent WFOE Subsidiaries (other than WFOE) VIEs Eliminating adjustments Consolidated total (RMB in thousands) 60,802 2,036 (13,089) 969,040 7,237 1,026,026 739,238 (5,467) (20,070) 1,369,021 41,976 2,124,698 (244,177) — 55,724 (949,602) (55,724) (1,193,779) For the year ended December 31, 2022 Parent WFOE Subsidiaries (other than WFOE) VIEs Eliminating adjustments Consolidated total (RMB in thousands) 44,219 (116) (27,601) (599,053) 15,166 (567,385) 1,028,108 (6,097) 377,503 1,084,633 (524,618) 1,959,529 (1,969,849) — (370,800) (1,020,360) 370,800 (2,990,209) For the year ended December 31, 2021 Parent WFOE Subsidiaries (other than WFOE) VIEs Eliminating adjustments Consolidated total (RMB in thousands) (10,186) 1,706 (9,396) (374,887) (11,628) (404,391) 2,150,227 (8,218) (354,898) 744,833 129,279 2,661,223 (1,391,602) - 119,353 (554,832) (119,353) (1,946,434) Net cash provided by/(used in) operating activities Net cash provided by/(used in) investing activities Net cash (used in)/provided by financing activities Net cash provided by/(used in) operating activities Net cash provided by/(used in) investing activities Net cash (used in)/provided by financing activities Net cash (used in)/provided by operating activities Net cash provided by/(used in) investing activities Net cash (used in)/provided by financing activities A. [Reserved] B. Capitalization and Indebtedness Not Applicable. C. Reasons for the Offer and Use of Proceeds Not Applicable. D. Risk Factors Summary of Risk Factors Investing in our ADSs involves significant risks. You should carefully consider all of the information in this annual report before making an investment in the ADSs. Below please find a summary of the principal risks we face, organized under relevant headings: Risks Relating to Our Industry and Business Risks and uncertainties relating to our business and industry include, but are not limited to, the following: ● we have a limited operating history in an emerging market. Our historical financial and operating performance may not be indicative of our future prospects and results of operations; 11 Table of Contents ● the Group may not be able to successfully expand or maintain or effectively manage relationships with existing network of dealers; ● OEMs may not continue to participate on Cango platform; ● failure to sell cars owned by the Group or facilitate the sale of cars owned by dealers may have a material and adverse effect on the Group’s business, financial condition and results of operations; ● uncertainties relating to the growth of the Chinese automotive and mobility markets in general could adversely affect the Group’s business and results of operations; ● the Group operates in a market where the credit infrastructure is still at an early stage of development. Information received from third parties concerning a prospective car buyer may be outdated, incomplete, or inaccurate or even fraudulent, which may compromise the accuracy of the Group’s credit assessment and lead to higher overdue ratios; and ● the Group’s risk management system may not be able to exhaustively assess or mitigate all risks to which the Group is exposed. Risks Relating to Our Corporate Structure Risks and uncertainties relating to our corporate structure include, but are not limited to, the following: ● we rely on contractual arrangements with our consolidated VIEs and their shareholders to operate the Group’s business, which may not be as effective as direct ownership in providing operational control and otherwise have a material adverse effect as to the Group’s business; ● any failure by our consolidated VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business; ● the shareholders of our consolidated VIEs may have potential conflicts of interest with us, which may materially and adversely affect the Group’s business and financial condition; ● if the PRC government deems that the contractual arrangements in relation to our consolidated VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations; and ● contractual arrangements in relation to our consolidated VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that our consolidated VIEs owe additional taxes, which could negatively affect the Group’s financial condition and the value of your investment. Risks Relating to Doing Business in China We are subject to risks and uncertainties relating to doing business in China in general, including, but are not limited to, the following: ● changes and developments in the political and economic policies of the PRC government may materially and adversely affect the Group’s business, financial condition and results of operations and may result in our inability to sustain the Group’s growth and expansion strategies; ● changes and developments in the PRC legal system and the interpretation and enforcement of PRC laws, rules and regulations may subject us to uncertainties; 12 Table of Contents ● the M&A Rules and certain other PRC regulations establish required procedures for acquisitions conducted by foreign investors that could make it more difficult for the Group to grow through acquisitions; ● uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and its implementing rules and how they may impact our business, financial condition and results of operations; and ● PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary or limit our PRC subsidiary’s ability to increase its registered capital or distribute profits. Risks Relating to Our ADSs Risks relating to our ADSs, include, but not limited to, the following: ● we received a notice of non-compliance with continued listing standards from the NYSE for our ADSs. If we are unable to avoid the delisting of our ADSs from the NYSE, it could have a substantial effect on the trading price and liquidity of our ADSs; ● the trading price of our ADSs may be volatile, which could result in substantial losses to you; ● if securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSs and trading volume could decline; ● we may not pay additional cash dividends, so you may not receive any return on your investment unless you sell your Class A ordinary shares or ADSs for a price greater than that which you paid for them; and ● substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline. Risks Relating to Our Industry and Business We have a limited operating history in an emerging market. Our historical financial and operating performance may not be indicative of our future prospects and results of operations. The automotive and mobility markets in the PRC are relatively new and at an early stage of development. Such markets have undergone significant volatility in the past few years, and such pattern may continue in the future. As part of the Group’s business, the Group mainly offers automobile trading solutions and after-market services facilitation to various participants in the automotive transaction value chain, including dealers, insurance brokers and companies, car buyers and other industry participants. To a lesser extent, the Group also provides during-sale automotive financing facilitation to financial institutions and car buyers. Helping more industry participants to recognize the value of the Group’s services is critical to increase the number and amount of automobile trading transactions and insurance transactions on Cango platform and to the success of the Group’s business. 13 Table of Contents However, we may not have sufficient experience to address the risks to which companies operating in new or rapidly evolving markets may be exposed. We have limited experience in several aspects of the Group’s business operation, such as automobile trading solutions, after-market services facilitation and the development of long-term relationships with platform participants, such as dealers, financial institutions, insurance brokers and companies and car buyers. The laws and regulations governing the automotive and mobility industry in the PRC are still at a nascent stage and subject to further changes and interpretation. As the market, the regulatory environment or other conditions evolve, the Group’s existing solutions and services may not continue to deliver the expected business results. As the Group’s business develops or in response to competition, the Group may continue to introduce new services or make adjustments to existing services, credit assessment model, business model or operations in general. For example, based on its observation of the market, the Group made a business transition in 2022 to focus on automobile trading solutions and after-market services facilitation while scaling down its automotive financing facilitation services. Currently, the Group cooperates with third-party financial institutions to fund existing loans facilitated through Cango platform. In the future, the Group may decide to facilitate loans which do not require it to bear credit risks or provide guarantees. In addition, for the Group’s automobile trading solutions, while it used to provide new car transaction services through Cango Haoche app and used car transaction services through Cango U-car app, it merged Cango Haoche’s services into Cango U-car platform in the fourth quarter of 2023 to cater to the rapidly disappearing boundary between new car and used car sales channels. The Group’s abilities to retain dealers, financial institutions, insurance brokers and companies and other platform participants and to attract new platform participants are also critical to its business. Any significant change to the business model or failure to achieve the intended business results may have a material and adverse impact on the Group’s financial condition and results of operations. Therefore, it may be difficult to effectively assess the Group’s future prospects. You should consider the Group’s business and prospects in light of the risks and challenges the Group encounters or may encounter given the rapidly-evolving market in which it operates and its limited operating history. These risks and challenges include the Group’s ability to, among other things: ● offer automobile trading solutions to a growing number of dealers; ● maintain and enhance the relationships and business collaboration with dealers, insurance brokers and companies and other platform participants; ● charge competitive service fees to platform participants while driving the growth and profitability of business; ● maintain low overdue ratios of financing transactions facilitated through Cango platform; ● comply with complex and evolving laws and regulations; ● improve operational efficiency; ● attract, retain and motivate talented employees, particularly sales and marketing, risk management as well as research and development personnel to support its business operations; ● enhance technology infrastructure to support business operations and maintain system security and the confidentiality of the information provided and collected across the system; ● navigate economic conditions and fluctuations; ● successfully implement business strategies and offer new services, such as automobile trading solutions; and ● defend the Group against legal and regulatory actions, such as actions involving intellectual property or data privacy claims. 14 Table of Contents The Group may not be able to successfully expand or maintain or effectively manage relationships with existing network of dealers. At its peak, the Group’s network included over 50,000 registered dealers across China for automotive financing solutions. As of December 31, 2023, 1,801 dealers were registered on Cango U-car app for automobile trading solutions. The Group plans to expand existing dealer network, including by further penetrating existing markets and expanding geographic coverage. As China is a large and diverse market, business practices and demands may vary significantly by region and the experience in the markets in which the Group currently operates may not be applicable in other parts of China. As a result, the Group may not be able to leverage such experience to expand dealer network into other parts of China. Furthermore, the efforts to expand into new geographical markets and attract new dealers to Cango platform may impose considerable burden on the sales, marketing and general managerial resources. If the Group is unable to manage these expansion efforts effectively, if these expansion efforts take longer than planned or if the costs for these efforts exceed expectations, the Group’s results of operations may be materially and adversely affected. The relationships with existing registered dealers are not exclusive, and there can be no assurance that they will maintain their level of participation on Cango platform. Dealers may find the amount of commissions currently offered to be unattractive. The Group also offers various solutions and services to dealers, including operating an automobile trading platform to source cars for dealers, facilitate car trading amongst dealers and source car buyers online to facilitate purchases from existing registered dealers. However, the registered dealers may not utilize these solutions and services or such solutions and services may not bring the expected benefits to dealers. Dealer participation on Cango platform may also be affected by various factors that are beyond our control, including the decrease in popularity of the car models offered by these registered dealers. A decrease in the number of car buyers referred by these registered dealers or a reduced level of dealers’ utilization of other solutions and services could materially and adversely affect our business, financial condition and results of operations. OEMs may not continue to participate on Cango platform. As part of the automobile trading solutions, the Group purchases cars from OEMs to facilitate the sale of such cars to its registered dealers. We believe such collaboration with OEMs makes Cango platform more attractive to car buyers and dealers, thereby enhancing the network effect. However, there can be no assurance that the Group will be able to build and grow the relationships with OEMs. OEMs may prefer to collaborate with other automotive transaction service platforms, decide not to sell any cars on acceptable terms or at all or limit the number or types of cars that are sold to the Group in connection with the automobile trading solutions. Failure to build and grow the relationships with OEMs could materially and adversely affect the Group’s business, financial condition and results of operations. Failure to sell cars owned by the Group or facilitate the sale of cars owned by dealers may have a material and adverse effect on the Group’s business, financial condition and results of operations. The Group started to significantly expand its automobile trading solutions in the third quarter of 2020. In connection with our car sourcing services, the Group purchases new cars from OEMs based on orders from dealers. In terms of used car trading business, the sources of used cars include cars disposed by individual car buyers, such as cars collected as part of delinquency asset management process, as well as cars used as collaterals and later collected and disposed by financial institutions. The Group prices new cars based on the price suggested by OEMs and adjust it based on market demands and prices used cars based on the transaction data associated with providing automotive financing solutions and transaction facilitation services. 15 Table of Contents The Group has limited experience in the purchase of cars for sale to dealers and facilitate transactions among dealers, and there is no assurance that the Group will be able to do so effectively. Demand for the cars purchased could change significantly between the time an order is placed by a dealer and the expected time of sale to the dealer. Demand may be affected by the number and conditions of used cars, new car launches, product defects, changes in consumer preference and other factors. For the Group’s car sourcing services, even though the Group requires dealers to pay deposits when ordering cars, dealers may choose to forfeit deposits and decline to complete the purchases. As a result, the Group faces inventory risks in connection with the cars purchased by it, including the risk of inventory obsolescence, a decline in values, and significant inventory write-downs or write-offs. The Group may also face increasing costs associated with the storage of these cars. Considering the inventory risks and related operational risks, the Group has limited the size of its car sourcing services beginning from the second quarter of 2023. As a result, the Group has experienced a significant decrease in the transaction value of car sourcing services, which has led to and may continue leading to a significant decrease in total transaction value and revenue derived from automobile trading solutions. In addition, as the Group purchases cars from OEMs to facilitate the sale of such cars to its registered dealers, a scale-down of such purchase may result in losing OEMs and dealers which cooperate with the Group. Failure to build and grow the relationships with OEMs and dealers could materially and adversely affect the Group’s business, financial condition and results of operations. Please see “—The Group may not be able to successfully expand or maintain or effectively manage relationships with existing network of dealers” and “—OEMs may not continue to participate on Cango platform.” For the Group’s transaction facilitation services, while the Group keeps optimizing its system in matching selling dealers with buying dealers, there is no guarantee that each selling dealer will be matched with the most suitable potential buyer. In addition, if selling dealers make false representations of car conditions in their posts and the Group fails to screen out such information, other dealers may lose faith in Cango platform, resulting in reduced dealers’ engagement. Any of the above may materially and adversely affect our business, financial condition and results of operations. Uncertainties relating to the growth of the Chinese automotive and mobility markets in general could adversely affect the Group’s business and results of operations. The Group generates a substantial portion of its revenue from automobile trading solutions. As a result, the amount of revenue is affected by the development of the automotive and mobility industries in China. The long-term viability and prospects of various automotive transaction in China remain relatively untested. As such, demand for the Group’s solutions and services and future results of operations will depend on numerous factors affecting the development of the automotive and mobility industries in China, which may be beyond its control. These factors include: ● the growth in car ownership and the rate of any such growth; ● changes in car buyers’ demographics, purchasing habits, tastes and preferences; ● the selection, price and popularity of cars offered by dealers and OEMs; and ● whether alternative channels or business models that better address the needs of car buyers emerge in China. A general decline in the use of and demand for cars, or any failure to adapt Cango platform and maintain and improve the experience of various platform participants as to the solutions and services in response to new trends and requirements, may adversely affect our results of operations and business prospects. 16 Table of Contents In August 2014, several PRC governmental authorities jointly announced that from September 2014 to December 2017, purchases of new energy cars designated on certain catalogs were exempted from the purchase taxes. On September 18, 2022, the Ministry of Finance of the PRC, together with several other PRC government departments, issued Announcement on Continuation of Policies concerning the Exemption of New Energy Vehicles from Vehicle Purchase Tax, which extended the previous vehicle purchase tax exemption policy for new energy vehicles to December 31, 2023. On December 31, 2020, the Ministry of Finance, the Ministry of Science and Technology, the Ministry of Industry and Information Technology, or the MIIT, and the National Development and Reform Commission jointly issued the Circular on Further Improving the Subsidy Policies for the Promotion and Application of New Energy Vehicles, which became effective on January 1, 2021. Pursuant to this circular, the national subsidies for new energy vehicle, or NEV, would be reduced in 20% increments in 2021 compared with that of 2020. On December 31, 2021, the Ministry of Finance, the Ministry of Science and Technology, the MIIT, and the National Development and Reform Commission jointly issued the Circular on Subsidy Policies for Promotion and Application of New Energy Vehicles in 2022, which became effective on January 1, 2022. Pursuant to this circular, the national subsidies for NEVs were further reduced in 30% increments in 2022 compared with that of 2021, and such subsidies were eliminated at the end of 2022. According to the Continuing and Optimizing the Vehicle Purchase Tax Reduction and Exemption Policies for New Energy Vehicles promulgated by the Ministry of Finance, the State Taxation Administration and the MIIT, which became effective on January 1, 2024, the NEVs purchased from January 1, 2024 to December 31, 2025 shall be exempt from vehicle purchase tax, with the amount of tax exemption for each NEV not exceeding RMB 30,000, and the vehicle purchase tax on the NEVs purchased from January 1, 2026 to December 31, 2027 shall be reduced by half, with the amount of tax reduction for each NEV not exceeding RMB 15,000. We cannot predict whether similar incentives will be introduced, and if they are, their impact on automotive retail transactions in China. It is possible that automotive retail transactions may decline significantly upon expiration of the existing government subsidies if consumers have become used to such incentives and delay purchase decisions in the absence of new incentives. If automotive retail transactions indeed decline, the Group’s revenues may decrease, and its results of operations may be materially and adversely affected. Some local governmental authorities also issued regulations and relevant implementation rules in order to control urban traffic and the number of cars within particular urban areas. For example, local Beijing governmental authorities adopted regulations and relevant implementing rules in December 2010 to limit the total number of license plates issued to new car purchases in Beijing each year. Local Guangzhou governmental authorities also announced similar regulations, which came into effect in July 2013. There are similar policies that restrict the issuance of new license plates in Shanghai, Tianjin, Hangzhou, Guiyang and Shenzhen. In September 2013, the State Council released a plan for the prevention and remediation of air pollution, which requires large cities, such as Beijing, Shanghai and Guangzhou, to further restrict the number of motor vehicles. In October 2013, the Beijing government issued an additional regulation to limit the total number of vehicles in Beijing to no more than six million by the end of 2017. Such regulatory developments, as well as other uncertainties, may adversely affect the growth prospects of China’s automotive and mobility industries, which in turn may have a material adverse impact on our business. The Group operates in a market where the credit infrastructure is still at an early stage of development. Information received from third parties concerning a prospective car buyer may be outdated, incomplete, inaccurate or even fraudulent, which may compromise the accuracy of the Group’s credit assessment and lead to higher overdue ratios. China’s credit infrastructure is still at an early stage of development. The Credit Reference Center established by the People’s Bank of China, or the PBOC, in 2002 has been the only credit reporting system in China. This centrally managed nationwide credit database operated by the Credit Reference Center only records limited credit information, such as tax payments, civil lawsuits, foreclosures and bankruptcies. Moreover, this credit database is only accessible to banks and a limited number of market players authorized by the Credit Reference Center and does not support sophisticated credit scoring and assessment. In 2015, the PBOC announced that it would open the credit reporting market to private sectors with a view to spurring competition and innovation, but it may be a long-term process to establish a widely-applicable, reliable and sophisticated credit infrastructure in such current market. 17 Table of Contents For the purpose of credit assessment, the Group obtains credit information from prospective car buyers, and with their authorization, obtains credit data from external parties to assess applicants’ creditworthiness. The Group may not be able to source credit data from such external parties at a reasonable cost or at all. Such credit data may have limitations in measuring prospective car buyers’creditworthiness. If there is an adverse change in the economic condition, credit data provided by external parties may no longer be a reliable reference to assess an applicant’s creditworthiness, which may compromise the Group’s risk management capabilities. As a result, the assessment of a car buyer’s credit profile may not reflect that particular car buyer’s actual creditworthiness because assessment may be based on outdated, incomplete, inaccurate or even fraudulent information. There is also a risk that after obtaining a car buyer’s information, the car buyer may become delinquent, default on a pre-existing debt obligation, taken on additional debt, or sustained other adverse financial events. Such outdated, incomplete, inaccurate or even fraudulent information could compromise the accuracy of the Group’s credit assessment model and adversely affect the effectiveness of its control over overdue ratios, in which case the Group’s results of operations will be harmed. In addition, the Group collaborates with dealers and third-party sales agents to offer credit services to car buyers. Since dealers and sales agents do not bear credit risks, they may refer prospective car buyers without regard to such individuals’ creditworthiness. Certain dealers and sales agents may even assist fraudulent car buyers in preparing credit applications. Therefore, failure to detect prospective car buyers with poor credit quality or fraudulent car buyers may lead to higher overdue ratios and adverse effect to the Group’s financial results. To manage such risk, the Group actively monitors credit performance of existing loans and timely takes loan collection measures as well as other delinquent asset management measures. However, such risk management policy may not be effective. The Group’s risk management system may not be able to exhaustively assess or mitigate all risks to which the Group is exposed. Credit applications by car buyers are evaluated based on credit assessment conducted by the Group’s credit assessment model, and the credit assessment team conducts a manual evaluation when necessary. Based on the credit assessment model, certain of the applications are either automatically approved or automatically rejected. The credit assessment team manually evaluates the rest of the applications. If such credit assessment model or credit assessment team fail to perform effectively, the Group’s business and results of operations may be materially and adversely affected. The existing credit assessment model builds on machine learning algorithms including logistic regression and gradient boost decision tree. While the Group relies on machine learning algorithms to refine such model and system, there can be no assurance that the application of such algorithms will continue to deliver the expected benefits. In addition, as the Group has a limited operating history, it may not have accumulated sufficient credit data to optimize such model and system. Even if there are sufficient credit data and the credit assessment model has been tailored for prospective car buyers on Cango platform for current operation, such data and credit assessment model might not be effective as the Group continues to expand the car buyer base and broaden engagement efforts with car buyers generally through different channels in the future. If existing system contains programming or other errors, if current model is ineffective or if the credit data obtained is incorrect or outdated, the Group’s credit assessment abilities could be negatively affected, resulting in incorrect approvals or denials of credit applications. The Group relies on its credit assessment team to evaluate a substantial portion of credit applications submitted by prospective car buyers. The reviewers frequently exercise judgments based on their experience and knowledge, and such judgments are subject to errors. In addition, if the Group fails to retain experienced reviewers or effectively train new reviewers, the Group may be unable to either offer financing solutions to creditworthy car buyers or maintain low overdue ratios of financing transactions facilitated. To improve operational efficiency, the Group plans to enhance the level of automation in the credit assessment process. However, such change in the credit assessment process could lead to an increase in overdue ratios, which would materially and adversely impact the Group’s business and results of operations. 18 Table of Contents If the Group is unable to maintain low overdue ratios for financing transactions facilitated, the Group’s business and results of operations may be materially and adversely affected. The Group may not be able to maintain low overdue ratios for financing transactions facilitated through Cango platform, and such overdue ratios may be significantly affected by economic downturns or general economic conditions beyond its control and beyond the control of individual car buyers. As a result of the COVID-19 pandemic, the Group experienced an uptick in delinquency rates. The pandemic interrupted the Group’s collection efforts and affected car buyers’ ability to make repayments. M1+ and M3+ overdue ratios were 2.61% and 1.38%, respectively, as of December 31, 2022, as compared to 1.62% and 0.86%, respectively, as of December 31, 2021. Since December 2022, the PRC government has largely lifted pandemic-related restrictions on travel and business operations. While the Group gradually recovered from the impact of COVID-19 pandemic, the M1+ and M3+ overdue ratios remained relatively stable as of December 31, 2023, which were 2.66% and 1.37%, respectively. The lowering trend of overdue ratios was offset by a significant decrease in the amount of loans obtained through the Cango platform in 2023 as the Group strategically scaled down its automotive financing facilitation services, which led to a significant decrease of the dominator in calculating the M1+ and M3+ overdue ratios. As the Group will continue to scale down its automotive financing facilitation services, we cannot assure you that the Group will be able to lower the overdue ratios in the future. Overdue ratios for financing transactions facilitated may also be affected by macroeconomic conditions. The way how car buyers’ delinquencies affects the Group’s results of operations depends on the funding arrangement for the relevant financing transactions. The Group is not obligated to bear credit risk for financing transactions funded by certain financial institutions. However, an increased level of credit losses suffered by such financial institutions with respect to financing transactions facilitated through Cango platform would harm existing business relationship with them. As of December 31, 2023, the total outstanding balance of financing transactions funded under such arrangements was RMB1.9 billion (US$0.3 billion), representing 18.6% of the total outstanding balance of financing transactions facilitated. Under the arrangements with certain other financial institutions, the Group is obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. As of December 31, 2023, the total outstanding balance of financing transactions funded by financial institutions under such arrangements was RMB7.8 billion (US$1.1 billion), representing 78.0% of the total outstanding balance of financing transactions facilitated. At the inception of each financing transaction facilitated under such arrangements, the Group recognizes risk assurance liabilities at fair value. The Group recognizes additional risk assurance liabilities based on the car buyer’s lifetime expected losses. Accordingly, an increase in overdue ratios of financing transactions for which the Group is obligated to bear credit risk could have a material adverse impact on its results of operations. Due to the adoption of ASC 326 as of January 1, 2023, risk assurance liabilities are presented separately into deferred guarantee income which represents the non- contingent portion of risk assurance liabilities and contingent risk assurance liabilities. The Group recognized deferred guarantee income of RMB212.1 million (US$29.9 million) in 2023 and contingent risk assurance liabilities of RMB125.1 million (US$17.6 million) as of December 31, 2023. The amount of performed risk assurance liabilities was RMB306.9 million (US$43.2 million) in 2023. Furthermore, such fair value estimation of risk assurance liabilities requires a significant degree of judgment and may not fully reflect the credit quality of the relevant financing transactions. The Group will incur net loss on risk assurance liabilities to the extent the credit quality of such financing transactions is worse than the estimate at inception. The Group records financing lease receivables in relation to financing leases funded by Shanghai Chejia on the Group’s consolidated balance sheet. As such, the Group bears credit risk as to such financing leases, and recognizes provision for credit losses in its results of operations. Any increase in overdue ratios could materially and adversely affect the Group’s business, results of operations and financial condition. Collection and recovery efforts by the in-house team may become less effective and may also subject us to regulatory risks and reputational risks. The Group utilizes an in-house team to collect repayment and recover car collaterals. The effectiveness of such collection and recovery efforts is critical to the business. The Group is not obligated to bear credit risk for financing transactions funded by certain financial institutions. However, failures in these collection and recovery efforts would harm the business relationship with such financial institutions. Under the arrangements with certain other financial institutions, the Group is obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. In addition, the Group records financing receivables in relation to financing leases funded by Shanghai Chejia on its balance sheet. As such, the Group bears credit risk as to such financing leases. There can be no assurance that the Group’s collection and recovery efforts will be successful. Failure to collect overdue repayments for the financing transactions facilitated or recover the related car collaterals will have a material adverse effect on the Group’s business operations and financial position. 19 Table of Contents The Group endeavors to ensure its collection and recovery efforts comply with the relevant laws and regulations in the PRC and has established strict policies and implemented measures to ensure that the delinquent asset management personnel do not engage in aggressive or predatory practices. However, there can be no assurance that such personnel will not engage in any misconduct while performing their tasks. Any misconduct by the delinquent asset management personnel or the perception that the collection and recovery practices are considered to be aggressive, predatory or not compliant with the relevant laws and regulations in the PRC may result in harm to our reputation and business, which could further undermine the ability to collect repayments or recover cars from car buyers in default or result in fines and penalties being imposed by the relevant regulatory authorities, any of which may have a material adverse effect on our results of operations. As a result of the Group’s business transition, the service fees for the Group’s automotive financing facilitation services have declined in the past and may continue to decline in the future, which may adversely affect the Group’s business, financial condition and results of operations. As the Group made a business transition in 2022 to scale down its automotive financing facilitation services, the Group experienced a material decrease in the amount of financing transactions facilitated by it, which contributed to the decrease in loan facilitation income and leasing income. The amount of financing transactions facilitated by the Group decreased from RMB2.8 billion in 2022 to RMB1.7 million (US$0.2 million) in 2023. The Group’s loan facilitation income and other related income decreased from RMB146.4 million in 2022 to RMB20.0 million (US$2.8 million) in 2023. The Group’s leasing income decreased from RMB155.5 million in 2022 to RMB57.4 million (US$8.1 million) in 2023. Although we believe such business transition allows the Group to focus on the automobile trading solutions and will benefit the Group’s business in the long run, the Group’s loan facilitation income and leasing income will likely decrease in the following years due to an expected decrease in the amount of financing transactions facilitated by it. Such trend may also adversely affect the Group’s profitability. Furthermore, the service fees charged to financial institutions could be affected by a variety of factors, including the competitive landscape of the automotive finance industry and regulatory requirements. Such service fees from financial institutions may also be affected by a change over time in the mix of the types of services offered. Competitors may also offer more attractive service fees, which may require the Group to reduce its service fees to compete effectively. In addition, such financing facilitation service fees are sensitive to many macroeconomic factors beyond our control, such as inflation, recession, the state of the credit markets, changes in market interest rates, global economic disruptions, unemployment and fiscal and monetary policies. In the event that the amount of service fees charged to financial institutions decreases significantly in the future and the Group is not able to adopt any cost control initiatives, the Group’s business, financial condition and results of operations will be harmed. The laws and regulations governing the automotive and mobility industries or other industries related to the Group’s business in the PRC are subject to further changes and interpretation. If such business practices or the business practices of third parties that the Group collaborates with are deemed to violate any PRC laws or regulations, our business, financial condition, results of operations and prospects would be materially and adversely affected. The Group’s business may be subject to a variety of laws and regulations in the PRC governing the automotive and mobility industries. There are uncertainties regarding the interpretation and application of current and future laws and regulations. As of December 31, 2023, the Group had not been subject to any material fines or other penalties under any PRC laws or regulations as to its business operations. However, if the PRC government tightens regulatory framework for the automotive and mobility industries in the future, and subject industry participants such as the Group to new or specific requirements (including without limitation, capital requirements and licensing requirements), the Group’s business, financial condition and prospects would be materially and adversely affected. Compliance with existing and future rules, laws and regulations can be costly and if the Group’s practice is deemed to violate any existing or future rules, laws and regulations, it may face injunctions, including orders to cease non-compliant activities, and may be exposed to other penalties as determined by the relevant government authorities as well. 20 Table of Contents The Office of the Leading Group for Specific Rectification against Online Finance Risks and the Office of the Leading Group for Specific Rectification against P2P Online Lending Risks jointly issued the Circular on Regulating and Rectifying Cash Loan Business on December 1, 2017, or Circular 141. Among other things, Circular 141 provides restrictions on banks’ collaboration with third parties in cash loan business. Pursuant to Circular 141, a bank may not outsource its core business functions, such as credit assessment and risk management, to third parties. Circular 141 also prohibits a bank participating in loan facilitation transactions from accepting credit enhancement services from a third party which has not obtained any license or approval to provide guarantees, including credit enhancement service in the form of a commitment to assume default risks. In addition, a bank may not permit its service provider in cash loan business to collect interest or fees from borrowers. There is still uncertainty as to the interpretation and application of the requirements in Circular 141. The opening paragraph of Circular 141 states, in relevant parts, that while the growth of cash loan business “has helped certain groups in society satisfy their needs for normal consumption credit to a certain extent, it has created several significant problems including, among other things, over-borrowing, repetitive credit approvals, improper collection practice, excessively high interest rates and intrusions on personal privacy, posing relatively large financial risk and societal risk.” While this statement suggests that the regulatory authorities are primarily concerned about abuses in the cash loan industry, it is uncertain whether any requirements in Circular 141 may be applicable to the automotive finance industry. In connection with the automotive financing facilitation business, the Group provides credit assessment service to financial institutions and the financial institutions make ultimate credit decisions. Under the arrangements with certain financial institutions, the Group is obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. If the relevant regulatory authorities determine that Circular 141 is applicable to the automotive finance industry, and the abovementioned business is deemed to be in violation of Circular 141, the Group could be subject to penalties and/or be required to significantly change such business model. The Group operates insurance brokerage business through Fushun Insurance Brokerage Co., Ltd., a subsidiary of our Shanghai Cango. The insurance brokerage business is highly regulated in China, and the regulatory regime continues to evolve. The China Banking and Insurance Regulatory Commission, or the CBIRC, which was merged into the National Financial Regulatory Administration in May 2023 according to the Reform Plan for the Party and State Institutions promulgated by the Central Committee of the Communist Party of China and the State Council on March 16, 2023, has extensive authority to supervise and regulate the insurance industry in China and has been enhancing its supervision over this industry in recent years, and new laws, regulations and regulatory requirements have been promulgated and implemented from time to time. The Group faces challenges brought by these new laws, regulations and regulatory requirements, as well as significant uncertainties in the interpretation and application thereof. The Group might be required to spend significant time and resources in order to comply with any material changes in the regulatory environment, which could trigger significant changes to the competitive landscape of the insurance brokerage business and we may lose some or all of our competitive advantages during this process. Moreover, the National Financial Regulatory Administration and its local branches may conduct various examinations and inspections on the Group’s insurance brokerage business operations from time to time, which could cover a broad range of aspects, including financial reporting, tax reporting, internal control and compliance with applicable laws, rules and regulations. If any non-compliance incidents in the Group’s insurance brokerage business operation are identified, the Group may be required to take certain rectification measures in accordance with applicable laws and regulations, or be subject to other administrative penalties. Furthermore, the Group also offers transaction facilitation services on Cango U-car app, which connects dealers looking for cars with dealers wishing to supply cars. Therefore, we may be regarded as an e-commerce platform operator under the E-commerce Law. The E-commerce Law and the Measures for the Supervision and Administration of Online Trading impose a series of requirements on e- commerce platform operators, including requiring e-commerce platform operators to verify and update each dealer’s profile on a regular basis and monitor their market participant registration status. Any failure by us to comply with such laws and regulations could result in suspension of business, rectification orders and fines. We may also be held jointly liable with the dealers if we fail to take necessary actions under specific circumstances. On August 1, 2019, the General Office of the State Council promulgated the Guiding Opinions on Promoting the Well-regulated and Sound Development of the Platform Economy, or the Guiding Opinions on Platform Economy, which provide that the establishment of financial institutions, operation of financial activities, provision of financial information intermediary and transaction matching services shall be subject to entry administration according to the related laws and regulations. Due to the lack of further interpretations of the Guiding Opinions on Platform Economy, it is uncertain whether the Group will be deemed as providing “financial information intermediary and transaction matching services” under the Guiding Opinions on Platform Economy and be subject to entry administration. We cannot assure you that the Group will not be required in the future by the relevant governmental authorities to obtain additional approvals or licenses in this regard, and that such approvals or licenses will be obtained in a timely manner if required. Inability to obtain such approvals or licenses on a timely basis could have an adverse impact on the Group’s business. 21 Table of Contents Shanghai Cango may be deemed to operate financing guarantee business by the PRC regulatory authorities. The State Council promulgated the Regulations on the Administration of Financing Guarantee Companies, or the Financing Guarantee Rules, on August 2, 2017 which became effective on October 1, 2017. Pursuant to the Financing Guarantee Rules, “financing guarantee” refers to the activities in which guarantors provide guarantee to the guaranteed parties as to loans, bonds or other types of debt financing, and “financing guarantee companies” refer to companies legally established and operating financing guarantee business. According to the Financing Guarantee Rules, the establishment of financing guarantee companies shall be subject to the approval by the competent government authority, and unless otherwise stipulated, no entity may operate financing guarantee business without such approval. If any entity violates these regulations and operates financing guarantee business without approval, the entity may be subject to penalties including ban or suspension of business, fines of RMB500,000 to RMB1,000,000, confiscation of illegal gains if any, and if the violation constitutes a criminal offense, criminal liability shall be imposed in accordance with the law. On April 2, 2018, the CBIRC, together with several other governmental authorities, jointly adopted (i) the Administrative Measures for the Financing Guarantee Business Permit, (ii) Measures for Measuring the Outstanding Amount of Financing Guarantee Liabilities, (iii) Administrative Measures for the Asset Percentages of Financing Guarantee Companies and (iv) Guidelines on Business Cooperation between Banking Financial Institutions and Financing Guarantee Companies, or the Four Supporting Measures of the Financing Guarantee Rules, which further stipulates that “financing guarantee business” under the Four Supporting Measures of the Financing Guarantee Rules, among other things, includes “guarantee business related to loans,” which refers to the activities whereby a guarantor provides guarantee for loans, online lending, financial leasing, commercial factoring, bill acceptance, letters of credit or other forms of debt financing. Furthermore, the CBIRC, together with several other governmental authorities, jointly issued the Supplementary Provisions on the Supervision and Administration of Financing Guarantee Companies on October 9, 2019, which provide that car dealers and car sales service providers shall not operate the business of providing guarantees for car consumption loans without the approval of competent regulatory authorities, and institutions providing client recommendation, credit evaluation and other services for lending institutions shall not provide financing guarantee services or provide such services in a disguised form without necessary approval from competent government authorities. If an institution without any financing guarantee business permit is engaged in the financing guarantee business, it shall be prohibited from continuing such unlicensed financing guarantee business and ordered to settle its remaining guarantee business properly. If the aforesaid institution intends to continue the financing guarantee business, it shall establish a financing guarantee company in accordance with applicable laws to conduct the financing guarantee business. Under the arrangements with certain financial institutions, Shanghai Cango and Cango Financing Guarantee Co., Ltd., or Cango Financing, one of the wholly-owned subsidiaries of Shanghai Cango, are obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. As of December 31, 2023, the total outstanding balance of financing transactions funded by financial institutions under such arrangements was RMB7.8 billion (US$1.1 billion), representing 78.0% of the total outstanding balance of financing transactions facilitated through Cango platform. Due to the lack of further interpretations of the aforementioned rules related to financing guarantee business, there is still uncertainty as to the exact scope and application of “operating financing guarantee business” and “providing financing guarantee services in a disguised form” under such regulations, and what factors the relevant regulatory authorities may consider in making such a determination. Therefore, it is uncertain whether Shanghai Cango would be deemed to operate financing guarantee business because of the current arrangements with certain financial institutions. The Group has utilized Cango Financing, a financing guarantee company established with the approval by the competent government authority governing the financing guarantee business and with the license to provide financing guarantee services, to provide guarantee for financial institutions in most cases, while in certain cases Shanghai Cango, which does not hold the license to operate financing guarantee business, still undertakes an obligation to purchase the relevant financing receivables upon certain specified events of default by car buyers under the arrangements with such financial institutions. If the relevant regulatory authorities determine that the aforesaid activities of Shanghai Cango under the current arrangements with certain financial institutions qualify as “operating financing guarantee business” or “providing financing guarantee services in a disguised form,” the Group may be required to either cease bearing credit risk as part of the arrangements with the financial institutions as described above, or adjust such arrangements with the financial institutions to the effect that only Cango Financing will bear the credit risk. If the Group is unable to satisfy such requirement, it may no longer be able to collaborate with the relevant financial institutions, or become subject to penalties, and the Group’s business, financial condition, results of operations and prospects could be materially and adversely affected. 22 Table of Contents Furthermore, even if the Group successfully changes the arrangements with the financial institutions and only Cango Financing will provide such credit enhancement services in the future, the outstanding guarantee liabilities of a financing guarantee company may not exceed ten times of its net assets as required by the Financing Guarantee Rules. If the amount of guarantee liabilities exceeds ten times of Cango Financing’s total net assets, the Group may be required to increase the total net assets of Cango Financing by means of, among others, increasing the paid-up capital contribution. However, there can be no assurance that the Group will be able to make such capital contribution timely, or at all. Inability to make such capital contribution on a timely basis could have an adverse impact on our business. The Group’s business of facilitating financing transactions between financial institutions and car buyers may constitute provision of intermediary service, and the agreements with these financial institutions may be deemed as intermediation contracts under the PRC Civil Code. The Group’s business of facilitating financing transactions by connecting financial institutions and individual car buyers may constitute an intermediary service, and such services may be deemed as intermediation contracts under the PRC Civil Code. Under the PRC Civil Code, an intermediary may not claim for service fee and is liable for damages if it conceals any material fact intentionally or provides false information in connection with the conclusion of an intermediation contract, which results in harm to the client’s interests. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulation Related to Intermediation.” Therefore, if the Group fails to provide material information to financial institutions, or if it fails to identify false information received from car buyers or others and in turn provides such information to financial institutions, and in either case if the Group is also found to be at fault, due to failure or deemed failure to exercise proper care, such as to conduct adequate information verification or employee supervision, the Group could be held liable for damage caused to financial institutions as an intermediary pursuant to the PRC Civil Code. In addition, if the Group fails to complete the obligations under the agreements entered into with financial institutions, the Group could also be held liable for damages caused to financial institutions pursuant to the PRC Civil Code. The Group may not be able to enforce its rights against car buyers. The Group offers car buyers various value-added services associated with purchasing a car with financing. Such services mainly involve registrations of license plates and collaterals with the relevant government authorities. However, the Group does not enter into written contracts with some car buyers, and for those the Group had written contracts with, the contract terms are not clear about the service fees charged. In the event a legal dispute arises between a car buyer and the Group, the Group may not be able to enforce the rights against the relevant car buyer. Failure to enforce such rights may materially and adversely affect the Group’s business, results of operation and financial condition. The scale of Shanghai Chejia’s business may be limited by its total net assets. In September 2013, the Ministry of Commerce, or the MOFCOM, promulgated the Measures for Supervision and Administration of Financing Lease Enterprises, pursuant to which the risk assets of a financing lease enterprise may not exceed ten times of its total net assets. In April 2018, the MOFCOM transferred the duties to make rules on the operation and supervision of financing lease companies to the CBIRC, which was merged into the National Financial Regulatory Administration. In May 2020, the CBIRC promulgated the Interim Measures for the Supervision and Administration of Financial Leasing Companies, which provide that the risk assets of a financing lease enterprise may not exceed eight times of its total net assets, and the term “risk assets” of a financing lease enterprise refer to its total assets, net of cash, bank deposits, Chinese treasury bonds, and supersede the relevant provision in the abovementioned measures. Please refer to “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation Related to Financing Lease” for more details. As the governmental authorities may promulgate more laws, regulations or rules, there are uncertainties how these new measures will be interpreted and implemented. Shanghai Chejia funds financing leases for car buyers on Cango platform, and its risk assets consist of financing lease receivables relating to the financing leases it funds. Shanghai Chejia is the Group’s consolidated affiliate. If the amount of financing lease receivables of Shanghai Chejia exceeds the statutory limits, the Group may be required to increase the total net assets of Shanghai Chejia by means of, among others, increasing the paid-up capital contribution. However, there can be no assurance that the Group will be able to make such capital contribution timely, or at all. Inability to make such capital contribution on a timely basis could have an adverse impact on the Group’s business. 23 Table of Contents The Group faces intense competition and it may not be able to compete effectively. The automotive transaction industry in China is large yet competitive. The Group competes against automotive transaction platforms that connect various players across the automotive transaction value chain, to facilitate automotive and automotive-related transactions. The competitors may offer a greater variety of car models in lower prices in their automotive transaction platforms and/or deliver better user experience. We may also in the future face competition from new entrants that will increase the level of competition. We anticipate that more established companies, including technology companies that possess large, existing user bases, substantial financial resources and sophisticated technological capabilities may also enter the market in the future. Our competitors may operate different business models, have different cost structures or participate selectively in different industry segments. They may ultimately prove to be more successful or more adaptable to customer demand and new regulatory, technological and other developments. Some of the current and potential competitors may have significantly more financial, technical, marketing and other resources than the Group and may be able to devote greater resources to the development, promotion, sales and support of their platform, product and solution and service offerings. Competitors may also have longer operating history, greater brand recognition and brand loyalty and broader or closer relationships with dealers, financial institutions, OEMs or other automotive transaction industry participants than the Group. Additionally, a current or potential competitor may acquire, or form a strategic alliance with, one or more of the other competitors. These competitors may be better at developing new products and solutions and services, offering more attractive fees, responding more quickly to new technologies and undertaking more extensive and effective marketing campaigns. More players may enter the automotive transaction industry and intensify the market competition. In response to competition and in order to grow or maintain the amount of automotive transactions facilitated to dealers, the Group may have to lower and/or adjust the various fees charged or pay to the different platform participants, which could materially and adversely affect the Group’s business, profit margins and results of operations. If the Group is unable to compete with such companies and meet the need for innovation in the industry, the demand for services on Cango platform could stagnate or substantially decline, which could harm the Group’s business and results of operations. If the Group’s new solutions and services do not achieve sufficient market acceptance or provide the expected benefits to platform participants, the Group’s financial condition, results of operations and competitive position will be materially and adversely affected. New solutions and services may also subject the Group to regulatory risks. The Group has incurred and will continue to incur expenses and consume resources to develop and market new solutions and services for platform participants, including dealers, financial institutions and car buyers. The Group may also develop new solutions and services for other industry participants, such as OEMs and insurance brokers and companies. New solutions and services must achieve high levels of market acceptance in order for the Group to recoup its investment in developing, acquiring and bringing them to market. Existing or new solutions and services and changes to Cango platform could fail to attain sufficient market acceptance for many reasons, including but not limited to: ● failure to predict market demand accurately and supply solutions and services that meet this demand in a timely fashion; ● platform participants may not like, find useful or agree with any changes made; ● failure to properly price new solutions and services; ● negative publicity about solutions and services or Cango platform’s performance or effectiveness; ● views taken by regulatory authorities that the new solutions and services or platform changes do not comply with PRC laws, rules or regulations applicable to the Group; and ● the introduction or anticipated introduction of competing solutions and services by competitors. If new solutions and services do not achieve adequate acceptance in the market or provide the expected benefits to platform participants, the Group’s competitive position, financial condition and results of operations could be harmed. In addition, the Group may incur higher cost and expenses as a result of new solutions and services. New solutions and services may also subject the Group to additional regulatory or licensing requirements. Failure by the Group to comply with any such new regulatory or licensing requirements could materially and adversely affect our business and results of operations. 24 Table of Contents We are subject to certain risks relating to our agreement with Didi Chuxing. Through a series of equity investments in the first half of 2018, Didi Chuxing has become a strategic shareholder of our company. For further information, see “Item 6. Directors, Senior Management and Employees — E. Share Ownership.” Pursuant to the shareholders agreement, we may not set up any joint venture, partnership or enter into any strategic cooperation arrangements with certain competitors of Didi Chuxing, for so long as Didi Chuxing’s shareholding percentage in our company is not lower than five percent. Such restrictions may adversely affect our business, results of operations and financial condition. We may need additional capital to pursue business objectives and respond to business opportunities, challenges or unforeseen circumstances, and financing may not be available on terms acceptable to us, or at all. Since inception, the Group has issued equity securities and borrowed from financial institutions to support the growth of the Group’s business. As the Group intends to continue to make investments to support the growth of its business, the Group may require additional capital to pursue its business objectives and respond to business opportunities, challenges or unforeseen circumstances, including developing new solutions and services, further enhance the risk management capabilities, increasing sales and marketing expenditures to improve brand awareness and engage car buyers through expanded online channels, enhancing operating infrastructure and acquiring complementary businesses and technologies. Accordingly, the Group may need to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when the Group needs them, on terms that are acceptable to the Group, or at all. Repayment of the debts may divert a substantial portion of cash flow to repay principal and service interest on such debt, which would reduce the funds available for expenses, capital expenditures, acquisitions and other general corporate purposes; and the Group may suffer default and foreclosure on its assets if its operating cash flow is insufficient to service debt obligations, which could in turn result in acceleration of obligations to repay the indebtedness and limit the Group’s sources of financing. Volatility in the credit markets may also have an adverse effect on the Group’s ability to obtain debt financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A ordinary shares. If the Group is unable to obtain adequate financing or financing on terms satisfactory to the Group when the Group requires it, the Group’s ability to continue to pursue its business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and the Group’s business, financial condition, results of operations and prospects could be adversely affected. Failure to adequately recover value of car collaterals may materially and adversely affect the Group’s results of operations. All financing transactions facilitated through Cango platform are secured by car collaterals. Change in the residual value of car collaterals securing these financing transactions may affect their recoverability. How such change affects the Group’s results of operations depends on the funding arrangement for the relevant financing transaction. The Group is not obligated to bear credit risk for financing transactions funded by certain financial institutions. Nonetheless, it charges such financial institutions fees for disposals of recovered cars, and such fees are based on a percentage of the proceeds from disposals. As such, a decrease in residual value of car collaterals results in a decrease in the fee charged for disposals. Under the arrangements with certain other financial institutions, Shanghai Cango and Cango Financing are obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. After purchasing such financing receivables, security interest in the collateral is also transferred to the Group. The Group incurs losses as residual value of car collaterals declines below the amount the Group expected to recover. In addition, the Group’s consolidated affiliate Shanghai Chejia directly funds financing leases, in which case security interest in the relevant collaterals belongs to Shanghai Chejia. 25 Table of Contents Residual values of car collaterals are often affected by factors beyond the Group’s control. After purchase by a car buyer, a car may suffer damage from traffic accidents. In addition, the introduction of new car models and overall trend of gradual decrease in used car prices with the age of cars may cause the residual value of cars to decrease. Restrictions on inter-city or inter-province transfer of used cars imposed by various local government authorities in China may also result in lower residual value of cars that likely will be transferred to such cities with local transfer restrictions. Although the central PRC government has issued several official opinions or circulars to prohibit such local restrictions and market segregation, aiming to stimulate inter-city or inter-province used car trading by deregulation, certain transfer restrictions are still officially allowed. Residual value may also be adversely affected due to inappropriate handling of the third parties the Group collaborates with, such as warehouses. Existing pricing models may not be able to capture all factors that may affect the residual value of car collaterals. Significant decrease in residual value of car collaterals may lower the recoverability of financing transactions and undermine the cost efficiency of the Group’s recovery efforts, which may materially and adversely affect its results of operations. Furthermore, there can be no assurance that the Group will be able to dispose car collaterals at residual values, or at all. Any harm to Cango brand or reputation or any damage to the reputation of dealers and financial institutions the Group collaborates with or other third parties or the industry where the Group operates or failure to enhance existing brand recognition could have a material adverse effect on the Group’s results of operations and growth prospects. Enhancing the recognition and reputation of Cango brand is critical to the Group’s business and competitiveness. Factors that are vital to this objective include but are not limited to the ability to: ● maintain the quality and reliability of Cango platform; ● maintain and develop relationships with dealers, financial institutions, insurance brokers and insurance companies; ● maintain and develop relationships with OEMs; ● provide prospective car buyers and existing car buyers with superior experiences; ● effectively manage and resolve any complaints of dealers, financial institutions or car buyers; and ● effectively protect personal information and privacy of car buyers and any data received from any third parties. Any malicious or inadvertent negative allegations made by the media or other parties about the foregoing or other aspects of the Group, including but not limited to the management, business, compliance with law, financial condition or prospects, whether with merit or not, could severely hurt the Group’s reputation and harm the Group’s business and results of operations. As the automotive and mobility markets in China are under rapid development and the regulatory framework for the markets is also evolving, negative publicity about this industry may arise from time to time. Negative publicity about China’s automotive and mobility markets in general may also have a negative impact on the Group’s reputation, regardless of whether the Group has engaged in any inappropriate activities. Furthermore, any negative development in the automotive and mobility markets, such as bankruptcies or failures of platforms providing automotive trading solutions, and especially a large number of such bankruptcies or failures, or negative perception of the industry as a whole, such as any unethical or illegal activity by other industry players or any failure of platforms providing automotive solutions to detect or prevent unethical or illegal activities, even if factually incorrect or based on isolated incidents, could compromise the Group’s image, undermine the trust and credibility the Group has established and impose a negative impact on the ability to attract new dealers, financial institutions, car buyers and other platform participants. Negative developments in the automotive and mobility markets, such as widespread misrepresentations of conditions of cars, breach of car selling contracts, car buyer defaults, unethical or illegal activities by industry players and/or the closure of platforms providing automotive solutions, may also lead to tightened regulatory scrutiny of the sector and limit the scope of permissible business activities that may be conducted by companies like the Group. If any of the foregoing takes place, the Group’s business and results of operations could be materially and adversely affected. The Group collaborates with various automotive transaction industry participants in providing solutions and services through Cango platform. Such participants include dealers, financial institutions, sales agents, insurance brokers and companies and other business partners. Negative publicity about such counterparties, including any failure by them to adequately protect the information of car buyers, to comply with applicable laws and regulations or to otherwise meet required quality and service standards could harm the Group’s reputation. 26 Table of Contents Fraudulent activities associated with car buyers could negatively impact the Group’s results of operations, brand and reputation and cause the use of the Group’s services to decrease. The Group is subject to the risk of fraudulent activities associated with car buyers, who may provide it with information that is inaccurate or misleading. The Group does not and may not be able to verify all the information received from car buyers. To the extent the Group verifies car buyers’ information, existing resources, technologies and fraud detection tools may be insufficient to accurately detect and prevent fraud. Furthermore, parties that handle car buyer information, such as dealers and sales agents, may aid car buyers in committing frauds. A significant increase in fraudulent activities could lead to higher overdue ratios, negatively affect the results of operations and harm Cango brand and reputation. An overall increase of fraudulent activities in the automotive finance market or the consumer finance industry or incidence of high-profile fraudulent activity could even lead to regulatory intervention and may divert management’s attention and cause the Group to incur additional expenses and costs. Moreover, inaccurate, misleading or incomplete car buyer information could also potentially subject the Group to liability as an intermediary under the PRC Civil Code. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulation Related to Intermediation.” Although the Group has not been materially affected by fraudulent activities associated with car buyers in the past, there is still a possibility that such fraudulent activities may materially and adversely affect the Group’s business, financial condition and results of operations in the future. Fluctuations in interest rates could negatively affect the Group’s reported results of operations. The Group charges service fees to financial institutions for facilitating financing transactions. If prevailing market interest rates decline, the operating margins of financial institutions may decrease, which may force the Group to lower the service fees it is able to charge them. If the Group does not sufficiently lower such service fees and keep the fees competitive in such instances, financial institutions may decide not to utilize such services because of the less competitive service fees and may take advantage of lower service fees offered by other companies, and the Group’s ability to retain, attract and engage prospective financial institutions as well as its competitive position may be severely undermined. On the other hand, if prevailing market interest rates increase, car buyers would be less likely to finance car purchases with credit or the Group may need to reduce the service fees to mitigate the impact of increased interest rates, and its financial condition and profitability could also be materially and adversely affected. Furthermore, relevant regulatory and judicial authorities may change the private lending rate of interest that can be charged by non- financial institutions from time to time. On August 20, 2020, China’s Supreme People’s Court, or the SPC, announced its decision to lower the cap for such private lending rate in a revised judicial interpretation. Under the revised judicial interpretation, such total annual percentage rates (inclusive of any default rate, default penalty and any other fee) exceeding four times that of China’s benchmark one- year loan prime rate, or LPR, as published each month will not be legally protected. Based on the LPR of 3.45% as published on April 22, 2024, such cap would be 13.8%. The Group’s quarterly results may fluctuate significantly partly due to seasonality and may not fully reflect the underlying performance of business. The Group’s quarterly results of operations, including the levels of its revenues, operating cost and expenses, net income/(loss) and other key metrics, may vary significantly in the future due to a variety of factors, some of which are outside of the Group’s control, and period-to-period comparisons of the Group’s operating results may not be meaningful, especially given the limited operating history. Accordingly, the results for any one quarter are not necessarily an indication of future performance. Fluctuations in quarterly results may adversely affect the price of our ADSs. Factors that may cause fluctuations in the Group’s quarterly financial results include: ● ability to maintain existing relationships with business partners and establish new relationships with additional business partners, such as dealers, car buyers and OEMs; ● the amount of automobile trading transactions and insurance transactions on Cango platform; ● overdue ratios of financing transactions facilitated; ● the mix of solutions and services offered; ● the amount and timing of the Group’s operating cost and expenses and the maintenance and expansion of existing business, operations and infrastructure; 27 Table of Contents ● emphasis on experience of car buyers, instead of near-term growth; ● the timing of expenses related to the development or acquisition of technologies or businesses; ● proper and sufficient accounting policies with respect to risk assurance liabilities and implementation; ● network outages or security breaches; ● general economic, industry and market conditions; and ● changes in applicable laws and regulations. In addition, the Group has experienced, and expects to continue to experience, seasonal fluctuations in its revenues and results of operations. Such revenue trends reflect car purchase patterns by car buyers. Car buyers in China tend to purchase a higher volume of cars in the second half of each year, in part due to the introduction of new models from automakers. Further, the holiday period following the Chinese New Year is in the first quarter, which may contribute to lower activity levels in that quarter of each year. As a result of these factors, the Group’s revenues may vary from quarter to quarter. The Group’s actual results may differ significantly from its targets or estimated quarterly results. Therefore, you may not be able to predict the Group’s annual results of operations based on a quarter-to- quarter comparison of its results of operations. The quarterly fluctuations in the Group’s revenues and results of operations could result in volatility and cause the price of our ADSs to fall. As the revenues grow, these seasonal fluctuations may become more pronounced. We may not realize the benefits we expect from our investments in certain securities and investment products, and this may materially and adversely affect our business, financial condition, results of operations and prospects. We have made short-term investments in a public company and wealth management products, which are primarily invested in various types of debt securities. As of December 31, 2023, the Group had short-term investments of RMB635.1 million (US$89.4 million) and restricted cash – current – bank deposits held for short-term investments of RMB1.7 billion (US$ 235.2 million). We cannot assure you as to the return of our investments and we may need to recognize losses in connection with these investments, which may have a material adverse effect on our business, financial condition and results of operations. Any significant disruption in the Group’s IT systems, including events beyond control, could prevent the offering of solutions and services through Cango platform or reduce their attractiveness and result in a loss of car buyers, financial institutions and other platform participants. In the event of a system outage, malfunction or data loss, the ability to provide services would be materially and adversely affected. The satisfactory performance, reliability and availability of the Group’s technology and underlying network infrastructure are critical to the operations, user service, reputation and ability to attract new and retain existing car buyers and financial institutions. The Group’s IT systems infrastructure is currently deployed, and relevant data is currently maintained through a customized cloud computing system. The Group’s servers are housed at third-party data centers, and its operations depend on the service providers’ ability to protect such systems in their facilities as well as their own systems against damage or interruption from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm these systems, criminal acts and similar events, many of which may be beyond control. Many of the Group’s mobile applications are also provided through third- party app stores and any disruptions to the services of these app stores may negatively affect the delivery of such mobile applications to users. Moreover, if the arrangement with these service providers are terminated or if there is a lapse of service or damage to their facilities or if the services are no longer cost-effective, the Group could experience interruptions in solutions and service as well as delays and additional expense to serve platform participants. The ability to exchange information and obtain credit data from third parties could also be interrupted. Any interruptions or delays in service, whether as a result of third-party error, the Group’s error, natural disasters or security breaches, whether accidental or willful, could harm the relationships with platform participants and the Group’s reputation. The Group may not have sufficient capacity to recover all data and services lost in the event of an outage. These factors could disrupt business operations, damage Cango brand and reputation, divert employees’ attention, reduce revenue, subject us to liability and cause platform participants to abandon solutions and services on Cango platform, any of which could adversely affect the Group’s business, financial condition and results of operations. 28 Table of Contents Technology is a critical aspect in the efficient operation of the Group’s business, and if any of the Group’s systems contain undetected errors, or if the Group fails to effectively implement technology initiatives or anticipate future technology needs or demands, the Group’s operations may be materially and adversely affected. The efficient and reliable operation of the Group’s business depends on technology as well as the Group’s IT systems. The Group’s systems, enterprise applications and software on which the Group depends for the operation of its business may contain programming errors or other defects that the Group’s internal testing did not detect. The occurrence of such undetected errors or defects in the Group’s systems and software could disrupt operations, damage reputation and detract from the experience of users. In addition, the Group’s future success depends on its ability to anticipate technology development trends and identify, develop and commercialize new technology initiatives in a timely and cost-effective manner in order to deliver services demanded by platform participants. However, the Group may fail to recruit, train and retain qualified research and development personnel, and there can be no assurance that the Group will be able to implement new technology initiatives effectively, or that the Group will be successful in anticipating new technology needs and demands of customers and of the market at large. Moreover, it may take an extended period of time for the Group’s new technologies and services to gain market acceptance, if at all. If the Group fails to effectively implement technology initiatives or anticipate future technology needs or demands, its operations may materially and adversely affected. Misconducts and errors by employees and third parties collaborated with could harm the Group’s business and reputation. The Group is exposed to many types of operational risks, including the risk of misconduct and errors by employees and third-party business partners collaborated with. The Group’s business depends on these employees and third parties, such as dealers, financial institutions and sales agents, to interact with car buyers, process large numbers of transactions and support the collection process. The Group could be materially and adversely affected if transactions are improperly executed, if personal information was disclosed to unintended recipients or if an operational breakdown or failure in the processing of transactions occurred, whether as a result of human error, purposeful sabotage or fraudulent manipulation of the Group’s operations or systems. It is not always possible to identify and deter misconduct or errors by employees or third-party business partners, and the precautions the Group takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses. If any of the employees or third-party business partners take, convert or misuse funds, documents or data or fail to follow the rules and procedures when interacting with car buyers, the Group could be liable for damages and subject to regulatory actions and penalties. The Group could also be perceived to have facilitated or participated in the illegal misappropriation of funds, documents or data, or the failure to follow existing rules and procedures, and therefore be subject to civil or criminal liability. Any of these occurrences could result in the Group’s diminished ability to operate its business, potential liability to car buyers, inability to attract car buyers, reputational damage, regulatory intervention and financial harm, which could negatively impact the Group’s business, financial condition and results of operations. If the Group is unable to safeguard the security of the confidential information of car buyers, dealers or third parties it collaborates with and adapt to the relevant regulatory framework as to protection of such information, the Group’s business and operations may be adversely affected. We face challenges from the evolving regulatory environment regarding cybersecurity, information security, privacy and data protection. Many of these laws and regulations and interpretations of which are subject to changes and uncertainties, and any actual or alleged failure to comply with these laws and regulations could materially and adversely affect our business and results of operations. The Group collects, stores and processes certain personal and other data from car buyers, dealers and other third parties, which makes it an attractive target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions. While the Group has taken steps to protect the confidential information that it has access to, these security measures could be breached. Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, the Group may be unable to anticipate these techniques or to implement adequate preventative measures. Any accidental or willful security breaches or other unauthorized access to the Group’s system could cause confidential car buyer information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose the Group to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in the Group’s technology infrastructure are exposed and exploited, the relationships with car buyers, dealers and/or financial institutions could be severely damaged, the Group could incur significant liability and its business and operations could be adversely affected. 29 Table of Contents In addition, PRC government authorities have enacted a series of laws and regulations in regard of cybersecurity, information security, privacy and data protection. On June 10, 2021, the Standing Committee of the National People’s Congress of China, or the SCNPC, promulgated the PRC Data Security Law, which took effect on September 1, 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC Data Security Law also provides a national security review procedure for those data activities which may have an impact on national security. On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law of the People’s Republic of China, effective from November 1, 2021. The Personal Information Protection Law requires, among others, that (i) the processing of personal information should have a clear and reasonable purpose which shall be directly related to the processing purpose, in a method that has the least impact on personal rights and interests, and (ii) the collection of personal information shall be limited to the minimum scope necessary to achieve the processing purpose and to avoid the excessive collection of personal information. Different types of personal information and personal information processing will be subject to various rules on consent, transfer, and security. Entities processing personal information shall bear responsibilities for their personal information processing activities, and adopt necessary measures to safeguard the security of the personal information they process. Entities processing personal information that fail to comply with the Personal Information Protection Law could be ordered to take remedial measures, suspend or terminate their services, or face confiscation of illegal income, fines or other penalties. On December 28, 2021, the CAC, together with certain other PRC governmental authorities, promulgated the Cybersecurity Review Measures, which took effective on February 15, 2022. Pursuant to these measures, the purchase of network products and services by an operator of critical information infrastructure or the data processing activities of a network platform operator that affect or may affect national security will be subject to cybersecurity review. The competent governmental authorities may also initiate a cybersecurity review on the operators if the authorities believe that the network product or service or data processing activities of such operators affect or may affect national security. On November 14, 2021, the CAC promulgated the draft Regulations on the Administration of Cyber Data Security for public comment, pursuant to which data processors conducting the following activities must apply for cybersecurity review: (i) merger, reorganization or division of internet platform operators that possess a large number of data resources related to national security, economic development or public interests that affect or may affect national security; (ii) listing abroad of data processors processing over one million users’ personal information; (iii) listing in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. Further, the draft regulations require internet platform operators to establish platform rules, privacy policies and algorithm strategies related to data, and solicit public comments on their official websites and sections related to personal information protection for no less than 30 working days when they formulate platform rules or privacy policies or makes any amendments that may have a significant impact on users’ rights and interests. In addition, platform rules and privacy policies formulated by operators of large internet platforms with more than 100 million daily active users, or amendments to such rules or policies by operators of large internet platforms with more than 100 million daily active users that may have significant impacts on users’ rights and interests shall be evaluated by a third-party organization designated by the CAC and reported to local branch of the CAC for approval. The CAC has solicited comments on this draft until December 13, 2021, but there is no definite timetable as to when the draft regulations will be enacted. In the meantime, the PRC regulatory authorities have also enhanced the supervision and regulation on cross-border data transmission. For example, on July 7, 2022, the CAC promulgated the Measures for the Security Assessment of Cross-border Data Transfer, which came into effect on September 1, 2022. These measures require a data processor who provides data to overseas recipients and falls under any of the specified circumstance to apply for a security assessment of cross-border data transfer by the national cybersecurity authority through its local counterpart. On February 22, 2023, the Cyberspace Administration of China promulgated the Measures on the Standard Contract for Cross-border Transfer of Personal Information, which became effective on June 1, 2023. These measures require personal information processors who provide personal information to overseas recipients through standard contracts and fall under any of the specified circumstance to file with the local counterpart of the Cyberspace Administration of China within ten business days from the effective date of the relevant standard contracts. Furthermore, on March 22, 2024, the Cyberspace Administration of China promulgated the Provisions on Promoting and Standardizing Cross-Border Data Transfer which set forth the circumstances exempted from performing the security assessment or filing procedures for cross-border data transfer and further clarify the thresholds and senarios for data processors to go through these procedures as stipulated under the aforementioned measures. However, uncertainties still exist with respect to the interpretation and implementation of these measures in practice and how they will affect the Group’s business operation. 30 Table of Contents The Group obtains consents from car buyers on Cango platform to use their personal information within the scope of authorization and has taken technical measures to ensure the security of such personal information and prevent the personal information from being divulged, damaged or lost. Furthermore, pursuant to confidentiality provisions in the cooperation agreements with financial institutions, the Group has the obligation to safeguard car buyers’ personal information and to only use such information within the authorized scope. The Group may face litigation brought by financial institutions or car buyers, if it fails to satisfy such confidentiality obligations in the relevant cooperation agreements, or if the use of car buyers’ data falls outside of the scope of their authorization, as the case may be. Furthermore, there is uncertainty as to the interpretation and application of such laws which may be interpreted and applied in a manner inconsistent with current policies and practices or require changes to the features of the Group’s system. PRC governmental authorities have taken a series of strict examinations and inspections against illegal activities of collecting or using data and personal information, and it was reported that numerous mobile applications or website operators were ordered to rectify their illegal activities, or imposed with warnings, fines or other administrative penalties, or even became subjects of criminal investigations. We cannot rule out the possibility that operators like the Group would also be subject to more comprehensive and stricter supervision by the competent governmental authorities on cybersecurity, information security, privacy and data protection in the future. The regulatory framework for cybersecurity, information security, privacy and data protection in China and worldwide is continuously evolving and is likely to remain uncertain for the foreseeable future, and there can be no assurance that the existing car buyer information protection system and technical measures will be considered sufficient under applicable laws and regulations. If the Group is unable to address any information protection concerns, or to comply with the then applicable laws and regulations, the Group may incur additional costs and liability and its reputation, business and operations might be adversely affected. See “Item 4. Information on the Company—B. Business Overview— Regulations—Regulation Related to Cybersecurity, Internet Information Security and Privacy Protection” for more details. If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired. As a U.S. public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the NYSE. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. Commencing with our fiscal year ended December 31, 2023, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Form 20-F filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. In addition, beginning at the same time, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2023. See “Item 15. Controls and Procedures — Management’s Annual Report on Internal Control over Financial Reporting.” Our independent registered public accounting firm has issued a report, which has concluded that we maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023. However, our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. We may not be able to always maintain an effective internal control over financial reporting for a variety of reasons. Among others, the Group’s operations are based in China, an emerging market where the overall internal control environment may not be as strong as in more established markets. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our ADSs could decline and we could be subject to sanctions or investigations by the NYSE, SEC or other regulatory authorities. 31 Table of Contents The ability of U.S. authorities to bring actions for violations of U.S. securities law and regulations against us, our directors, executive officers or the expert named in this annual report may be limited and therefore you may not be afforded the same protection as provided to investors in U.S. domestic companies. The SEC, U.S. Department of Justice (“DOJ”) and other authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies such as the Group, and non-U.S. persons, such as our directors and executive officers in China. Due to jurisdictional limitations, matters of comity and various other factors, the SEC, DOJ and other U.S. authorities may be limited in their ability to pursue bad actors, including in instances of fraud, in emerging markets such as China. The Group conducts substantially all of its operations in China and substantially all of the Group’s assets are located in China. In addition, a majority of our directors and executive officers reside within China. There are significant legal and other obstacles for U.S. authorities to obtain information needed for investigations or litigation against the Group or our directors, executive officers or other gatekeepers in case the Group or any of these individuals engage in fraud or other wrongdoing. In addition, local authorities in China may be constrained in their ability to assist U.S. authorities and overseas investors more generally. As a result, if we have any material disclosure violation or if our directors, executive officers or other gatekeepers commit any fraud or other financial misconduct, the U.S. authorities may not be able to conduct effective investigations or bring and enforce actions against the Group, our directors, executive officers or other gatekeepers. Therefore, you may not be able to enjoy the same protection provided by various U.S. authorities as it is provided to investors in U.S. domestic companies. The Group may not be able to prevent others from unauthorized use of its intellectual property and the Group may be subject to intellectual property infringement claims, either of which could harm our business and competitive position. The Group regards its trademarks, domain names, copyrights, know-how, proprietary technologies and similar intellectual property as critical to its success, and the Group relies on trademark and trade secret law and confidentiality, invention assignment and non- compete agreements with its employees and others to protect its proprietary rights. See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.” However, there can be no assurance that any of the Group’s intellectual property rights would not be challenged, invalidated or circumvented, or such intellectual property will be sufficient to provide the Group with competitive advantages. In addition, other parties may misappropriate the Group’s intellectual property rights, which would cause the Group to suffer economic or reputational damage. Because of the rapid pace of technological change, there can be no assurance that all of the Group’s proprietary technologies and similar intellectual property will be patented in a timely or cost-effective manner, or at all. For example, the Group does not hold any patent relating to the existing credit assessment model. Furthermore, parts of the Group’s business rely on technologies developed or licensed by other parties, or co-developed with other parties, including open source software, and the Group may not be able to obtain or continue to obtain licenses and technologies from these other parties on reasonable terms, or at all. Intellectual property protection may not be sufficient in the jurisdiction in which the Group operates. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality, invention assignment and non-compete agreements may be breached by counterparties, and there may not be adequate remedies available to the Group for any such breach. Accordingly, the Group may not be able to effectively protect its intellectual property rights or to enforce its contractual rights in China. Preventing any unauthorized use of the Group’s intellectual property is difficult and costly and the steps the Group takes may be inadequate to prevent the misappropriation of its intellectual property. In the event that the Group resorts to litigation to enforce its intellectual property rights, such litigation could result in substantial costs and a diversion of its managerial and financial resources. We can provide no assurance that the Group will prevail in such litigation. In addition, the Group’s trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in protecting or enforcing the Group’s intellectual property rights could have a material adverse effect on its business, financial condition and results of operations. Meanwhile, we cannot be certain that the Group’s operations or any aspects of its business do not or will not infringe upon or otherwise violate trademarks, copyrights, know-how, proprietary technologies or other intellectual property rights held by other parties. The Group may be from time to time in the future subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be other parties’ trademarks, copyrights, know-how, proprietary technologies or other intellectual property rights that are infringed by the Group’s services or other aspects of its business without its awareness. Holders of such intellectual property rights may seek to enforce such intellectual property rights against the Group in China, the U.S. or other jurisdictions. If any infringement claims are brought against the Group, we may be forced to divert management’s time and other resources from the Group’s business and operations to defend against these claims, regardless of their merits. 32 Table of Contents Currently, open source software is used in certain aspects of Cango platform and business operations, and it is expected that open source software will continue to be used in the future. The Group may face claims from others claiming ownership of, or seeking to enforce the terms of, an open source license, including by demanding release of the open source software, derivative works or our proprietary source code that was developed using such software. These claims could also result in litigation, require the Group to purchase a costly license or require it to devote additional research and development resources to change its technologies, any of which would have a negative effect on its business and operating results. In addition, if the license terms for the open source software the Group utilizes change, it may be forced to reengineer or discontinue relevant solutions or incur additional costs. We cannot be certain that open source software in the existing solutions is incorporated in a manner that is consistent with internal policies. Additionally, the application and interpretation of China’s intellectual property right laws and the procedures and standards for granting trademarks, copyrights, know-how, proprietary technologies or other intellectual property rights in China are still evolving, and there can be no assurance that PRC courts or regulatory authorities would agree with our analysis. If the Group were found to have violated the intellectual property rights of others, the Group may be subject to liability for its infringement activities or may be prohibited from using such intellectual property, and the Group may incur licensing fees or be forced to develop alternatives of its own. As a result, the Group’s business and results of operations may be materially and adversely affected. If the Group fails to keep up with the technological developments and implementation of advanced technologies, the Group’s business, results of operations and prospects may be materially and adversely affected. Technology is applied to serve Cango platform participants more efficiently and bring them better user experience. The Group’s success will in part depends on the ability to keep up with the changes in technology and the continued successful implementation of advanced technology, including cloud computing, distributed architecture and big data analytics. If the Group fails to adapt Cango platform and services to changes in technological development in an effective and timely manner, the Group’s business operations may suffer. Changes in technologies may require substantial expenditures in research and development as well as in modification of existing services. Technical hurdles in implementing technological advances may result in the services becoming less attractive to platform participants, which, in turn, may materially and adversely affect the Group’s business, results of operations and prospects. As the Group’s business develops, it may be required to obtain additional license or permits. The Telecommunications Regulations of the PRC, the Administrative Rules for Foreign Investment in Telecommunications Enterprises and other relevant regulations on the operation of VATS business provide a license requirement for operating such business in the PRC. The Group currently engages in the VATS business, including value-added online services for platform participants, through Shanghai Yungu. Therefore, Shanghai Yungu has obtained the relevant VATS licenses as required. However, as the Group continually enriches the service offerings, we cannot assure you that the Group will be able to obtain all the requisite license for providing VATS or other services on a timely basis or at all. The Group’s inability to obtain such license or any delay in obtaining such license could have a material and adverse impact on its business and results of operations. We are subject to risks relating to leased properties. Currently all of the Group’s offices and vehicle storage warehouses are on leased premises. The Group may not be able to successfully extend or renew these leases upon expiration of the current terms on commercially reasonable terms or at all, and may therefore be forced to relocate the relevant offices and warehouses. Such relocation could disrupt operations and result in significant relocation expenses, which could adversely affect the Group’s business, financial condition and results of operations. In addition, it might be difficult to locate desirable alternative sites for the current offices and warehouses, and failure in relocating the affected operations could adversely affect our business and operations. Pursuant to the Land Administration Law of the PRC, land in urban districts is owned by the state. The owner of a property built on state-owned land must possess the proper land and property title certificate to demonstrate that it is the owner of the premises and that it has the right to enter into lease contracts with the tenants or to authorize a third party to sublease the premises. We have entered into certain lease agreements with parties who had not produced evidence of proper legal title of the premises. If such parties are not the owners of the premises, and the actual owners successfully challenge the validity of the relevant leases, the Group would be forced to relocate from the relevant premises. Although the Group may seek damages from the counterparties to the lease agreements, there can be no assurance that it would be able to collect such damages. 33 Table of Contents Failure to fully comply with PRC labor-related laws may expose the Group to potential penalties. The PRC government has promulgated laws and regulations to enhance labor protections, such as the Labor Contract Law, the Social Insurance Law and the Regulations on the Administration of Housing Funds. Such laws and regulations require companies operating in China to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of employees up to a maximum amount specified by the relevant local government from time to time. The requirement of employee benefit plans has not been implemented consistently by the local authorities in China given the different levels of economic development in different locations. The Group did not pay, or was not able to pay, certain social insurance and housing fund contributions in strict compliance with the relevant PRC regulations for and on behalf of the employees due to differences in local regulations and inconsistent implementation or interpretation by local authorities in the PRC. It may be required to make up the contributions for these plans as well as to pay late fees and fines, and our financial condition and results of operations may be adversely affected. Any failure by the Group or third parties it collaborates with to comply with applicable anti-money laundering and anti-terrorist financing laws and regulations could damage reputation, result in significant penalties, and decrease revenues and profitability. The Group has implemented various policies and procedures in compliance with all applicable anti-money laundering and anti- terrorist financing laws and regulations, including internal controls and “know-your-customer” procedures, for preventing money laundering and terrorist financing. In addition, the Group relies on financial institutions to have their own appropriate anti-money laundering policies and procedures. Financial institutions it collaborates with are subject to anti-money laundering obligations under applicable anti-money laundering laws and regulations and are regulated in that respect by the PBOC. The Group has adopted commercially reasonable procedures for monitoring financial institutions it collaborates with. The Group has not been subject to fines or other penalties, or suffered business or other reputational harm, as a result of actual or alleged money laundering or terrorist financing activities in the past. However, existing policies and procedures may not be completely effective in preventing other parties from using the Group or any financial institutions it collaborates with as a conduit for money laundering (including illegal cash operations) or terrorist financing without the Group’s knowledge. If the Group were to be associated with money laundering (including illegal cash operations) or terrorist financing, its reputation could suffer, and the Group could become subject to regulatory fines, sanctions, or legal enforcement, including being added to any “blacklists” that would prohibit certain parties from engaging in transactions with it, all of which could have a material adverse effect on the Group’s financial condition and results of operations. Even if the Group and financial institutions it collaborates with comply with applicable anti-money laundering laws and regulations, it and these financial institutions may not be able to fully eliminate money laundering and other illegal or improper activities in light of their complexity and the secrecy of these activities. Any negative perception of the industry, such as that which may arise from any failure of other automotive financing solution facilitation service providers to detect or prevent money laundering activities, even if factually incorrect or based on isolated incidents, could compromise the Group’s image, undermine the trust and credibility the Group has established, and negatively impact its financial condition and results of operation. From time to time we may evaluate and potentially consummate strategic investments or acquisitions, which could require significant management attention, disrupt business and adversely affect the financial results. We may evaluate and consider strategic investments, combinations, acquisitions or alliances to further increase the value of the Group’s services, better serve car buyers, and enhance the Group’s competitive position. For example, in June 2018, January 2019 and July 2019, the Group made a series of equity investments in Li Auto. At the end of September 2018, the Group completed the acquisition of Shanghai Chejia. In 2019, the Group acquired Shanghai Quanpin Automobile Sales Co., Ltd., which wholly owns Fushun Insurance Brokerage Co., Ltd., to operate the insurance brokerage business. These transactions could be material to the Group’s financial condition and results of operations if consummated. If we are able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction and, even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction, which may result in investment losses. 34 Table of Contents Strategic investments or acquisitions will involve risks commonly encountered in business relationships, including: ● difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business; ● inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits, including the failure to successfully further develop the acquired technology; ● difficulties in retaining, training, motivating and integrating key personnel; ● diversion of management’s time and resources from normal daily operations and potential disruptions to the ongoing businesses; ● strain on current liquidity and capital resources; ● difficulties in executing intended business plans and achieving synergies from such strategic investments or acquisitions; ● difficulties in maintaining uniform standards, controls, procedures and policies within the overall organization; ● difficulties in retaining relationships with existing customers, employees and business partners of the acquired business; ● risks of entering markets in which we have limited or no prior experience; ● regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; ● assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; ● liability for activities of the acquired business before the acquisition, including intellectual property infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and ● unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions. Any future investments or acquisitions may not be successful, may not benefit the Group’s business strategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the intended benefits. The Group’s business depends on the continued efforts of our senior management. If one or more members of our senior management were unable or unwilling to continue in their present positions, the Group’s business may be severely disrupted. The Group’s business operations depend on the continued services of our senior management, particularly the executive officers named in this annual report. In particular, Mr. Xiaojun Zhang, our founder and chairman, and Mr. Jiayuan Lin, our founder and chief executive officer, are critical to the management of the Group’s business and operations and the development of its strategic direction. While we have provided various incentives to our management, there can be no assurance that we can continue to retain their services. If one or more members of our senior management were unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, the Group’s future growth may be constrained, the Group’s business may be severely disrupted, and the Group’s financial condition and results of operations may be materially and adversely affected, and the Group may incur additional expenses to recruit, train and retain qualified personnel. Any new executive we recruit may fail to develop or implement effective business strategies. In addition, although we have entered into confidentiality and non-competition agreements with our management, there is no assurance that any member of our management team will not join our competitors or form a competing business. If any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all. 35 Table of Contents Intense competition for employees and increases in labor costs in the PRC may adversely affect the Group’s business and results of operations. We believe the Group’s success depends on the efforts and talent of the Group’s employees, including sales and marketing, operations, risk management, research and development and finance personnel. The Group’s future success depends on its continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for highly skilled sales and marketing, operations, risk management, research and development and finance personnel is extremely intense. The Group may not be able to hire and retain these personnel at compensation levels consistent with its existing compensation and salary structure. Some of the companies with which the Group competes for experienced employees have greater resources than the Group and may be able to offer more attractive terms of employment. In addition, the Group invests significant time and expenses in training its employees, which increases their value to competitors who may seek to recruit them. If the Group fails to retain its employees, the Group could incur significant expenses in hiring and training their replacements, and the quality of services and ability to serve dealers, financial institutions, car buyers and other industry participants could diminish, resulting in a material adverse effect to our business. The economy in China has experienced increases in inflation and labor costs in recent years. As a result, average wages in the PRC are expected to continue to increase. In addition, the Group is required by PRC laws and regulations to pay various statutory employee benefits, including pension insurance, housing funds, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of the employees. We expect that the Group’s labor costs, including wages and employee benefits, will continue to increase. Unless we are able to control the Group’s labor costs or pass on these increased labor costs, the Group’s financial condition and results of operations may be adversely affected. Our corporate actions will be substantially controlled by certain of our principal shareholders, who will have the ability to control or exert significant influence over important corporate matters that require approval of shareholders, which may deprive you of an opportunity to receive a premium for your ADSs and materially reduce the value of your investment. In May 2018, our co-founders Mr. Xiaojun Zhang and Mr. Jiayuan Lin entered into a voting agreement, which was amended and restated in June 2019. Pursuant to the amended and restated voting agreement, the co-founders shall reach a consensus before exercising their voting rights with respect to our shares. As of March 31, 2024, our co-founders collectively exercised 91.8% of the aggregate voting power of our issued and outstanding share capital. For further information, see “Item 6. Directors, Senior Management and Employees— E. Share Ownership.” As a result of the ownership concentration, these shareholders have the ability to control or exert significant influence over important corporate matters, investors may be prevented from affecting important corporate matters involving our company that require approval of shareholders, including: ● the composition of our board of directors and, through it, any determinations with respect to our operations, business direction and policies, including the appointment and removal of officers; ● any determinations with respect to mergers or other business combinations; ● our disposition of substantially all of our assets; and ● any change in control. These actions may be taken even if they are opposed by our other shareholders, including the holders of the ADSs. Furthermore, this concentration of ownership may also discourage, delay or prevent a change in control of our company, which could have the dual effect of depriving our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and reducing the price of the ADSs. As a result of the foregoing, the value of your investment could be materially reduced. 36 Table of Contents We are a “controlled company” under the rules of NYSE and, as a result, will rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies. We are a “controlled company” as defined under the NYSE Listed Company Manual. Our co-founders Mr. Xiaojun Zhang and Mr. Jiayuan Lin collectively hold more than 50% of the aggregate voting power of our company. In May 2018, the co-founders entered into a voting agreement, which was amended and restated in June 2019. The amended and restated voting agreement provides that they shall reach a consensus before exercising their voting rights with respect to our shares. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and will rely, on certain exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors. As a result, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements. We may incur substantial share-based compensation expenses. On May 25, 2018, we adopted the Share Incentive Plan 2018, which permits the grant of options, restricted shares, restricted share units and other share-based awards to our employees, directors and consultants. The maximum aggregate number of ordinary shares that may be issued pursuant to the share incentive plan is 27,845,526 initially. Additional ordinary shares may be reserved for issuance of equity awards as determined by our board of directors. We have granted options to purchase our ordinary shares to certain of our officers and employees since then. For example, in June 2022, we granted (i) options to purchase 6,000,000 Class A ordinary shares to Mr. Xiaojun Zhang, our co-founder and chairman, and (ii) options to purchase 6,000,000 Class A ordinary shares to Mr. Jiayuan Lin, our co-founder, director and chief executive officer. These share options were granted in consideration of Mr. Zhang and Mr. Lin’s roles in guiding our Group’s profitable investment in Li Auto. We are required to account for options granted to our employees, directors and consultants. We are required to classify options granted to our employees, directors and consultants as equity awards and recognize share-based compensation expense based on the fair value of such share options, with the share-based compensation expense recognized over the period in which the recipient is required to provide service in exchange for the share option or other equity award. We believe the granting of share-based compensation is of significant importance to our ability to attract, retain and motivate our management team and talented employees, and we will continue to grant share-based compensation to employees in the future. As a result, the expenses associated with share-based compensation may increase significantly, which may have an adverse effect on the Group’s results of operations and financial condition. The Group recognized RMB38.5 million (US$5.4 million) of share-based compensation expenses in 2023. We may not have sufficient insurance coverage. Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. Currently, we do not have enough business liability or disruption insurance to cover the Group’s operations. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for the Group to have such insurance. Any uninsured business disruptions may result in the Group incurring substantial costs and the diversion of resources, which could have an adverse effect the Group’s our financial condition and results of operations. The Group is or may be subject to potential liability in connection with pending or threatened legal proceedings and other matters, which could adversely affect the Group’s business or financial results. From time to time, the Group has become and may in the future become a party to various legal or administrative proceedings arising in the ordinary course of its business, including breach of contract claims, anti-competition claims and other matters. Such proceedings are inherently uncertain, and their results cannot be predicted with certainty. Regardless of the outcome and merit of such proceedings, any such legal action could have an adverse impact on the Group’s business because of defense costs, negative publicity, diversion of management’s attention and other factors. In addition, it is possible that an unfavorable resolution, including any judgment or settlement subjecting the Group to liability, of one or more legal or administrative proceedings, whether in the PRC or in another jurisdiction, could materially and adversely affect its business, financial position, results of operations or cash flows in a particular period or damage its reputation. 37 Table of Contents The Group may be subject to product liability claims if people or properties are harmed by cars purchased through Cango platform. Cars purchased through Cango platform may be defectively designed or manufactured. As a result, the Group may be exposed to product liability claims relating to personal injury or property damage. Third parties subject to such injury or damage may bring claims or legal proceedings against the Group because it facilitates the financing or sale of the product. Although the Group would have legal recourse against the OEMs or dealers under PRC law, attempting to enforce such rights against the OEMs or dealers may be expensive, time-consuming and ultimately futile. In addition, the Group does not currently maintain any third-party liability insurance or product liability insurance in relation to cars purchased through Cango platform. As a result, any material product liability claim or litigation could have a material and adverse effect on the Group’s business, financial condition and results of operations. Even unsuccessful claims could result in the expenditure of funds and managerial efforts in defending them and could have a negative impact on the Group’s reputation. A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect the Group’s business, financial condition and results of operations. Any prolonged slowdown in the Chinese or global economy may have a negative impact on the Group’s business, financial condition and results of operations. In particular, general economic factors and conditions in China or worldwide, including the general interest rate environment and unemployment rates, may affect consumers’ demand for cars. Economic conditions in China are sensitive to global economic conditions. The COVID-19 pandemic resulted in declines in economic activities in China and other parts of the world and raised concerns about the prospects of the global economy. There have also been concerns over conflicts in Ukraine and the Middle East, which have resulted in volatility in financial and other markets. Furthermore, the economies may also be affected by the tensions in the relationship between China and the United States. If present Chinese and global economic uncertainties persist, there will be difficulty in obtaining financial institutions to fund financing transactions to car buyers. Adverse economic conditions could also reduce car buyers’ ability to make payments. Should any of these situations occur, the Group’s business and financial condition will be negatively impacted. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs. The Group’s operations depend on the performance of the internet infrastructure and fixed telecommunications networks in China. Almost all access to the internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the MIIT. The Group’s IT systems infrastructure is currently deployed, and the data is currently maintained through a customized cloud computing system. The Group’s servers are housed at third-party data centers. Such service provider may have limited access to alternative networks or services in the event of disruptions, failures or other problems with China’s internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers. With the expansion of business, the Group may be required to upgrade its technology and infrastructure to keep up with the increasing number and variety of transactions on Cango platform. There can be no assurance that the current data centers and the underlying internet infrastructure and the fixed telecommunications networks in China will be able to support the demands associated with the continued growth in internet usage. In addition, we have no control over the costs of the services provided by telecommunication service providers which in turn, may affect the costs of data center services. If the prices paid for data center services rise significantly, the Group’s results of operations may be adversely affected. The COVID-19 pandemic adversely affected our results of operations. The Group experienced certain disruptions in its operations in certain periods from 2020 to 2022 as a result of the COVID-19 outbreak in China and measures undertaken by the Chinese government to contain the spread of COVID-19, which negatively affected the Group’s business to some extent. In particular, the Group’s revenue decreased from RMB3,921.7 million for 2021 to RMB1,980.5 million for 2022. Furthermore, the COVID-19 outbreaks interrupted the Group’s collection efforts and affected car buyers’ ability to make repayments. As a result, the Group experienced an uptick in delinquency rates. M1+ and M3+ overdue ratios were 2.61% and 1.38%, respectively, as of December 31, 2022, as compared to 1.62% and 0.86%, respectively, as of December 31, 2021. Any future COVID-19 outbreaks in China may again adversely affect the Group’s business, results of operations, financial position and cash flows. 38 Table of Contents We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations. The Group is vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect the ability to provide services. The Group’s business could also be adversely affected by the effects of COVID-19 coronavirus, Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, or other epidemics. The Group’s business operations could be disrupted if any of its employees is suspected of having COVID-19 coronavirus, Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, SARS or another contagious disease or condition, since it could require the Group’s employees to be quarantined and/or its offices to be disinfected. In addition, the Group’s results of operations could be adversely affected to the extent that any of these epidemics harms the Chinese economy in general. Risks Relating to Our Corporate Structure We rely on contractual arrangements with our consolidated VIEs and their shareholders to operate the Group’s business, which may not be as effective as direct ownership in providing operational control and otherwise have a material adverse effect as to the Group’s business. Cango Inc. is not a Chinese operating company but a Cayman Islands holding company. We rely on contractual arrangements with our consolidated VIEs and their shareholders to operate the Group’s business. Therefore, investors in our ADSs do not hold equity interests in our consolidated VIEs in China but instead hold equity interests in a Cayman Islands holding company, and investors in our ADSs may never directly hold equity interests in our consolidated VIEs. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements among Can Gu Long, the Consolidated VIEs and Their Shareholders.” All of the Group’s revenue is attributed to our consolidated VIEs. These contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated VIEs. If our consolidated VIEs or their shareholders fail to perform their respective obligations under these contractual arrangements, our recourse to the assets held by our consolidated VIEs is indirect and we may have to incur substantial costs and expend significant resources to enforce such arrangements in reliance on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal system. Furthermore, in connection with litigation, arbitration or other judicial or dispute resolution proceedings, assets under the name of any of record holder of equity interest in our consolidated VIEs, including such equity interest, may be put under court custody. As a consequence, we cannot be certain that the equity interest will be disposed pursuant to the contractual arrangement or ownership by the record holder of the equity interest. All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. However, these contracts such as ours have not been tested in the PRC legal procedures. Uncertainties regarding the interpretation and enforcement of the relevant PRC laws and regulations could limit our ability to enforce these contractual arrangements. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant time delays or other obstacles in the process of enforcing these contractual arrangements, it would be very difficult to allow us to receive economic benefits from our consolidated VIEs, and the Group’s ability to conduct its business and the Group’s financial condition and results of operations may be materially and adversely affected. See “—Risks Relating to Doing Business in China—Changes and developments in the PRC legal system and the interpretation and enforcement of PRC laws, rules and regulations may subject us to uncertainties.” 39 Table of Contents Any failure by our consolidated VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business. We, through one of our subsidiaries and a wholly foreign-owned enterprise in the PRC, have entered into a series of contractual arrangements with our consolidated VIEs and their shareholders. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements among Can Gu Long, the Consolidated VIEs and their Shareholders.” If our consolidated VIEs or their shareholders fail to perform their respective obligations under these contractual arrangements, we may incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of our consolidated VIEs were to refuse to transfer their equity interests in the consolidated VIEs to us or our designee when we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations. All the agreements under our contractual arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. Uncertainties regarding the interpretation and enforcement of the relevant PRC laws and regulations could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a VIE should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are final and parties cannot appeal arbitration results in court unless such rulings are revoked or determined unenforceable by a competent court. If the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to receive economic benefits from our consolidated VIEs and leverage relevant rights and licenses held by it which we require in order to operate the Group’s business, and our ability to conduct the Group’s business may be negatively affected. See “—Risks Relating to Doing Business in China —Changes and developments in the PRC legal system and the interpretation and enforcement of PRC laws, rules and regulations may subject us to uncertainties.” The arbitration provisions under these contractual arrangements have no effect on the rights of our shareholders to pursue claims against us under United States federal securities laws. The shareholders of our consolidated VIEs may have potential conflicts of interest with us, which may materially and adversely affect the Group’s business and financial condition. The interests of the shareholders of our consolidated VIEs in their capacities as such shareholders may differ from the interests of our company as a whole, as what is in the best interests of our consolidated VIEs, including matters such as whether to distribute dividends or to make other distributions to fund our offshore requirement, may not be in the best interests of our company. There can be no assurance that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or those conflicts of interest will be resolved in our favor. In addition, these shareholders may breach or cause our consolidated VIEs and their subsidiaries to breach or refuse to renew the existing contractual arrangements with us. Currently, we do not have arrangements to address potential conflicts of interest the shareholders of our consolidated VIEs may encounter. We, however, could, at all times, exercise our option under the exclusive option agreement to cause them to transfer all of their equity ownership in our consolidated VIEs to a PRC entity or individual designated by us as permitted by the then applicable PRC laws. In addition, if such conflicts of interest arise, we could also, in the capacity of attorney-in-fact of the then existing shareholders of our consolidated VIEs as provided under the power of attorney, directly appoint new directors of our consolidated VIEs. We rely on the shareholders of our consolidated VIEs to comply with PRC laws and regulations, which protect contracts and provide that directors and executive officers owe a duty of loyalty to our company and require them to avoid conflicts of interest and not to take advantage of their positions for personal gains, and the laws of the Cayman Islands, which provide that directors have a duty of care and a duty of loyalty to act honestly in good faith with a view to our best interests. However, the legal frameworks of China and the Cayman Islands do not provide guidance on resolving conflicts in the event of a conflict with another corporate governance regime. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of our consolidated VIEs, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings. 40 Table of Contents If the PRC government deems that the contractual arrangements in relation to our consolidated VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. We currently engage in telecommunications-related businesses, including value-added online services for platform participants, through Shanghai Yungu, one of our consolidated VIEs. The PRC government regulates telecommunications-related businesses through strict business licensing requirements and other government regulations. These laws and regulations also include limitations on foreign ownership of PRC companies that engage in telecommunications-related businesses. Specifically, as for the telecommunications businesses open for foreign investment according to China’s WTO commitment, foreign investors are generally not allowed to own more than a 50% equity interest in any PRC company engaging in value-added telecommunications businesses, except for e- commerce, domestic conferencing, store-and-forward, and call center services. Because we are an exempted company incorporated in the Cayman Islands, we are classified as a foreign enterprise under PRC laws and regulations, and our wholly foreign-owned enterprise in the PRC is a foreign-invested enterprise, or a FIE. Accordingly, our subsidiary is not eligible to operate a substantial portion of VATS business in China. As such, we conduct our business in China through our consolidated VIEs and their affiliates. Our PRC subsidiary has entered into a series of contractual arrangements with our consolidated VIEs and their shareholders, which enable us to (i) receive substantially all of the economic benefits of the consolidated VIEs and (ii) have an exclusive option to purchase all or part of the equity interests and assets in the consolidated VIEs when and to the extent permitted by PRC law. As a result of these contractual arrangements, we have control over and are the primary beneficiary of the consolidated VIEs for accounting purposes and hence consolidate its financial results as our consolidated VIEs under U.S. GAAP. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements among Can Gu Long, the Consolidated VIEs and Their Shareholders.” We believe that our corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations. Our PRC legal counsel, Fangda Partners, based on its understanding of the relevant laws and regulations, is of the opinion that each of the contracts among our wholly-owned PRC subsidiary, our consolidated VIEs and their shareholders is valid, binding and enforceable in accordance with its terms, except that the pledges in respect of our consolidated VIEs’ equity interests would not be deemed validly created until they are registered with the local administration for market regulation. However, as there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, there can be no assurance that the PRC government authorities would agree that our corporate structure or any of the above contractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities have discretion in interpreting these laws and regulations. On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, and on December 26, 2019, the State Council promulgated the Implementing Rules of the Foreign Investment Law of the People’s Republic of China, or the Implementing Rules, to further clarify and elaborate the relevant provisions of the Foreign Investment Law. The Foreign Investment Law and the Implementing Rules, both taking effect on January 1, 2020, do not explicitly classify whether variable interest entities that are controlled through contractual arrangements would be deemed as foreign invested enterprises if they are ultimately “controlled” by foreign investors. The interpretation and implementation of the Foreign Investment Law and the Implementing Rules may be subject to changes, and it is still unclear how the Foreign Investment Law and the Implementing Rules would affect our VIE structure and business operation. See “—Risks Relating to Doing Business in China—Uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment Law and its implementing rules, and how they may impact our business, financial condition and results of operations.” If our corporate structure and contractual arrangements are deemed by the relevant regulators having competent authority to be illegal, either in whole or in part, we may lose control of our consolidated VIEs and have to modify such structure to comply with regulatory requirements. However, there can be no assurance that we can achieve this without material disruption to the Group’s business. Further, if our corporate structure and contractual arrangements are found to be in violation of any existing or future PRC laws or regulations, the relevant regulatory authorities would have discretion in dealing with such violations, including: ● revoking the Group’s business and operating licenses; ● levying fines on the Group; ● confiscating any of the Group’s income that they deem to be obtained through illegal operations; 41 Table of Contents ● shutting down the Group’s services; ● discontinuing or restricting the Group’s operations in China; ● imposing conditions or requirements with which the Group may not be able to comply; ● requiring us to change our corporate structure and contractual arrangements; ● restricting or prohibiting our use of the proceeds from overseas offering to finance our consolidated VIEs’ business and operations; and ● taking other regulatory or enforcement actions that could be harmful to our business. Furthermore, new PRC laws, rules and regulations may be introduced to impose additional requirements that may be applicable to our corporate structure and contractual arrangements. Occurrence of any of these events could materially and adversely affect the Group’s business, financial condition and results of operations. In addition, if the imposition of any of these penalties or requirement to restructure our corporate structure causes us to lose the rights to direct the activities of our consolidated VIEs or our right to receive their economic benefits, we would no longer be able to consolidate the financial results of such VIEs in our consolidated financial statements. Accordingly, if the PRC government determines that our contractual arrangements do not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, our ADSs may decline in value or become worthless if we are unable to assert contractual control rights over the assets of our consolidated VIEs. See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements among Can Gu Long, the Consolidated VIEs and Their Shareholders.” Contractual arrangements in relation to our consolidated VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that our consolidated VIEs owe additional taxes, which could negatively affect the Group’s financial condition and the value of your investment. Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. The PRC enterprise income tax law requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm’s length principles. We may face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among our wholly-owned PRC subsidiary, our consolidated VIEs and their shareholders were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, regulations and rules, and adjust their income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by our wholly-owned PRC subsidiary or consolidated VIEs for PRC tax purposes, which could in turn increase their tax liabilities without reducing their tax expenses. In addition, if our wholly-owned PRC subsidiary requests the shareholders of our consolidated VIEs to transfer their equity interests in our consolidated VIEs at nominal or no value pursuant to these contractual arrangements, such transfer could be viewed as a gift and subject the relevant subsidiary to PRC income tax. Furthermore, the PRC tax authorities may impose late payment fees and other penalties on our PRC subsidiary and consolidated VIEs for adjusted but unpaid taxes according to applicable regulations. The Group’s financial position could be materially and adversely affected if the tax liabilities of our PRC subsidiary and consolidated VIEs increase, or if they are required to pay late payment fees and other penalties. 42 Table of Contents We may lose the ability to use and enjoy assets held by our consolidated VIEs that are material to business operation if the entity goes bankrupt or becomes subject to a dissolution or liquidation proceeding. Our consolidated VIEs hold substantially all of the Group’s assets. Under the contractual arrangements, our consolidated VIEs may not and its shareholders may not cause it to, in any manner, sell, transfer, mortgage or dispose of its assets or its legal or beneficial interests in the business without our prior consent. However, in the event that the shareholders of our consolidated VIEs breach these contractual arrangements and voluntarily liquidate our consolidated VIEs, or our consolidated VIEs declare bankruptcy and all or part of their assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to continue some or all of the current business activities, which could materially and adversely affect the Group’s business, financial condition and results of operations. If our consolidated VIEs undergo a voluntary or involuntary liquidation proceeding, independent third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate existing business, which could materially and adversely affect the Group’s business, financial condition and results of operations. If the custodians or authorized users of our controlling non-tangible assets, including chops and seals, fail to fulfill their responsibilities, or misappropriate or misuse these assets, the Group’s business and operations may be materially and adversely affected. Under PRC law, legal documents for corporate transactions, including agreements and contracts that the Group’s business relies on, are executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with the relevant local branch of the State Administration for Market Regulation, or the SAMR, formerly known as the State Administration for Industry and Commerce, or the SAIC. The Group generally executes legal documents by affixing chops or seals, rather than having the designated legal representatives sign the documents. The Group has three major types of chops—corporate chops, contract chops and finance chops. The Group uses corporate chops generally for documents to be submitted to government agencies, such as applications for changing business scope, directors or company name, and for legal letters. The Group uses contract chops for executing leases and commercial contracts. The Group uses finance chops generally for making and collecting payments, including issuing invoices. Use of corporate chops and contract chops must be approved by the Group’s legal department and administrative department and use of finance chops must be approved by the Group’s finance department. The chops of our subsidiary and consolidated VIEs are generally held by the relevant entities so that documents can be executed locally. Although the Group usually utilizes chops to execute contracts, the registered legal representatives of our subsidiary and consolidated VIEs have the apparent authority to enter into contracts on behalf of such entities without chops, unless such contracts set forth otherwise. In order to maintain the physical security of the Group’s chops, we generally have them stored in secured locations accessible only to the designated key employees of the Group’s legal, administrative or finance departments. The designated legal representatives of the relevant entities generally do not have access to the chops. Although the Group has approval procedures in place and monitor its key employees, including the designated legal representatives of our subsidiary and consolidated VIEs, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that the Group’s key employees or designated legal representatives could abuse their authority, for example, by binding our subsidiary and consolidated VIEs with contracts against our interests, as we would be obligated to honor these contracts if the other contracting party acts in good faith in reliance on the apparent authority of the Group’s chops or signatures of the Group’s legal representatives. If any designated legal representative obtains control of the chop in an effort to obtain control over the relevant entity, we would need to have a shareholder or board resolution to designate a new legal representative and to take legal action to seek the return of the chop, apply for a new chop with the relevant authorities, or otherwise seek legal remedies for the legal representative’s misconduct. If any of the designated legal representatives obtains and misuses or misappropriates the Group’s chops and seals or other controlling intangible assets for whatever reason, the Group could experience disruption to its normal business operations. The Group may have to take corporate or legal action, which could involve significant time and resources to resolve while distracting management from the Group’s operations, and the Group’s business and operations may be materially and adversely affected. 43 Table of Contents Risks Relating to Doing Business in China Changes and developments in the political and economic policies of the PRC government may materially and adversely affect the Group’s business, financial condition and results of operations and may result in our inability to sustain the Group’s growth and expansion strategies. Substantially all of the Group’s operations are conducted in the PRC and all of its revenue is sourced from the PRC. Accordingly, the Group’s financial condition and results of operations are affected to a significant extent by economic, political and legal developments in the PRC. The PRC economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. A substantial portion of productive assets in China is owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, restricting the inflow and outflow of foreign capital, regulating financial services and institutions and providing preferential treatment to particular industries or companies. While the PRC economy has experienced significant growth in the past decades, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may also have a negative effect on the Group. The Group’s financial condition and results of operations could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to the Group. The PRC government also has significant authority to exert influence on the ability of a China-based issuer, such as the Group, to conduct its business, control over securities offerings conducted overseas and/or foreign investments in an issuer with substantial operations in China. The PRC government may intervene or influence the operations of an issuer with substantial operations in China, such as the Group, if such issuer is found to violate the relevant PRC laws and regulations, which could result in a material change in the Group’s operations and/or the value of our ADSs. In particular, the PRC government has recently and may in the future promulgate new laws and regulations to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in issuers with substantial operations in China. Any such regulatory oversight or control could cause the value of our ADSs to significantly decline or become worthless. See “— Changes and developments in the PRC legal system and the interpretation and enforcement of PRC laws, rules and regulations may subject us to uncertainties.” In addition, the PRC government has implemented in the past certain measures to control the pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for the Group’s services and consequently have a material adverse effect on the Group’s business, financial condition and results of operations. Changes and developments in the PRC legal system and the interpretation and enforcement of PRC laws, rules and regulations may subject us to uncertainties. Substantially all of the Group’s operations are conducted in the PRC, and are governed by PRC laws, rules and regulations. Our PRC subsidiary and consolidated VIEs and their subsidiaries are subject to laws, rules and regulations applicable to foreign investment in China. The overall effect of legislation over the past decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, the PRC legal system is still evolving rapidly, and the PRC governmental authorities may continue to promulgate new laws and regulations regulating the Group’s business. We cannot assure you that the Group’s business operations would not be deemed to violate any existing or future PRC laws or regulations, which in turn may limit or restrict the Group, and could materially and adversely affect the Group’s business and operations. In addition, rules and regulations in China can change quickly with little advance notice. Uncertainties due to evolving laws and regulations could impede the ability of a China-based issuer, such as the Group, to obtain or maintain permits or licenses required to conduct business in China. In the absence of required permits or licenses, governmental authorities could impose material sanctions or penalties on us. In addition, the PRC legal system is based in part on government policies and internal rules, and we may not be aware of the Group’s violation of these policies and rules until after the occurrence of the violation. Furthermore, if China adopts more stringent standards with respect to environmental protection or corporate social responsibilities, the Group may incur increased compliance cost or become subject to additional restrictions in its operations. 44 Table of Contents Furthermore, the PRC government has significant oversight and discretion over the conduct of the Group’s business and may intervene with or influence the Group’s operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries and China-based issuers, and we cannot rule out the possibility that it will in the future release regulations or policies that could adversely affect the Group’s business, financial condition and results of operations. Recent statements and regulatory actions by the PRC government, such as those related to the use of VIEs, overseas offering and listing of China-based companies, data security and anti-monopoly concerns, may give rise to regulatory restrictions on the Group’s ability to conduct its business and/or accept foreign investments. For example, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities, or the Opinions, which were available to the public on July 6, 2021. The Opinions emphasize the need to strengthen the administration over illegal securities activities and the supervision on overseas listings of China-based companies, and propose to take effective measures, such as promoting the establishment of relevant regulatory systems for prevention and resolution of the risks and contingencies faced by China-based overseas-listed companies, amending the special provisions of the State Counsel on overseas offering and listing by companies limited by shares, and clarifying the responsibilities of administrative and regulatory authorities. Furthermore, on February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Overseas Listing Trial Measures, and five supporting guidelines on the application of regulatory rules, which took effect from March 31, 2023, requiring Chinese domestic companies’ overseas offerings and listings of equity securities be filed with the CSRC. The Overseas Listing Trial Measures clarify the scope of overseas offerings and listings by Chinese domestic companies which are subject to the filing and reporting requirements thereunder, and provide, among others, that Chinese domestic companies that have already directly or indirectly offered and listed securities in overseas markets prior to the effectiveness of the Overseas Listing Trial Measures shall fulfil their filing obligations and report relevant information to the CSRC within three working days after conducting a follow-on offering of equity securities on the same overseas market, and follow the relevant reporting requirements within three working days upon the occurrence and public disclosure of any specified circumstances including (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities; (iii) change of listing status or transfer of listing segment; and (iv) voluntary or mandatory delisting. In addition, where the main business of an issuer undergoes material change after overseas offering and listing, and is therefore beyond the scope of business stated in the filing documents, such issuer shall follow the relevant reporting requirements within three working days after occurrence of the changes. The interpretation, implementation and enforcement of the Overseas Listing Trial Measures may be subject to changes. In addition, we cannot guarantee that new rules or regulations promulgated in the future will not impose any additional requirement on us or otherwise tighten the regulations on PRC companies seeking overseas offering or listing. If it is determined that any approval, filing or other administrative procedure from the CSRC or other PRC governmental authorities is required for our previous listing or future follow-on public offering or debt financing activities, we cannot assure you that we can obtain the required approval or accomplish the required filings or other regulatory procedures in a timely manner, or at all. If we fail to obtain the relevant approval or complete the filings and other relevant regulatory procedures, we may face penalties by the CSRC or other PRC governmental authorities, which may include fines and penalties on our operations in China, limitations on our operating rights in China, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in China, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs or Class A ordinary shares. In addition, any administrative and court proceedings in China may be time-consuming, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have certain discretion in interpreting and implementing statutory and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection the Group enjoys. These uncertainties may impede the Group’s ability to enforce the contracts it has entered into and/or its intellectual property rights and could materially and adversely affect the Group’s business, financial condition and results of operations. 45 Table of Contents The M&A Rules and certain other PRC regulations establish required procedures for acquisitions conducted by foreign investors that could make it more difficult for the Group to grow through acquisitions. On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-Owned Assets Supervision and Administration Commission, the State Administration of Taxation, the SAIC, the CSRC, and the State Administration of Foreign Exchange, or SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules established, among other things, additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time- consuming and complex. For example, the M&A rules require that the MOFCOM be notified in advance of any change-of- control transaction in which a foreign investor takes control of a PRC domestic enterprise if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. The approval from the MOFCOM shall be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. Mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the anti-monopoly enforcement authority when the threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, or the Prior Notification Rules, issued by the State Council in August 2008 and most recently amended in January 2024 is triggered. In addition, the security review rules issued by the MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. Furthermore, as required by the Measures for the Security Review of Foreign Investment, promulgated by the National Development and Reform Commission and the MOFCOM on December 19, 2020 and effective as of January 18, 2021, investments in military, national defense-related areas or in locations in proximity to military facilities, or investments that would result in acquiring the actual control of assets in certain key sectors, such as critical agricultural products, energy and resources, equipment manufacturing, infrastructure, transport, cultural products and services, information technology, internet products and services, financial services and technology sectors, are required to obtain approval from designated governmental authorities in advance. The Group may grow its business in part by acquiring other companies operating in our industry. Complying with the requirements of the new regulations to complete such transactions could be time-consuming, and any required approval processes, including approval from the MOFCOM or other governmental authorities, may delay or inhibit the Group’s ability to complete such transactions, which could affect the Group’s ability to expand its business or maintain its market share. See “Item 4. Information on the Company—B. Business Overview— Regulations— M&A Rules and Overseas Listings.” 46 Table of Contents Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and its implementing rules and how they may impact our business, financial condition and results of operations. The VIE structure through contractual arrangements has been adopted by many China-based companies, including us, to obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China. See “—Risks Relating to Our Corporate Structure” and “Item 4. Information on the Company—C. Organizational Structure.” The MOFCOM published a discussion draft of the proposed Foreign Investment Law in January 2015, or the 2015 Draft FIL, according to which, variable interest entities that are controlled via contractual arrangements would also be deemed as foreign-invested entities, if they are ultimately “controlled” by foreign investors. In March 2019, the PRC National People’s Congress promulgated the Foreign Investment Law, and in December 2019, the State Council promulgated the Implementing Rules to further clarify and elaborate the relevant provisions of the Foreign Investment Law. The Foreign Investment Law and the Implementing Rules both became effective from January 1, 2020 and replaced the major previous laws and regulations governing foreign investments in the PRC. Pursuant to the Foreign Investment Law, “foreign investments” refer to investment activities conducted by foreign investors (including foreign natural persons, foreign enterprises or other foreign organizations) directly or indirectly in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in the PRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified in laws, administrative regulations, or as stipulated by the State Council. The Foreign Investment Law and the Implementing Rules do not introduce the concept of “control” in determining whether a company would be considered as a foreign-invested enterprise, nor do they explicitly provide whether the VIE structure would be deemed as a method of foreign investment. However, the Foreign Investment Law has a catch-all provision that includes into the definition of “foreign investments” made by foreign investors in China in other methods as specified in laws, administrative regulations, or as stipulated by the State Council, and as the relevant government authorities may promulgate more laws, regulations or rules on the interpretation and implementation of the Foreign Investment Law, the possibility cannot be ruled out that the concept of “control” as stated in the 2015 Draft FIL may be embodied in, or the VIE structure adopted by us may be deemed as a method of foreign investment by, any of such future laws, regulations and rules. If our consolidated VIEs were deemed as a foreign-invested enterprise under any of such future laws, regulations and rules, and any of the businesses that the Group operates would be in any “negative list” for foreign investment and therefore be subject to any foreign investment restrictions or prohibitions, further actions required to be taken by the Group under such laws, regulations and rules may materially and adversely affect the Group’s business, financial condition and results of operations. Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with respect to existing contractual arrangements, the Group may face substantial uncertainties as to whether it can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect the Group’s current corporate structure, business, financial condition and results of operations. PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary or limit our PRC subsidiary’s ability to increase its registered capital or distribute profits. PRC residents are subject to restrictions and filing requirements when investing in offshore companies. SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” Pursuant to SAFE Circular 37, “control” refers to the act through which a PRC resident obtains the right to carry out business operation of, to gain proceeds from or to make decisions on a special purpose vehicle by means of, among others, shareholding entrustment arrangement. SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. According to the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment released on February 13, 2015 by SAFE, local banks will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment registration, under SAFE Circular 37 from June 1, 2015. 47 Table of Contents Mr. Xiaojun Zhang, Mr. Jiayuan Lin and several other beneficial owners of our ordinary shares have completed the SAFE registration pursuant to SAFE Circular 37 in 2018. We have notified substantial beneficial owners of ordinary shares who we know are PRC residents of their filing obligation and other compliance obligations relating to offshore investment. Nevertheless, we may not be aware of the identities of all of our beneficial owners who are PRC residents. We do not have control over our beneficial owners and there can be no assurance that all of our PRC-resident beneficial owners will comply with SAFE Circular 37 and subsequent implementation rules, and there is no assurance that the registration under SAFE Circular 37 and any amendment will be completed in a timely manner, or will be completed at all. The failure of our beneficial owners who are PRC residents to register or amend their foreign exchange registrations in a timely manner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiary to fines and legal sanctions. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiary and limit our PRC subsidiary’s ability to distribute dividends to our company. These risks may have a material adverse effect on the Group’s business, financial condition and results of operations. Any failure to comply with PRC regulations regarding our employee share incentive plan may subject the PRC plan participants or us to fines and other legal or administrative sanctions. Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies due to their position as director, senior management or employees of the PRC subsidiaries of the overseas companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees who are PRC residents and who will be granted options may follow SAFE Circular 37 to apply for the foreign exchange registration before our company becomes an overseas listed company. We and our directors, executive officers and other employees who are PRC residents and who have been granted options are subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, according to which, employees, directors, supervisors and other management members participating in any stock incentive plan of an overseas publicly listed company who are PRC residents are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. However, there can be no assurance that they can successfully register with SAFE in full compliance with the rules. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit the ability to make payment under our share incentive plan or receive dividends or sales proceeds related thereto, or our ability to contribute additional capital into our wholly-foreign owned enterprise in China and limit our wholly-foreign owned enterprise’s ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional share incentive plans for our directors and employees under PRC law. We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund offshore cash and financing requirements. Any limitation on the ability of our PRC subsidiary to make payments to us may have a material adverse effect on our ability to conduct our business. We are a holding company and may rely on dividends and other distributions on equity paid by our PRC subsidiary and on remittances from the consolidated VIEs, for our offshore cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, fund inter-company loans, service any debt we may incur outside of China and pay our expenses. When our PRC subsidiary or the consolidated VIEs incur additional debt, the instruments governing the debt may restrict their ability to pay dividends or make other distributions or remittances to us. Furthermore, the laws, rules and regulations applicable to our PRC subsidiary and consolidated affiliates permit payments of dividends only out of their retained earnings, if any, determined in accordance with applicable accounting standards and regulations. Under PRC laws, rules and regulations, enterprises incorporated in China is required to set aside at least 10% of its net income each year to fund certain statutory reserves until the cumulative amount of such reserves reaches 50% of its registered capital. These reserves, together with the registered capital, are not distributable as cash dividends. As a result of these laws, rules and regulations, our PRC subsidiary and consolidated affiliates are restricted in their ability to transfer a portion of their respective net assets to their shareholders as dividends, loans or advances. In addition, registered capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. 48 Table of Contents Limitations on the ability of our consolidated VIEs to make remittance to the wholly-foreign owned enterprise and on the ability of our PRC subsidiary to pay dividends to us could limit our ability to access cash generated by the operations of those entities, including to make investments or acquisitions that could be beneficial to our businesses, pay dividends to our shareholders or otherwise fund and conduct our business. We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to PRC income tax on our global income. Under the PRC Enterprise Income Tax Law and its implementing rules, enterprises established under the laws of jurisdictions outside of China with “de facto management bodies” located in China may be considered PRC tax resident enterprises for tax purposes and may be subject to the PRC enterprise income tax at the rate of 25% on their global income. “De facto management body” refers to a managing body that exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese- Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises. If we were to be considered a PRC resident enterprise, we would be subject to PRC enterprise income tax at the rate of 25% on our global income. In such case, our profitability and cash flow may be materially reduced as a result of our global income being taxed under the Enterprise Income Tax Law. We believe that none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” Dividends paid to our foreign investors and gains on the sale of our ADSs or Class A ordinary shares by our foreign investors may become subject to PRC tax. Under the Enterprise Income Tax Law and its implementing rules issued by the State Council, a 10% PRC withholding tax is applicable to dividends paid to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC. Any gain realized on the transfer of ADSs or Class A ordinary shares by such investors is also subject to PRC tax at a current rate of 10%, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on our Class A ordinary shares or ADSs, and any gain realized from the transfer of our Class A ordinary shares or ADSs, would be treated as income derived from sources within the PRC and would as a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to individual investors who are non-PRC residents and any gain realized on the transfer of ADSs or Class A ordinary shares by such investors may be subject to PRC tax (which in the case of dividends may be withheld at source) at a rate of 20%. Any PRC tax liability may be reduced by an applicable tax treaty. However, if we or any of our subsidiaries established outside China are considered a PRC resident enterprise, it is unclear whether holders of our ADSs or Class A ordinary shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends paid to our non-PRC investors, or gains from the transfer of our ADSs or Class A ordinary shares by such investors, are deemed as income derived from sources within the PRC and thus are subject to PRC tax, the value of your investment in our ADSs or Class A ordinary shares may decline significantly. 49 Table of Contents We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a Chinese establishment of a non-Chinese company, or immovable properties located in China owned by non- Chinese companies. On February 3, 2015, the State Administration of Taxation issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Bulletin 7. Pursuant to this Bulletin 7, an “indirect transfer” of assets, including non-publicly traded equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. According to Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in China, immovable properties located in China, and equity investments in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immovable properties located in China or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non- resident enterprise, a PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange. On October 17, 2017, the State Administration of Taxation promulgated the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Circular 37, which became effective on December 1, 2017. SAT Circular 37, among other things, simplified procedures of withholding and payment of income tax levied on non-resident enterprises. We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our company may be subject to filing obligations or taxed if our company is transferor in such transactions and may be subject to withholding obligations if our company is transferee in such transactions under Bulletin 7 and SAT Circular 37. For transfer of shares in our company by investors that are non- PRC resident enterprises, our PRC subsidiary may be requested to assist in the filing under Bulletin 7 and SAT Circular 37. As a result, we may be required to expend valuable resources to comply with Bulletin 7 and SAT Circular 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations. We are subject to restrictions on currency exchange. All of the Group’s revenue is denominated in Renminbi. Under current PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the SAFE, by complying with certain procedural requirements. Currently, our PRC subsidiary may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. Since a significant amount of the Group’s future revenue and cash flow will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize cash generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders, including holders of our ADSs, and may limit our ability to obtain foreign currency through debt or equity financing for our onshore subsidiary and consolidated VIEs. 50 Table of Contents PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from using the proceeds of the initial public offering to make loans to our PRC subsidiary and our consolidated VIEs, or to make additional capital contributions to our PRC subsidiary. In utilizing the proceeds of our initial public offering, we, as an offshore holding company, are permitted under PRC laws and regulations to provide funding to our PRC subsidiary, which is treated as a foreign-invested enterprise under PRC laws, through loans or capital contributions. However, loans by us to our PRC subsidiary to finance its activities cannot exceed statutory limits and must be registered with the local counterpart of SAFE and capital contributions to our PRC subsidiary are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System, and registration with other governmental authorities in China. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or SAFE Circular 142, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, or Circular 59, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses, or Circular 45. According to Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in the PRC in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective on June 9, 2016 and amended in December 2023, which reiterates some of the rules set forth in Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non- associated enterprises. Violations of SAFE Circular 19 and Circular 16 could result in administrative penalties. Circular 19 and Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from our initial public offering, to our PRC subsidiary, which may adversely affect the Group’s liquidity and our ability to fund and expand the Group’s business in the PRC. Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such loans to our consolidated VIEs and their subsidiaries, each a PRC domestic company. Meanwhile, we are not likely to finance the activities of our consolidated VIEs and their subsidiaries by means of capital contributions given the restrictions on foreign investment in the businesses that are currently conducted by our consolidated VIEs and their subsidiaries. In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiary or consolidated VIEs or future capital contributions by us to our PRC subsidiary. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiary or consolidated VIEs and their subsidiaries when needed. If we fail to complete such registrations or obtain such approvals, our ability to use foreign currency, including the proceeds we received from our initial public offering, and to capitalize or otherwise fund operations in China may be negatively affected, which could materially and adversely affect the Group’s liquidity and our ability to fund and expand the Group’s business. 51 Table of Contents Fluctuations in exchange rates could result in foreign currency exchange losses and could materially reduce the value of your investment. The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund (IMF) completed the regular five-year review of the basket of currencies that make up the Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, Renminbi is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the Renminbi has depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. This depreciation halted in 2017, and the Renminbi appreciated approximately 7% against the U.S. dollar during this one- year period. Starting from the beginning of 2019, the Renminbi has depreciated significantly against the U.S. dollar again. In early August 2019, the PBOC set the Renminbi’s daily reference rate at RMB7.0039 to US$1.00, the first time that the exchange rate of Renminbi to U.S. dollar exceeded 7.0 since 2008. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future. All of the Group’s revenue and substantially all of its costs are denominated in Renminbi. We are a holding company and we rely on dividends paid by our operating subsidiary in China for our cash needs. Any significant revaluation of Renminbi may materially and adversely affect the Group’s results of operations and financial position reported in Renminbi when translated into U.S. dollars, and the value of, and any dividends payable on, the ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars we receive from our initial public offering into Renminbi for the Group’s operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our Class A ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount. We could be adversely affected by political tensions between the United States and China. Political tensions between the United States and China have escalated in recent years due to, among other things, the trade war between the two countries since 2018, the COVID-19 outbreak, the PRC National People’s Congress’ passage of Hong Kong national security legislation, the imposition of U.S. sanctions on certain Chinese officials from China’s central government and the Hong Kong Special Administrative Region by the U.S. government, and the imposition of sanctions on certain individuals from the U.S. by the Chinese government, various executive orders issued by former U.S. President Donald J. Trump, such as the one issued in August 2020 that prohibits certain transactions with ByteDance Ltd., Tencent Holdings Ltd. and the respective subsidiaries of such companies, the executive order issued in November 2020 that prohibits U.S. persons from transacting publicly traded securities of certain “Communist Chinese military companies” named in such executive order, as well as the executive order issued in January 2021 that prohibits such transactions as are identified by the U.S. Secretary of Commerce with certain “Chinese connected software applications,” including Alipay and WeChat Pay, as well as the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures promulgated by China’s Ministry of Commerce, or MOFCOM, on January 9, 2021, which will apply to Chinese individuals or entities that are purportedly barred by a foreign country’s law from dealing with nationals or entities of a third country. Rising political tensions between China and the U.S. could reduce levels of trades, investments, technological exchanges and other economic activities between the two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets. The measures taken by the U.S. and Chinese governments may have the effect of restricting our ability to transact or otherwise do business with entities within or outside of China and may cause investors to lose confidence in Chinese companies and counterparties, including the Group. If we were unable to conduct the Group’s business as it is currently conducted as a result of such regulatory changes, the Group’s business, results of operations and financial condition would be materially and adversely affected. 52 Table of Contents Furthermore, there have been media reports on deliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S. capital markets, and delisting China-based companies from U.S. national securities exchanges. In January 2021, after reversing its own delisting decision, the NYSE ultimately resolved to delist China Mobile, China Unicom and China Telecom in compliance with the executive order issued in November 2020, after receiving additional guidance from the U.S. Department of Treasury and its Office of Foreign Assets Control. These delistings have introduced greater confusion and uncertainty about the status and prospects of Chinese companies listed on the U.S. stock exchanges. If any further such deliberations were to materialize, the resulting legislation may have a material and adverse impact on the stock performance of China-based issuers listed in the United States such as the Group, and we cannot assure you that we will always be able to maintain the listing of our ADSs on a national stock exchange in the U.S., such as the NYSE or the NASDAQ, or that you will always be allowed to trade our shares or ADSs. The audit report included in this annual report is prepared by an auditor which the PCAOB was unable to inspect and investigate completely before 2022 and, as such, our investors have been deprived of the benefits of such inspections in the past, and may be deprived of the benefits of such inspections in the future. Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the U.S. and a firm registered with the PCAOB, is required by the laws of the U.S. to undergo regular inspections by the PCAOB to assess its compliance with the laws of the U.S. and professional standards. According to Article 177 of the PRC Securities Law which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas parties. In 2021, PCAOB made determinations that the positions taken by PRC authorities prevented the PCAOB from inspecting and investigating firms headquartered in mainland China and Hong Kong completely. On August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the PRC, taking the first step toward opening access for the PCAOB to inspect and investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. According to its announcement, the PCAOB sent staff to conduct on-site inspections and investigations in Hong Kong from September to November 2022 and conducted inspection field work and investigative testimony in a manner consistent with the PCAOB’s methodology and approach to inspections and investigations in the U.S. and globally. The PCAOB inspections have preliminarily identified numerous deficiencies in the audit firms in China, which are consistent with the types and number of findings the PCAOB has encountered in other first-time inspections around the world, and the final inspection reports was completed and made public in 2023. If audit firms in China had been subject to such inspections in the past, such deficiencies may have been identified earlier and these audit firms, including our auditor, may have taken remedial measures to address any such deficiencies, and the historical inability of the PCAOB to inspect audit firms in China has deprived our investors of the benefits of such inspections. Because our auditor was not subject to such inspections before 2022, we cannot assure you that it will have sufficient time to fully address any deficiency that may be identified as part of the inspection process to improve future audit quality. The inability of the PCAOB to conduct complete inspections of auditors in China before 2022 may have made it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections, which could cause investors or potential investors in our ADSs to lose confidence in the quality of our consolidated financial statements. In addition, while the PCAOB announced in December 2022 and November 2023 that it secured complete access to inspect and investigate registered public accounting firms headquartered in China and completed its annual inspection and investigation in 2022 and 2023, respectively, we cannot assure you that the PCAOB will continue to have such access in the future. If the PCAOB is not able to inspect and investigate completely auditors in China for any reason, such as any change in the position of the governmental authorities in China in the future, our investors may be deprived of the benefits of such inspections again. 53 Table of Contents If the PCAOB determines that it is unable to inspect or investigate completely our auditor at any point in the future, our ADSs may be prohibited from trading in the United States under the HFCA Act, and any such trading prohibition on our ADSs or threat thereof may materially and adversely affect the price of our ADSs and value of your investment. The HFCA Act was signed into law on December 18, 2020 and amended pursuant to the Consolidated Appropriations Act, 2023 on December 29, 2022. Under the HFCA Act and the rules issued by the SEC and the PCAOB thereunder, if we have retained a registered public accounting firm to issue an audit report where the registered public accounting firm has a branch or office that is located in a foreign jurisdiction and the PCAOB has determined that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction, the SEC will identify us as a “covered issuer”, or SEC-identified issuer, shortly after we file with the SEC a report required under the Securities Exchange Act of 1934, or the Exchange Act (such as our annual report on Form 20-F), that includes an audit report issued by such accounting firm; and if we were to be identified as a SEC-identified issuer for two consecutive years, the SEC would prohibit our securities (including our shares or ADSs) from being traded on a national securities exchange or in the over-the-counter trading market in the United States. In December 2021, the PCAOB made its determinations, or the 2021 determinations, pursuant to the HFCA Act that it was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China or Hong Kong, including our auditor, Ernst & Young Hua Ming LLP. After we filed our annual report on Form 20-F for the fiscal year ended December 31, 2021 that included an audit report issued by Ernst & Young Hua Ming LLP on April 26, 2022, the SEC conclusively identified us as an SEC- identified issuer on May 26, 2022. As such, we were required to satisfy additional disclosure requirement for SEC-identified issuers that are also foreign issuers and made such additional disclosure in our annual report on Form 20-F for the fiscal year ended December 31, 2022, filed with the SEC on April 26, 2023, or the 2022 annual report. Following the Statement of Protocol signed between the PCAOB and the China Securities Regulatory Commission and the Ministry of Finance of the PRC in August 2022 and the on-site inspections and investigations conducted by the PCAOB staff in Hong Kong from September to November 2022, the PCAOB Board voted in December 2022 to vacate the previous 2021 determinations, and as a result, our auditor, Ernst & Young Hua Ming LLP, was no longer a registered public accounting firm that the PCAOB was unable to inspect or investigate completely as of the date of the 2022 annual report and we were not identified as a SEC-identified issuer in 2023 after we filed the 2022 annual report. On November 30, 2023, the PCAOB announced that it had completed its inspections on registered public accounting firms headquartered in mainland China and Hong Kong for 2023 with the complete access required under the HFCA Act. As such, we do not expect to be identified as a SEC-identified issuer in 2024 either. However, the PCAOB may change its determinations under the HFCA Act at any point in the future. In particular, if the PCAOB finds its ability to completely inspect and investigate registered public accounting firms headquartered in mainland China or Hong Kong is obstructed by the PRC authorities in any way in the future, the PCAOB may act immediately to consider the need to issue new determinations consistent with the HFCA Act. We cannot assure you that the PCAOB will always have complete access to inspect and investigate our auditor, or that we will not be identified as a SEC-identified issuer again in the future. If we are identified as a SEC-identified issuer again in the future, we cannot assure you that we will be able to change our auditor or take other remedial measures in a timely manner, and if we were to be identified as a SEC-identified issuer for two consecutive years, we would be delisted from the NYSE and our securities (including our shares and ADSs) will not be permitted for trading “over-the- counter” either. If our securities are prohibited from trading in the United States, there is no certainty that we will be able to list on a non- U.S. exchange or that a market for our shares will develop outside of the United States. Such a prohibition or any threat thereof would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ADSs. Also, such a prohibition or any threat thereof would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects. Moreover, the implementation of the HFCA Act and other efforts to increase the U.S. regulatory access to audit information could cause investor uncertainty as to China-based issuers’ ability to maintain their listings on the U.S. national securities exchanges and the market price of the securities of China-based issuers, including us, could be adversely affected. 54 Table of Contents If additional remedial measures are imposed on the “big four” PRC-based accounting firms, including our independent registered public accounting firm, in administrative proceedings brought by the SEC alleging such firms’ failure to meet specific criteria set by the SEC with respect to requests for the production of documents, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act. Starting in 2011, the Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S. listed companies operating and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese accounting firms access to their audit work papers and related documents. The firms were, however, advised and directed that under Chinese law they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the CSRC. In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the Chinese accounting firms, including our independent registered public accounting firm. In January 2014, the administrative law judge reached an initial decision to impose penalties on the firms including a temporary suspension of their right to practice before the SEC. The accounting firms filed a petition for review of the initial decision. On February 6, 2015, before a review by the commissioners of the SEC had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms will receive matching Section 106 requests and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Remedies for any future non- compliance could include, as appropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases the resumption of the current proceeding against all four firms. The audit committee is aware of the policy restriction and regularly communicates with our independent auditor to ensure compliance. If additional remedial measures are imposed on the Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, in administrative proceedings brought by the SEC alleging the firms’ failure to meet specific criteria set by the SEC with respect to requests for the production of documents, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act. In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the U.S. with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms may cause investor uncertainty regarding China-based, U.S.-listed companies and the market price of our ADSs may be adversely affected. If our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on the Group’s consolidated financial statements, such consolidated financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to delisting of our ADSs from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the U.S. 55 Table of Contents You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China, based on United States or other foreign laws, against us, our directors, executive officers or the expert named in this annual report and therefore you may not be able to enjoy the protection of such laws in an effective manner. We conduct substantially all of the Group’s operations in China and substantially all of its assets are located in China. In addition, a majority of our directors and executive officers reside within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon us, our directors and executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Even if you obtain a judgment against us, our directors, executive officers or the expert named in this annual report in a U.S. court or other court outside China, you may not be able to enforce such judgment against us or them in China. China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts in the United States, the United Kingdom, Japan or most other western countries. Therefore, recognition and enforcement in China of judgments of a court in any of these jurisdictions may be difficult or impossible. In addition, you may not be able to bring original actions in China based on the U.S. or other foreign laws against us, our directors, executive officers or the expert named in this annual report either. As a result, shareholder claims that are common in the U.S., including class action securities law and fraud claims, are difficult or impossible to pursue as a matter of law and practicality in China. For example, in China, there are certain legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the Unities States have not been efficient in the absence of mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. In addition, on February 24, 2023, the CSRC and several other Chinese authorities promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, which provide that where an overseas securities regulator or a competent overseas authority requests to inspect, investigate or collect evidence from a PRC domestic company concerning overseas offering and listing, or to inspect, investigate, or collect evidence from the PRC domestic securities companies and securities service providers that undertake relevant businesses for such PRC domestic companies, such inspection, investigation and evidence collection shall be conducted under a cross-border regulatory cooperation mechanism, and the CSRC or other competent Chinese authorities will provide necessary assistance pursuant to bilateral and multilateral cooperation mechanisms. The PRC domestic company, securities companies and securities service providers shall first obtain approval from the CSRC or other competent Chinese authorities before cooperating with the inspection and investigation by the overseas securities regulator or competent overseas authority, or providing documents and materials requested in such inspection and investigation. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas parties. As such, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by investors in protecting your interests. If an investor is unable to bring a U.S. claim or collect on a U.S. judgment, the investor may have to rely on legal claims and remedies available in China or other overseas jurisdictions where a China-based issuer, such as our company, may maintain assets. The claims and remedies available in these jurisdictions are often significantly different from those available in the United States and difficult to pursue. Therefore, you may not be able to effectively enjoy the protection offered by the U.S. laws and regulations that intend to protect public investors. Risks Relating to Our ADSs We received a notice of non-compliance with continued listing standards from the NYSE for our ADSs. If we are unable to avoid the delisting of our ADSs from the NYSE, it could have a substantial effect on the trading price and liquidity of our ADSs. On October 24, 2019, we received a notification letter, or the Notification Letter, from the NYSE indicating that we were not in compliance with Section 802.01A of the NYSE Listed Company Manual relating to the continued listing standards for stockholders, including (i) number of total stockholders of at least 400 or (ii) number of total stockholders of at least 1,200, if the average monthly volume is less than 100,000 (for the most recent 12 months). The Notification Letter also required us to provide a business plan that demonstrates how we expect to return to compliance with the relevant standards within a maximum period of 18 months from receipt of the Notification Letter. The Notification Letter did not affect our business operations and did not conflict with or cause an event of default under any of our material debt or other agreements. 56 Table of Contents The NYSE has accepted our business plan and deemed us to have regained compliance with the NYSE’s continued listing standards. However, there can be no assurance that we will be able to maintain compliance with the relevant requirements in the future. Failure to comply with the NYSE requirements could result in a decline in the price of our ADSs or a decline in investor confidence, which could directly impact our ability to efficiently raise capital. In addition, failure to adhere to NYSE requirements could result in trading suspension or delisting. The trading price of our ADSs may be volatile, which could result in substantial losses to you. The trading prices of our ADSs have fluctuated since we first listed our ADSs. Since our ADSs became listed on the NYSE on July 26, 2018, the trading prices of our ADSs ranged from US$0.92 to US$19.60 per ADS, and the last reported trading price on April 19, 2024 was US$1.40 per ADS. The prices for our ADSs may continue to fluctuate because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of other listed companies based in China. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading performances of other Chinese companies’ securities after their offerings, including technology companies and transaction service platforms, may affect the attitudes of investors toward Chinese companies listed in the U.S., which consequently may impact the trading performance of our ADSs, regardless of the Group’s actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including the Group, regardless of whether the Group has conducted any inappropriate activities. Furthermore, securities markets may from time to time experience significant price and volume fluctuations that are not related to the Group’s operating performance, such as the large decline in share prices in the U.S., China and other jurisdictions in late 2008, early 2009, the second half of 2011, 2015 and 2021, which may have a material and adverse effect on the trading price of our ADSs. In addition to the above factors, the price and trading volume of our ADSs may be highly volatile due to multiple factors, including the following: ● regulatory developments affecting us or our industry; ● announcements of studies and reports relating to the quality of service offerings on Cango platform or those of our competitors; ● changes in the economic performance or market valuations of other transaction service platforms; ● actual or anticipated fluctuations in the Group’s quarterly results of operations and changes or revisions of its expected results; ● changes in financial estimates by securities research analysts; ● announcements by the Group or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures, capital raisings or capital commitments; ● additions to or departures of our senior management; ● fluctuations of exchange rates between the Renminbi and the U.S. dollar; ● release or expiry of lock-up or other transfer restrictions on our outstanding shares or ADSs; and ● sales or perceived potential sales of additional Class A ordinary shares or ADSs. 57 Table of Contents If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSs and trading volume could decline. The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or the Group’s business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our ADSs or publishes inaccurate or unfavorable research about the Group’s business, the market price for our ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ADSs to decline. We may not pay additional cash dividends, so you may not receive any return on your investment unless you sell your Class A ordinary shares or ADSs for a price greater than that which you paid for them. We have made several dividend payments to our shareholders. For example, on June 15, 2022, we paid a special cash dividend of US$0.5 per ordinary share (or US$1 per American depositary share) on our outstanding ordinary shares, in an aggregated amount of approximately US$136.6 million. Later on November 23, 2022, we paid another special cash dividend of US$0.5 per ordinary share (or US$1 per American depositary share) on our outstanding ordinary shares, in an aggregated amount of approximately US$134.8 million. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” Nonetheless, we currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of the Group’s business. As a result, we may not pay any additional cash dividends. Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income. Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and pay additional dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, the Group’s future results of operations and cash flow, the Group’s capital requirements and surplus, the amount of distributions, if any, received by the Group from our subsidiaries, the Group’s financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value in the future or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs. Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline. Sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline significantly. As of December 31, 2023, we had 144,857,131 Class A ordinary shares and 72,978,677 Class B ordinary shares outstanding. All ADSs representing our Class A ordinary shares are freely transferable by persons other than our “affiliates” without restriction or additional registration under the U.S. Securities Act of 1933, as amended, or the Securities Act. All of the other ordinary shares outstanding are available for sale, subject to volume and other restrictions as applicable under Rule 144 and Rule 701 under the Securities Act. Certain major holders of our ordinary shares have the right to cause us to register under the Securities Act the sale of their shares. Registration of these shares under the Securities Act would result in ADSs representing these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the form of ADSs in the public market could cause the price of our ADSs to decline significantly. 58 Table of Contents You, as holders of ADSs, may have fewer rights than holders of our Class A ordinary shares and must act through the depositary to exercise those rights. Holders of ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying Class A ordinary shares in accordance with the provisions of the deposit agreement. Under our third amended and restated articles of association, the minimum notice period required to convene a general meeting is ten clear days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your Class A ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but there can be no assurance that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting. Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement and the deposit agreement may be amended or terminated without your consent. Under the deposit agreement, any action or proceeding against or involving the depositary, arising out of or based upon the deposit agreement or the transactions contemplated thereby or by virtue of owning the ADSs may only be instituted in a state or federal court in New York, New York, and you, as a holder of our ADSs, will have irrevocably waived any objection which you may have to the laying of venue of any such proceeding, and irrevocably submitted to the exclusive jurisdiction of such courts in any such action or proceeding. Also, we may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended. See “Item 12. Description of Securities other than Equity Securities—D. American Depositary Shares” for more information. Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings. We may, from time to time, distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the U.S. unless we register both the distribution and sale of the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless both the distribution and sale of the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective and we may not be able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings in the future and may experience dilution in your holdings. You may not receive cash dividends or other distributions if the depositary determines it is illegal or impractical to make them available to you. The depositary will pay cash dividends on the ADSs only to the extent that we decide to distribute dividends on our Class A ordinary shares or other deposited securities, and we may not pay any cash dividends. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” To the extent that there is a distribution, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our Class A ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is illegal or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property to you. 59 Table of Contents You may be subject to limitations on transfer of your ADSs. Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason. Our third amended and restated memorandum and articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders’ opportunity to sell their shares, including ordinary shares represented by our ADSs, at a premium. We have adopted the third amended and restated articles of association, which became effective immediately prior to the completion of our initial public offering, that contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our Class A ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our Class A ordinary shares and ADSs may be materially and adversely affected. In addition, our third amended and restated memorandum and articles of association contain other provisions that could limit the ability of third parties to acquire control of our company or cause us to engage in a transaction resulting in a change of control, including a provision that entitles each Class B ordinary share to 20 votes in respect of all matters subject to a shareholders’ vote. ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action. The deposit agreement governing the ADSs representing our Class A ordinary shares provides that holders and beneficial owners of ADSs irrevocably waive the right to a trial by jury in any legal proceeding arising out of or relating to the deposit agreement or the ADSs, including claims under federal securities laws, against us or the depositary to the fullest extent permitted by applicable law. If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of a jury trial waiver under the federal securities laws has not been finally adjudicated by a federal court. However, we believe that a jury trial waiver provision is generally enforceable under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non- exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a jury trial waiver provision, New York courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim, none of which we believe are applicable in the case of the deposit agreement or the ADSs. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any provision of the federal securities laws. If you or any other holder or beneficial owner of ADSs brings a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims and the venue of the hearing. 60 Table of Contents Certain judgments obtained against us by our shareholders may not be enforceable. We are an exempted company incorporated under the laws of the Cayman Islands. Substantially all of our assets are located outside the United States. In addition, substantially all of our directors and executive officers and the experts named in this annual report reside outside the United States, and most of their assets are located outside the United States As a result, it may be difficult or impossible for you to bring an action against us or against them in the United States in the event that you believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands, China or other relevant jurisdiction may render you unable to enforce a judgment against our assets or the assets of our directors and officers. You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law. We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our third amended and restated memorandum and articles of association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as than they would be under statutes or judicial precedent in some jurisdictions in the U.S. In particular, the Cayman Islands have a less developed body of securities laws than the U.S. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than the memorandum and articles of association and any special resolutions passed by such companies, and the register of mortgages and charges of such companies) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under the third amended and restated memorandum and articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder resolution or to solicit proxies from other shareholders in connection with a proxy contest. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the U.S. We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the U.S. that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q, quarterly certifications by the principal executive and financial officers, or current reports on Form 8-K; (ii) the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; (iii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iv) the selective disclosure rules by issuers of material nonpublic information under Regulation FD. We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish the Group’s results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. For example, U.S. domestic issuers are required to file annual reports within 60 to 90 days from the end of each fiscal year. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer. 61 Table of Contents We have incurred and expect to continue to incur significant costs as a public company, which could lower our profits or make it more difficult to run our business. As a public company, we have incurred and expect to continue to incur significant legal, accounting and other expenses that we did not incur as a private company to ensure that we comply with the various requirements on corporate governance practices imposed by the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and NYSE. For example, we have adopted policies regarding internal controls and disclosure controls and procedures. We have also incurred additional costs associated with our public company reporting requirements. In March 2024, the SEC adopted final rules on climate - related disclosure, which requires issuers to make a significant amount of climate - related disclosure, including, among others, material Scope 1 and Scope 2 greenhouse gas, or GHG, emissions, climate - related financial metrics, climate - related strategy, governance, targets and goals. The final rules also include phased - in attestation requirements for GHG disclosure. As a result, we expect that these rules and regulations will continue to cause us to incur elevated legal and financial compliance costs, devote substantial management effort to ensure compliance and make some corporate activities more time-consuming and costly. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs. In the past, shareholders of a public company often brought securities class action suits against companies following periods of instability in the market price of those companies’ securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations. There is a significant risk that we may be classified as a passive foreign investment company, or PFIC, which could result in adverse U.S. tax consequences to U.S. investors. In general, we will be a PFIC for any taxable year in which: ● at least 75% of our gross income is passive income, or ● at least 50% of the value (generally determined based on a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. There are uncertainties in the application of the PFIC rules to a company with our particular business operations. However, based on the past and projected composition and classification of our income and assets, we believe that there is a significant risk that we were a PFIC for United States federal income tax purposes for 2023, and that we may be classified as a PFIC in the current and future taxable years. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that our PFIC status may change due to changes in our asset or income composition. In addition, the calculation of the value of our assets will be based, in part, on the quarterly market value of our ADSs, which is subject to change. Therefore, fluctuations in the market value of our ADSs can affect our PFIC status. In addition, there is uncertainty as to the treatment of our corporate structure and ownership of our consolidated VIEs for United States federal income tax purposes. For United States federal income tax purposes, we consider ourselves to own the equity of our consolidated VIEs. If it is determined, contrary to our view, that we do not own the equity of our consolidated VIEs for United States federal income tax purposes (for instance, because the relevant PRC authorities do not respect these arrangements), we are more likely to be treated as a PFIC. If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares, our PFIC status could result in adverse United States federal income tax consequences to you if you are a United States Holder, as defined under “Item 10. Additional Information—E. Taxation—Certain United States Federal Income Tax Considerations.” For example, if we are or become a PFIC, you may become subject to increased tax liabilities under United States federal income tax laws and regulations, and will become subject to burdensome reporting requirements. See “Item 10. Additional Information—E. Taxation—Certain United States Federal Income Tax Considerations—Passive Foreign Investment Company.” There can be no assurance that we will not be a PFIC for the current or any future taxable year. 62 Table of Contents As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NYSE corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with the NYSE corporate governance listing standards. We are a company incorporated in the Cayman Islands, and our ADSs are listed on the NYSE. The NYSE market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards. For instance, we are not required to: (i) have a majority of the board be independent; (ii) have a compensation committee or a nominating and corporate governance committee consisting entirely of independent directors; (iii) obtain shareholders’ approval for issuance of securities in certain situations; or (iv) have regularly scheduled executive sessions with only independent directors each year. Furthermore, we are not required by the NYSE to hold annual shareholders meetings. We intend to rely on the four exemptions described above. As a result, you may not be provided with the benefits of certain corporate governance requirements of the NYSE. ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company The Group began operations in August 2010 through Shanghai Cango, which was founded under the laws of the PRC by a group of pioneers who built the first automotive finance business in China, SAIC-GMAC Automotive Finance Co., Ltd. The Group initially focused on providing automotive financing solutions to car buyers by connecting them to dealers and financial institutions through Cango platform. At its peak, the Group’s dealer network was comprised of over 50,000 registered dealers for automotive financing solutions. The Group has also established partnerships with several financial institutions over time, including WeBank, MYbank, Bank of Shanghai, Shanghai Rural Commercial Bank, Jiangnan Rural Commercial Bank and ICBC. Led by an experienced and visionary management team, the Group has extended services beyond the facilitation of automotive financing transactions and identified additional ways to strengthen Cango platform and serve the customers, such as by starting to provide automobile trading solutions in 2015 and after-market services facilitation in 2017. In 2022, the Group made a business transition to focus on automobile trading solutions and after-market services facilitation while scaling down its automotive financing facilitation services. Currently, the Group cooperates with third-party financial institutions to fund existing loans facilitated through Cango platform. In the future, the Group may decide to facilitate loans which do not require it to bear credit risks or provide guarantees. In October 2017, we incorporated Cango Inc. under the laws of the Cayman Islands, which has become our ultimate holding company, and subsequently, we established a wholly-owned subsidiary in Hong Kong, Cango Group Limited, to be our intermediate holding company. In January 2018, we established Can Gu Long as our wholly foreign owned subsidiary in China. Can Gu Long entered into a series of contractual arrangements with Shanghai Cango and its shareholders in 2018 and entered into a series of contractual arrangements with Shanghai Yungu and its shareholders in 2022, which allows us to receive substantially all the economic benefits of the consolidated VIEs. As a result, we are the primary beneficiary of the consolidated VIEs for accounting purposes and hence consolidate its financial results under U.S. GAAP. The acquisition of Shanghai Chejia was completed at the end of September 2018. In 2019, Shanghai Cango acquired Shanghai Quanpin Automobile Sales Co., Ltd., which wholly owns Fushun Insurance Brokerage Co., Ltd. The purpose was to obtain the insurance brokerage license to enhance after-market services facilitation business. The Group completed three rounds of equity financing prior to the completion of our initial public offering. The first round of equity financing was completed in July 2017, and investors included Warburg Pincus Financial Global Ltd. and Primavera. The second round of equity financing was completed in March 2018, and investors included, among others, Tencent, Taikang Life Insurance and Didi Chuxing. The third round of equity financing was completed with Didi Chuxing and another investor in June 2018. Our ADSs, each representing two of our Class A ordinary shares, have been listed on the New York Stock Exchange since July 26, 2018 under the symbol “CANG.” 63 Table of Contents B. Business Overview Overview Who We Are The Group is a leading technology-enabled automotive transaction service platform in China, connecting dealers, OEMs, car buyers and other industry participants. The Cango platform empowers and serves upstream and downstream of the automotive transaction value chain and offers comprehensive services, working together with platform participants to deliver simple and enjoyable car purchasing and ownership experience. The Group has extensive, technology-enabled service offerings that cover key components of the automotive transaction value chain, including pre-sale automobile trading solutions and post-sale after-market services facilitation. To a lesser extent, the Group also provides during-sale automotive financing facilitation. Our Vision and Roadmap to Our Vision Our vision is to make automotive transactions simpler, easier and more pleasant. Automotive financing was originally the Group’s entry point to automotive transaction value chain, and by leveraging its deep expertise in automotive financing, it has accumulated core capabilities that allow it to capture opportunities in upstream and downstream of the automotive transaction value chain. The Group established Cango U-car app, an advanced technology-enabled infrastructure to empower platform participants, which connects upstream vehicle suppliers, aftermarket service providers, and downstream small car dealers in lower-tier cities. It provides comprehensive services spanning the entire transaction process, including historical vehicle condition reports, vehicle appraisal and inspection, logistics and delivery services, insurance, and supply chain financing facilitation, among others. Equipped with unique capabilities and expertise in automotive industry, the Group is well positioned to expand its footprint in automobile trading business and further scale up business. As of December 31, 2023, the Group was able to cooperate with 1,801 dealers registered on Cango U-car app for automobile trading solutions. The Group’s diversified customer acquisition channels enable it to acquire latest and first-hand knowledge of car buyers’ automotive demand and preference. Leveraging its offline service expertise in lower-tier cities, it has built a distribution network that covers critical warehousing and logistics arrangements to realize the “last mile” delivery of transaction. The Group’s industry knowledge, further empowered by technology and data insights, creates opportunities to provide automobile trading solutions. Moreover, automobile trading capabilities enable the Group to achieve scalability in transaction volume, which is an important factor for attracting new business partners and creating future monetization opportunities. By participating on the scalable Cango platform, business partners are able to improve their operating efficiency and capture additional business opportunities. The Group’s after-market service facilitation and other service offerings also can be attached to the automobile trading process, providing a one-stop platform for all key participants, simple and enjoyable car purchasing experience for car buyers, as well as multiple revenue streams for the Group. The Group has been focusing on building a self-reinforcing ecosystem. Leveraging the well-established automotive transaction service platform, it is well positioned to engage more industry participants through Cango platform. As the Group facilitates more transactions, offers more solutions and services and creates more value for them, it benefits from a self-reinforcing virtuous cycle, which further enhances the close-looped ecosystem. As such, we believe the Cango platform offers core value propositions (i) for car dealers by matching demand and supply to improve their car sourcing efficiency and enable them to access popular car models to better serve car buyers; (ii) for OEMs by expanding sales channels to help them reach under-covered geographies through a vast dealer network; and (iii) for car buyers, as they will enjoy simple and pleasant one-stop car purchasing experience through the solution and service offerings on Cango platform. Solutions and Service Offerings Currently, the Group mainly provides pre-sale automobile trading solutions and post-sale after-market services facilitation, covering key components of the automotive transaction value chain. To a lesser extent, the Group also provides during-sale automotive financing facilitation. 64 Table of Contents Automobile Trading Solutions The Group provides car sourcing and transaction facilitation services, along with logistics and warehousing support for dealers. Such services were accessible primarily through two apps: Cango Haoche app, which was launched in 2022 and provided new car transaction services and Cango U-car app, which was launched in January 2023 and provided used car transaction services. As new car dealers are starting to engage in used car retail while used car dealers are now attempting to sell new cars as well, the Group seamlessly merged the Cango Haoche app into Cango U-car app in the fourth quarter of 2023 to cater to the rapidly disappearing boundary between new car and used car sales channels, thereby optimizing resource allocation and enhancing operational efficiency. Currently, the Group’s automobile trading solutions are accessible primarily through Cango U-car app. The Group primarily provides dealers with streamlined used car transaction services, consisting of car sourcing and transaction facilitation services. For the Group’s car sourcing services, its self-owned cars primarily include cars disposed by individual car buyers who have used the Group’s automotive financing solutions in the past, including cars collected as part of the delinquency asset management process, as well as cars used as collaterals and later collected and disposed by financial institutions. Leveraging the Group’s wide customer base, the Cango U-car app allows dealers to choose from a large collection of used cars in various types and buying dealers can make bids in online auctions. In addition to car sourcing services, the Group also offers transaction facilitation services, which connect dealers looking for cars with dealers wishing to supply cars. Dealers wishing to supply cars can make sales posts on Cango U-car app. The Group’s customer service team will match the buyers and sellers who meet the requirements, assist them in communicating the details and completing the transaction. The Group will arrange delivery of the cars at the option of dealers if a transaction is entered. In addition, dealers can easily access comprehensive transaction supporting services on the Cango U-car app, including customer leads generation services, logistics services, financial services and insurance services. Through such services, the Group aims to provide dealers with convenient and efficient transaction experience and improve user engagement on Cango platform. As the conditions of used car vary, the Group has engaged third-party professional technician teams and car service teams for used car transactions, providing dealers with car viewing, car inspection and car loan services to further improve the matching conversion efficiency. To a lesser extent, the Group provides dealers with one-stop new car transaction services. The Group’s car sourcing services aggregate demand from dealers, makes bulk purchase of cars from OEMs and then arranges delivery of cars to the dealers. The Group also offers transaction facilitation services for new car transactions. Beginning from the second quarter of 2023, the Group has limited the size of its car sourcing services to better manage inventory risks and related operational risks. Please see “Item 3—Key Information—Risks Relating to Our Industry and Business— Failure to sell cars owned by the Group or facilitate the sale of cars owned by dealers may have a material and adverse effect on the Group’s business, financial condition and results of operations.” As of December 31, 2023, 1,801 dealers registered on Cango U-car app for automobile trading solutions. In 2023, the Group’s automobile trading solutions enabled 12,695 car transactions with a total transaction value of RMB1,309.6 million (US$184.5 million). The Group initiated its membership services in the fourth quarter of 2023 to better serve registered dealers and attract dealers and other service providers to open online stores on Cango platform. In the fourth quarter of 2023, the number of online stores opened on Cango platform reached 38. After-market Services Facilitation The Group facilitates the sale of insurance policies and other after-market services for car buyers. As of December 31, 2023, the Group collaborated with eight insurance brokers and companies to facilitate the sale of their products, such as auto insurance, accident insurance and other automotive related insurance services, to car buyers. The Group continues to explore opportunities to facilitate other after-market services on Cango platform, including additional types of insurance, extended warranties and car customization services. 65 Table of Contents Automotive Financing Facilitation Services The Group provides automotive financing facilitation services primarily by connecting financial institutions and car buyers, leveraging its vast dealer network. Funding for such financing solutions is provided by either third-party financial institutions or Shanghai Chejia, which is the Group’s consolidated affiliate. The Group made a business transition in 2022 to scale down its automotive financing facilitation services. Currently, the Group cooperates with third-party financial institutions to fund existing loans facilitated through Cango platform. In the future, the Group may decide to facilitate loans which do not require it to bear credit risks or provide guarantees. The Group also provides value-added services, such as assistance with administrative procedures associated with car purchasing and financing. New Strategic Initiatives While the Group currently operates its automobile trading services primarily in lower-tier cities, it has been developing new strategic initiatives. As it witnesses the emergence of NEVs in the automotive industry as the next-generation trend, it has consistently focused on developing its footprint in the NEV space through several strategic initiatives with NEV manufacturers. The Group collaborates with some major NEV brands, and the cooperation encompasses insurance and other services. NEV manufacturers typically do not have a large offline network. This creates a unique opportunity for the Group to provide offline services to NEV manufacturers and their customers by realizing the “last mile” of transaction, leveraging the Group’s nationwide network, operational expertise and industry knowhow. The Group will continue investing and upgrading its car trading transaction platform for dealers, which cater to evolving needs of car dealers, by improving user interface and developing diversified modules and functions. In addition, leveraging the rich experience and market know-how, the Group established an interactive and export service website for used car information in March 2024, catering to auto dealers in emerging and developing countries and providing them with easy access to China’s abundant automobile-related resources. This website had a total of 75,000 stock keeping units, or SKUs, when it was launched and about 500-1,000 new SKUs are added to the website each week on average. Revenue Model The Group receives sales revenue and fee income for its automobile trading solutions. For the after-market services, the Group earns fixed service fee for facilitating the sale of different kinds of insurance products, such as accident insurances, automotive insurances and other automotive related insurance services. In automotive financing, the Group charges financial institutions service fee based on a percentage of the principal amount of the relevant financing transactions. Solutions and Service Offerings The Group provides integrated solutions and services through its technology-enabled platform along the entire automotive transaction value chain. As such, its solutions and service offerings mainly include pre-sale automobile trading solutions and post-sale after-market services facilitation. The Group primarily enables other platform participants to optimize their operations or secure better terms in transactions. The unique value proposition brought to platform participants allows the Group to both solidify existing relationships and attract new participants to Cango platform. As the Group serves and interacts with different types of platform participants, it gains further insights into them and captures new business opportunities. 66 Table of Contents Automobile Trading Solutions With its automobile trading solutions, the Group is able to provide car sourcing and transaction facilitation services, along with logistics and warehousing support for dealers. Such services are accessible primarily through Cango U-car app, which enables dealers to search and view car models for used cars and new cars and place orders on the app. By using the automobile trading solutions, dealers are able to enjoy economies of scale in vehicle sourcing and logistics management. Furthermore, the automobile trading solutions are powered by the Group’s technology platform, aiming to maximize efficiencies. As a comprehensive tool kit to address dealers’ pain points, Cango U-car app allows dealers to conveniently find suitable cars, serve existing car buyers and engage potential car buyers. The Group aims to help small and medium-sized car dealers procure cars cost-efficiently and help OEMs better address market demands across China, especially in lower-tier cities. ● Used car transactions. The Group offers both car sourcing and transaction facilitation services for used car transactions. For the car sourcing services, the Group’s self-owned cars are primarily from cars disposed by individual car buyers who have used the Group’s automotive financing solutions in the past, including cars collected as part of the delinquency asset management process, as well as cars used as collaterals and later collected and disposed by financial institutions. In addition, when individual car buyers plan to purchase new cars and need to dispose used cars, the Group may offer to buy the used cars from them. When purchasing the Group’s self-owned used cars on Cango U-car app, the dealers are required to pay a deposit first and pay the purchase prices in full before specific deadlines for the cars to be picked up or delivered. The Group also offers transaction facilitation services on Cango U-car app, which connects dealers looking for cars with dealers wishing to supply cars. Dealers wishing to supply cars can make sales posts on Cango U-car app. After screening, such posts can be viewed by buyers and interested buyers can make bids. The Group’s customer service team will match the buyers and sellers who meet the requirements, assist them in communicating the details and completing the transaction. The Group charges service fees for the matching services. As the conditions of used car vary, the Group has engaged third-party professional technician teams and car service teams for used car transactions, providing dealers with car viewing, car inspection and car loan services to further improve the matching conversion efficiency. ● New car transactions. To a lesser extent, the Group also offers both car sourcing and transaction facilitation services for new car transactions. For the Group’s car sourcing services, it periodically updates the selection of car models based on new car launches and demands by dealers. When placing an order, a dealer is required to pay a deposit, which represents a percentage of the total purchase price. The Group purchases cars from OEMs based on orders from dealers. Dealers are required to pay purchase prices in full and pick up cars from local warehouses maintained by OEMs or the Group before specific deadlines. If dealers fail to make timely payments, their deposits are forfeited and the Group will seek to sell the relevant cars to other buyers. In addition to car sourcing services, the Group also offers transaction facilitation services, the process of which is substantially the same as transaction facilitation services of used cars. Beginning from the second quarter of 2023, the Group has limited the size of its car sourcing services to better manage inventory risks and related operational risks. Please see “Item 3—Key Information—Risks Relating to Our Industry and Business— Failure to sell cars owned by the Group or facilitate the sale of cars owned by dealers may have a material and adverse effect on the Group’s business, financial condition and results of operations.” As of December 31, 2023, 1,801 dealers registered on Cango U-car app for automobile trading solutions. In 2023, the Group’s automobile trading solutions enabled 12,695 car transactions with a total transaction value of RMB1,309.6 million (US$184.5 million). The Group initiated its membership services in the fourth quarter of 2023 to better serve registered dealers and attract dealers and other service providers to open online stores on Cango platform. In the fourth quarter of 2023, the number of online stores opened on Cango platform reached 38. 67 Table of Contents After-market Services Facilitation Cango platform also facilitates after-market services to car buyers, which is primarily comprised of facilitating the sale of insurance policies from insurance brokers or companies. The Group’s scale and ability to provide an effective channel for insurance brokers and companies to acquire customers has enabled it to negotiate more favorable premium for car buyers. The products currently offered through Cango platform are accident insurances, automotive insurances and other automotive related insurance services. The Group earns service fees for facilitating the sale of such insurance products. We believe the Group is able to understand the needs of car buyers and deliver competitively priced products that resonate with car buyers. In 2020, the Group formed a key account sales team and call center, which helped it drive the growth of insurance facilitation business. The Group will continue to explore and identify opportunities to facilitate other after-market services, including additional types of insurances, extended warranties and car customization services. Automotive Financing Facilitation Services Automotive financing facilitation services primarily involve facilitating financing transactions from financial institutions to car buyers. In 2022, the Group made a business transition to scale down its automotive financing facilitation services. Currently, the Group cooperates with third-party financial institutions to fund existing loans facilitated through Cango platform. In the future, the Group may decide to facilitate loans which do not require it to bear credit risks or provide guarantees. For financial institutions, the Group offers credit origination, credit assessment, credit servicing and delinquent asset management services. For car buyers, the Group facilitates financing transactions that make their car purchases more affordable, and the Group also assists them in handling administrative procedures in relation to car purchasing and financing. The Group charges financial institutions service fees for its credit services. These service fees are typically based on a percentage of the principal amount of the relevant financing transaction. The Group charges certain financial institutions additional fees for its delinquent asset management services. The Group may also charge car buyers a fee for providing value-added services in certain instances. In addition, the Group recognizes leasing income relating to financing leases funded by Shanghai Chejia. Relationships with Platform Participants As the leading automotive transaction service platform in China, Cango platform connects dealers, financial institutions, car buyers and other participants such as insurance brokers and companies and OEMs. The scale of Cango platform has a network effect that further strengthens the Group’s ability to serve each party on the platform. We believe that by leveraging the technological capabilities and strong relationships with customers and business partners, we will be able to transform the automotive and mobility markets in China. Dealers Automotive financing was originally the Group’s entry point to automotive transaction value chain. At its peak, the Group’s network included over 50,000 registered dealers across China for automotive financing solutions. Following the Group’s business transition in 2022 to focus on automobile trading solutions and after-market services facilitation, it is able to attract new dealers and convert existing dealers into its network of automobile trading solutions. As of December 31, 2023, 1,801 dealers were registered on Cango U-car app for automobile trading solutions. As of the same date, such extensive dealer network covered 251 cities and all province-level administrative regions in China. An extensive dealer network is the foundation of Cango platform. Cango platform allows dealers to conveniently source cars, serve existing car buyers, engage potential car buyers and access to value-added services including logistics and warehousing services. Such full-process services significantly strengthen the Group’s relationships with dealers. To a lesser extent, the Group also collaborates with registered dealers when providing services to financial institutions and car buyers. 68 Table of Contents The Group manages the dealer network through a dedicated in-house sales team of 73 employees as of December 31, 2023. Responsibilities of the sales team include sourcing and preliminary review of new dealers, management of relationships with registered dealers and on-the-ground customer support. The sales team also utilizes a sales management system to engage new dealers and monitor existing dealers. The system maintains a comprehensive list of dealers across China, and the Group continually updates this list based on information obtained from third parties such as OEMs and government sources. Based on the list, the Group analyzes the penetration rate of existing dealer network in each region, screen dealers which are suitable for the dealer network and proactively engage these dealers. To ensure the quality of the dealer network as well as prevent potential fraud risk, the Group has implemented a rigorous procedure to screen dealers based on the dealer’s licensing status, operation history, scale, location and various other factors. The Group maintains an internal blacklist of fraudulent dealers, and also uses a third-party database to identify whether a dealer has been involved in significant lawsuits. The screening procedure involves an on-site visit, during which the sales team interviews the dealership manager, examines the dealer’s business licenses and makes inquiries about its business. The sales team records its findings electronically in the sales management system and submits the findings electronically to supervisors based in the headquarters, who make the final decision as to whether the dealer can join the Group’s network. Financial Institutions While the Group made a business transition in 2022 to scale down its automotive financing facilitation services, financial institutions are still important business partners to Cango platform. Third-party financial institutions fund a major portion of financing transactions that the Group facilitates to car buyers, and the Group also facilitates financing leases funded by Shanghai Chejia. The Group collaborates with third-party financial institutions in facilitating financing transactions and receives service fees from financial institutions for facilitating automotive financing transactions to car buyers. The table below sets forth a breakdown of the total amount of financing transactions funded by third-party financial institutions and Shanghai Chejia, both in absolute amount and as a percentage of the total amount facilitated, in the periods presented: Financing transactions funded by third-party financial institutions: Financing transactions funded by Shanghai Chejia Total For the year ending December 31, 2021 RMB % RMB 2022 2023 % RMB US$ % (in thousands, except for percentages) 29,036,779 1,091,415 30,128,194 96.4 3.6 100.0 2,763,008 75,819 2,838,827 97.3 2.7 100.0 1,686 — 1,686 238 — 238 100.0 — 100.0 The table below sets forth a breakdown of the total outstanding principal of financing transactions funded by third-party financial institutions and Shanghai Chejia, both in absolute amount and as a percentage of the total outstanding amount facilitated, as of the date presented: Outstanding principal of financing transactions funded by third-party financial institutions: Outstanding principal of financing transactions funded by Shanghai Chejia Total 2021 As of December 31, 2022 2023 RMB % RMB % RMB US$ % (in thousands, except for percentages) 45,145,986 96.7 24,752,810 96.8 9,634,444 1,356,983 96.6 1,556,068 46,702,054 3.3 100.0 828,444 25,581,254 3.2 100.0 337,115 9,971,559 47,482 1,404,465 3.4 100.0 69 Table of Contents Terms of Cooperation with Financial Institutions ● Pursuant to the agreements with MYbank, the Group collaborates with MYbank to facilitate financing transactions funded by a major commercial bank for car buyers. The Group receives service fees for customer referral, customer consultation, customer repayment reminder, assistance in loan collection and other services, as well as vehicle value assessment from MYbank based on a percentage of the outstanding balance of relevant financing transactions. While MYbank offers such major commercial bank risk assurance up to a certain percentage of the total principal amount of financing transactions facilitated under such arrangement, the Group, in turn, is obligated to compensate MYbank for its payouts in connection with such obligation. After making such payment, security interest in the relevant collateral is also transferred to the Group. As the agreement with MYbank expired in June 2023, the Group needs to enter into new agreement with MYbank for it to fund any new loans facilitated through Cango platform. Nevertheless, MYbank continues to fund existing loans facilitated through Cango platform and performs relevant obligations. ● Pursuant to the agreement with Bank of Shanghai, the Group receives service fees for industry information services, auto finance business services, management services for personal consumption loans, and other services. The Group is obligated to repay the overdue loans upon certain specified events of default by car buyers. After making such payment, security interest in the relevant collateral is also transferred to the Group. The term of the agreement with Bank of Shanghai expired on December 31, 2022 and has been automatically renewed for three years. The agreement may be terminated for cause, such as breach of contract or liquidation or dissolution. The agreement with Bank of Shanghai may also be terminated without cause by 90 days’ written notice. ● Pursuant to the agreements with WeBank, the Group facilitates financing transactions with funding provided by WeBank. WeBank pays the Group service fees for credit origination, credit assessment and credit servicing based on a percentage of the outstanding balance of relevant financing transactions. In addition, for certain arrangements, the Group is obligated to purchase the relevant financing receivables from financial institutions upon certain specified events of default by car buyers up to a certain percentage of the total outstanding amount of financing transactions facilitated under such arrangements. After purchasing such financing receivables, security interest in the relevant collateral is also transferred to the Group. As the agreement with WeBank expired in April 2023, the Group needs to enter into new agreement with WeBank for it to fund any new loans facilitated through Cango platform. Nevertheless, WeBank continues to fund existing loans facilitated through Cango platform and performs relevant obligations. Financing Leases Shanghai Chejia funds financing leases with its own capital as well as debt financing provided by Bank of Shanghai and several other institutions. The financing leases are recorded on Shanghai Chejia’s balance sheet as financing lease receivables. In 2022 and 2023, the amount of financing leases funded by Shanghai Chejia was RMB75.8 million and nil, respectively. As of December 31, 2022 and 2023, the outstanding principal of financing leases funded by Shanghai Chejia was RMB828.4 million and RMB337.1 million (US$47.5 million), respectively. Car Buyers Cango platform mainly facilitates after-market services such as insurance products to car buyers. To a lesser extent, the Group also offers automotive financing solutions and related value-added services. The Group remains in contact with many car buyers even after their automotive loans or financing leases are repaid. The Group places phone calls or provides notifications to car buyers regarding additional value-added services or after-market services through its mobile application Car Owner eGeneration. If car buyers are interested in purchasing a new car, disposing a used car or after-market services such as insurance products, the Group will further communicate with them in offering such services. Other Platform Partners ● Insurance Brokers and Companies: The Group is able to provide access to a large number of car buyers for insurance brokers and companies, making Cango a natural and highly efficient partner for them to promote their insurance products. The insurance products currently offered through Cango platform are related to accident insurances, automotive insurances and other automotive related insurance services. The Group plans to collaborate with additional insurance brokers and companies to facilitate the offering of more insurance policies. 70 Table of Contents ● OEMs: Cango platform creates significant value for OEMs by helping them extend their sales channels through the Group’s vast dealer network. OEMs traditionally build their selling channels in first-tier cities. Due to the geographical dispersion of and uneven demand in lower-tier markets, it is generally difficult for OEMs to build their operation in these markets. On the other hand, leveraging the Group’s extensive dealer network spanning across 251 cities, it is well positioned to help OEMs expand their footprint. Credit Underwriting and Risk Management As part of the Group’s automotive financing facilitation services, it engages in credit underwriting and takes measures for risk management. Credit Underwriting Process Under typical credit underwriting process, the Group first utilizes its credit assessment system to evaluate credit applications from car buyers and refers qualified credit applications to its partner financial institutions, which will perform independent credit assessment. After a credit application is approved, the car buyer enters into a loan agreement with the financial institution, pursuant to which the car buyer is required to make the down payment to the dealer and on behalf of the car buyer, the financial institution pays the remainder of the purchase price to the dealer. The car buyer makes repayment in installments and is required to pledge the car as collateral in favor of the financial institutions, which will be released upon full repayment of the loan. The financial institution pays the Group service fees. A dealer may receive commissions from the Group or the relevant financial institution, depending on the arrangement among the Group, the dealer and the relevant financial institution. The Group also facilitates financing leases, which are mainly structured using sale-and-leaseback method. The Group applies the same credit assessment process in facilitating financing leases as in facilitating loans. Shanghai Chejia takes the role of a lessor in a financing lease transaction. Once a car buyer’s lease application is approved, the car buyer utilizes financing provided by the lessor to purchase a car from the dealer. The car buyer is then contractually required to transfer the ownership of the car to the lessor and pledge the car as collateral in favor of the lessor. The lessor then leases the car back to the relevant car buyer in return for monthly lease payments. The lessor has the right to recover the collateral in the event of default. Upon the expiration of the lease term, the lessor transfers the title back to the car buyer, and its security interest in the collateral is also released. Credit Assessment Model Credit assessment forms the foundation of the Group’s risk management efforts. The Group takes a prudent approach to credit assessment, relying on credit assessment model and have the credit assessment team conduct a manual evaluation when necessary. The Group refers qualified credit applications to financial institutions who fund the loans, which perform independent credit assessment. The Group continuously refines its credit assessment model, and aims to maintain low overdue ratios for the financing transactions facilitated through Cango platform. M3+ overdue ratio for all financing transactions facilitated and remained outstanding was 1.38% and 1.37% as of December 31, 2022 and 2023, respectively. Financing Terms Financing transactions facilitated through Cango platform are structured as either loans or financing leases. Both types of arrangements require car buyers to provide down payments, pledge cars as collateral and make repayments in installments. The terms of the financing transactions are stated in the agreements the car buyers sign with third-party financial institutions or Shanghai Chejia: ● Down payments. A car buyer is typically required to provide a down payment to the relevant dealer based on a percentage of the purchase price of the car. This percentage varies among different funding arrangements and typically ranged from 20% to 30% of the purchase price in 2021, 2022 and 2023. ● Principal. The principal represents the purchase price of the car net of the down payment, which typically ranged from RMB50,400 to RMB100,000 in 2021, RMB74,900 to RMB150,000 in 2022 and RMB32,300 (US$4,549) to RMB123,800 (US$17,437) in 2023. 71 Table of Contents ● Interest rate. Annual interest on most of the financing transactions facilitated in 2021 ranged from 8.11% to 9.99%. Annual interest on most of the financing transactions facilitated in 2022 ranged from 7.81% to 9.99%. Annual interest on most of the financing transactions facilitated in 2023 ranged from 8.35% to 9.84%. Besides interest, financial institutions do not charge car buyers additional fees. ● Installments. Each car buyer may repay in monthly installments over a period ranging from one to five years. The combined total represents the principal and interest charged to the car buyer. The car buyer is required to designate a bank account for repayments and authorize automatic payments from this account. ● Prepayment. Each car buyer who wishes to pay off the outstanding principal before maturity is charged a prepayment fee. The fee is based on a percentage of the outstanding principal amount at the time of prepayment. ● Late payment penalty fee. A penalty fee for late payment is laid out in the agreement and imposed based on the outstanding principal amount and number of days that a payment is overdue. In the event of delinquency, the financing terms are not allowed to be restructured. Delinquent Asset Management The delinquent asset management process, which consists of six distinct stages, is designed to recover value in a cost-effective way. (1) Automated reminders. During the first five days after a delinquency occurs, the Group sends automated text messages and makes automated phone calls as reminders. (2) Live phone calls. If the delinquency continues for more than five days, members of the Group’s delinquent asset management team make phone calls to urge the borrower to make the overdue payments, understand the reasons for the delinquency and inform the borrower of the legal consequences of the delinquency. (3) In-person visits. If the delinquency continues for more than 15 days, the Group may conduct in-person visits when it determines such measures are warranted. We view the visits as opportunities to collect repayments as well as to investigate the status of the collateral. (4) Recovery. If a car buyer is unable make repayments, the Group may negotiate with the car buyer and settle the outstanding amount by recovering the car collateral. For the financing transactions funded by financial institutions, the Group obtains their authorizations before recovering the car collateral. (5) Disposal. After cars are recovered, the Group stores them in warehouses leased by the Group. The Group conducts on-site visits to ensure these warehouses are suitable for automotive storage and are properly guarded to prevent theft. The Group will then sell the cars. (6) Legal actions. If the Group is unable to recover collateral from a delinquent borrower, it may commence a lawsuit against the borrower. The Group has access to a nationwide network of external counsel who can represent it on such lawsuits at a reasonable cost. The Group views the court judgment as another way to motivate the car buyer to make repayments as well as affirmations of creditor’s legal rights under the relevant credit documents. Technology System The Group’s technology system, which supports all key operations of Cango platform, is designed to optimize for scalability and flexibility. The system handles the massive volume of data quickly. In the meantime, it is flexible enough to capitalize on changing user preferences, market trends and technological advances. Such technology infrastructure is based on cloud computing distributed platform, which is scalable with strong data processing power. Built on modular architecture, the system can easily expand to enable new business functions, connect new platform participants, and interact with these new participants. Such technology system also allows the Group to achieve high operational efficiency. 72 Table of Contents The Group has focused on developing infrastructure technologies in the following major areas to support the overall business functions. Cloud computing: The technology system is deployed and the Group’s data is maintained through a customized cloud computing system. The Group has established a hyper-converged infrastructure that is supported by high-performance physical servers and virtual servers. The Group utilizes the hyper-converged infrastructure for all service interfaces and core applications in this technology system. Cloud computing enables the Group to maintain flexibility in allocating IT resources with improved manageability and lower labor cost. Thus, the Group can more rapidly adjust resources to meet significant business growth. Distributed architecture: The Group establishes micro-service interfaces using a distributed architecture, which is supported by virtualization technology. Such distributed architecture enables the Group to expand the technology system rapidly and achieve high concurrence capabilities. Built with flexibility to connect with both internal and external systems, the micro-service interfaces allow the Group to effectively integrate internal IT system with those of financial institutions. Big data analytics: The Group collects data from dealers and car buyers through Cango U-car app and Cango’s enterprise Wechat. The Group also collects data from third-party sources with car buyers’ consents. The Group continuously enhances its level of automation through big data analysis and machine learning. Leveraging its database, the Group aims to expand the application of big data analysis in the key aspects of operations, such as customer acquisitions, sales, and delinquent asset management, while complying with the applicable laws and regulations. Technology is embedded into the business lines’ operational processes. For example, the Group launched its car trading transaction platform as a comprehensive tool kit to address dealers’ pain points. Such car trading transaction platform allows dealers to conveniently source cars from Cango platform, serve existing car buyers and engage potential car buyers. Specifically, the Group developed Cango U- car app, a mobile application which provides dealers with a one-stop, comprehensive and streamlined used car and new car transaction services. The in-house research and development department comprised 78 employees as of December 31, 2023, including core team members with extensive experience with leading internet and technology companies in China. These specialists focus on different areas including mobile application development, IT product development, new business incubation and others. Competition The automotive transaction industry in China is large yet competitive. The Group competes against automotive transaction platforms that connect various players across the automotive transaction value chain in automotive and automotive-related transaction facilitation. The Group may also in the future face competition from new entrants that will increase the level of competition. We anticipate that more established companies, including technology companies that possess large, existing user bases, substantial financial resources, sophisticated technological capabilities and established distribution channels may also enter the market in the future. As a leading automotive transaction service platform in China, we believe that the Group’s self-reinforcing platform, end-to-end service model, powerful dealer network and visionary and experienced management team make Cango platform more attractive and efficient to each type of participants the Group collaborates with, offering a competitive advantage over existing and potential competitors. Intellectual Property We regard the Group’s trademarks, domain names, copyrights, know-how, proprietary technologies and similar intellectual property as critical to our success, and the Group relies on trademark and trade secret law and confidentiality, invention assignment and non- compete agreements with the Group’s employees and others to protect its proprietary rights. The Group has registered 12 trademarks in the PRC, including “CANGO Management 灿谷管理.” The Group is the registered holder of 29 domain names in the PRC, such as cangoonline.com. The Group has 92 registered software copyrights relating to its mobile applications. Seasonality The Group experiences seasonality in its business, reflecting car buyers’ purchase patterns. A greater number of cars tend to be purchased in the second half of each year, in part due to the introduction of new models from automotive manufacturers. This increase in car sales generates greater demand for the Group’s services. On the other hand, the Chinese New Year holiday contributes to lower activity levels in the first quarter of each year. As a result, the Group typically records higher revenues during the second half of each year compared to the first half. 73 Table of Contents Insurance The Group provides social insurance including pension insurance, unemployment insurance, work-related injury insurance and medical insurance for employees. The Group also purchased additional commercial health insurance to increase insurance coverage of employees. The Group does not maintain business interruption insurance or general third-party liability insurance, nor does it maintain product liability insurance or key-man insurance. We consider such insurance coverage to be sufficient for the Group’s business operations in China. PRC Licenses, Permissions and Approvals The Group has obtained all requisite permissions and approvals that are material to the Group’s operations in China as of the date hereof, including (i) the VATS license held by Shanghai Yungu to conduct the internet content provider (ICP) services and online data and transaction processing services, (ii) the VATS license held by Shanghai Yungu to conduct the service provider (SP) services, (iii) the filing with Shanghai Administration for Market Regulation by Shanghai Yungu to conduct used car transaction services, (iv) the filing with Shanghai Municipal Commission of Commerce by Shanghai Yungu to conduct auction business, (v) the governmental approval for and the license held by Cango Financing to conduct financing guarantee service, and (vi) the license held by Fushun Insurance Brokerage Co., Ltd. to conduct insurance brokerage service. In connection with our previous issuance of securities to foreign investors, under current PRC laws, regulations and regulatory rules, as of the date of this annual report, we, our subsidiaries, the consolidated VIEs and consolidated affiliates, (i) have not received any requirement from competent PRC governmental authorities to obtain permissions from the China Securities Regulatory Commission, or the CSRC, (ii) have not received any requirement from competent PRC governmental authorities to go through cybersecurity review by the CAC, and (iii) have not received or were denied such requisite permissions by any PRC authority. However, the PRC government has promulgated new laws, regulations or relevant drafts and indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. For more detailed information, see “—Regulations—M&A Rules and Overseas Listings” and “—Regulations—Regulation Related to Cybersecurity, Internet Information Security and Privacy Protection” below. According to these new laws and regulations and the draft laws and regulations if enacted in their current forms, in connection with our future offshore offering activities, we may be required to fulfill filing and reporting procedures with or obtain approval from the CSRC, and may be required to go through cybersecurity review by the PRC authorities. However, given the uncertainties regarding interpretation, implementation and enforcement of relevant rules and regulations, as well as other factors beyond our control, we cannot assure you that the Group has obtained or will be able to obtain and maintain all requisite licenses, permits, filings and registrations. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Industry and Business—If the Group is unable to safeguard the security of the confidential information of car buyers, dealers or third parties it collaborates with and adapt to the relevant regulatory framework as to protection of such information, the Group’s business and operations may be adversely affected” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Changes and developments in the PRC legal system and the interpretation and enforcement of PRC laws, rules and regulations may subject us to uncertainties.” Regulation This section sets forth a summary of the most significant rules and regulations that affect our business activities in China or the rights of our shareholders to receive dividends and other distributions from us. Regulation Related to Financing Lease The Administrative Measures of Supervision on Financing Lease Enterprises, or the Administrative Measures, was formulated by the MOFCOM and became effective on October 1, 2013. According to the Administrative Measures, the MOFCOM and the provincial- level commerce authorities are in charge of the supervision and administration of financing lease enterprises. A financing lease company shall report, according to the requirements of the MOFCOM, the relevant data in a timely and truthful manner through the National Financing Lease Company Management Information System. Specifically, a financing lease enterprise shall, submit, within 15 business days after the end of each quarter, the statistics on and summary of its operation in the preceding quarter, and statistics on and summary of its operations in the preceding year as well as its financial and accounting report (including appended notes thereto) audited by an auditing firm for the preceding year prior to April 30 of each year. In the event of a change of name, a relocation to another region, an increase or decrease of registered capital, a change of organizational form, an adjustment of ownership structure or other changes, a financing lease company shall report to the competent provincial-level commerce authority in advance. A foreign-invested financing lease company that undergoes such changes shall go through approval and other procedures according to the relevant provisions. A financing lease company shall, within five business days after registering such changes, log into the National Financing Lease Company Management Information System to modify the above information. 74 Table of Contents Financing lease enterprises should use real entities, which have clear ownership and capable of generating revenue, as lessor to carry out the financing lease business. Financing lease enterprises shall not engage in deposits, loans, entrusted loans or other financial services or inter-bank borrowing unless permission has been granted from the relevant departments. Financing lease enterprises must not carry out illegal fund-raising activities under the name of a financing lease company. According to the Administrative Measures, financing lease enterprises shall strengthen their internal risk controls, and establish effective systems for classifying at risk assets, and adopt a credit appraisal system for the lessee, a post recovery and disposal system and a risk alert mechanism. A financing lease company shall also establish an affiliated transaction management system, and exclude persons related to the affiliated transactions from the voting or decision-making process for affiliated transactions where the lessee is an affiliate. In the event of any purchase of equipment from an affiliated production company, the settlement price for such equipment shall not be lower than the price offered by such company to any third party of such equipment or equipment of the same batch. The Administrative Measures also contain regulatory provisions specifically focusing on sale-leaseback transactions. The subject matter of a sale-leaseback transaction shall be properties that possess economic functions and produce continuous economic benefits. A financing lease company shall not accept any property to which a lessee has no title, or on which any mortgage has been created, or which has been sealed up or seized by any judicial organ, or whose ownership has any other defects as the subject matter of a sale- leaseback transaction. A financing lease company shall give adequate consideration to and objectively evaluate assets leased back, set purchasing prices for subject matter thereof with reference to reasonable pricing basis in compliance with accounting principles, and shall not purchase any subject matter at a price in excess of the value thereof. The Guiding Opinions on Accelerating the Development of Financing Lease Industry, or the Guiding Opinion, was promulgated by the General Office of the State Council of the PRC on August 31, 2015; the Guiding Opinion’s main task is to accelerate the development of the financing lease industry in four aspects: system and mechanism reform, development in major fields, innovative development and industry supervision. According to the Guiding Opinion, there is no minimum registered capital requirement for subsidiaries of a financing lease company, a financing lease company is allowed to engage in a side business which is related to its main business, and private capital and independent third-party service providers are encouraged to incorporate financing lease companies. In April 2018, the MOFCOM transferred the duties to make rules on the operation and supervision of financing lease companies to the China Banking and Insurance Regulatory Commission, or the CBIRC , which was merged into the National Financial Regulatory Administration. In May 2020, the CBIRC promulgated the Interim Measures for the Supervision and Administration of Financial Leasing Companies, or the New Administrative Measures, which aim to strengthen the regulation of financing lease companies. The New Administrative Measures clarify and enumerate the scopes of the financing lease business activities, the leased properties and the activities prohibited to be conducted by the financing lease companies, and set forth the regulatory indexes applicable to financing lease companies including, among others, (i) the assets for financial leasing and other lease arrangements accounting for not less than 60% of the total assets of a financial leasing company; (ii) the risk assets of a financing lease company not exceeding eight times of its total net assets, and the term “risk assets” of a financing lease company refers to its total assets, net of cash, bank deposits, Chinese treasury bonds; (iii) the fixed-income securities investment business carried out by a financial leasing company not exceeding 20% of its net assets. The New Administrative Measures also provide that a financial leasing company established before the implementation of these measures including the Group shall meet the relevant requirements within the transition period prescribed by the relevant provincial financial regulatory authority, which in principle will not exceed three years, subject to extension by the provincial financial regulatory authorities. In addition, the New Administrative Measures require provincial governments to formulate local implementing rules in accordance with the measures, make appropriate adjustments to the regulatory standards according to the local conditions, and report the same to the CBIRC for record-filing. The PRC Civil Code promulgated by the National People’s Congress effective from January 1, 2021 regulates the civil contractual relationship among natural persons, legal persons and other organizations. Chapter 15 of the PRC Civil Code sets forth related rules about financing lease contracts including that financing lease contracts shall be in written form and normally include terms such as the name, quantity, specifications, technical performance and inspection method of the leased property, the lease term, the composition, payment term, payment method and currency of the rent and the ownership of the leased property upon expiration of the lease. The PRC Civil Code further provides that the lessor and the lessee may agree on the ownership of the leased property upon expiry of the lease term. If the ownership of the leased property is not or is not clearly agreed between the parties, and is still cannot be determined pursuant to the PRC Civil Code, the leased property shall be owned by the lessor. Shanghai Chejia, the Group’s proprietary financing lease subsidiary, utilizing own capital to fund financing leases to car buyers, has obtained the approval to operate financing lease business as issued by the MOFCOM. 75 Table of Contents Regulation Related to Intermediation An intermediation contract under the PRC Civil Code is a contract whereby an intermediary presents to its client an opportunity for entering into a contract or provides the client with other intermediary services in connection with the conclusion of a contract, and the client pays the intermediary service fees. The Group’s business practice of connecting financial institutions with individual car buyers may constitute an intermediary service, and the service agreements with financial institutions may be deemed as intermediation contracts. Pursuant to the PRC Civil Code, an intermediary must provide true information relating to the proposed contract. If an intermediary conceals any material fact intentionally or provides false information in connection with the conclusion of the proposed contract, which results in harm to the client’s interests, the intermediary may not claim for service fees and is liable for the damages caused. Regulation Related to Cybersecurity, Internet Information Security and Privacy Protection PRC government authorities have enacted laws and regulations with respect to Internet information security and protection of personal information from any abuse or unauthorized disclosure. Internet information in China is regulated and restricted from a national security standpoint. The Standing Committee of the National People’s Congress, or the SCNPC, China’s national legislative body, enacted the Decisions on Maintaining Internet Security in December 2000, which may subject violators to criminal punishment in China for any effort to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security has promulgated measures that prohibit use of the Internet in ways which, among other things, result in a leakage of state secrets or a spread of socially destabilizing content. If an information service provider violates these measures, the Ministry of Public Security and the local security bureaus may revoke its operating license and shut down its websites. Pursuant to the Decision on Strengthening the Protection of Online Information issued by the SCNPC in December 2012, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. Any entity collecting personal information must also keep such information strictly confidential, and is further prohibited from divulging, tampering or destroying any such information, or selling or providing such information to other parties, and is required to take technical and other measures to prevent the collected personal information from any unauthorized disclosure, damage or loss. Any violation of these laws and regulations may subject the entity collecting personal information to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities. On November 7, 2016, the SCNPC issued the Cybersecurity Law, which came into effect on June 1, 2017. The Cybersecurity Law requires that network operators set up internal security management systems that meet the requirements of a classified protection system for cybersecurity purpose, including appointing dedicated personnel in charge of cybersecurity, taking technical measures to prevent computer viruses, network attacks and intrusions, taking technical measures to monitor and record network operation status and cybersecurity incidents, and taking data security measures such as data classification, backups and encryption. The Cybersecurity Law also imposes an obligation to provide technical support and assistance to the public and state security authorities in connection with criminal investigations or for the purpose of national security. The Cybersecurity Law sets high requirements for the operational security of facilities deemed to be part of the PRC’s “critical information infrastructure,” which include a requirement to store personal information and important business data within the PRC and national security review requirements for any network products or services that may impact national security. Among other factors, “critical information infrastructure” is defined as critical information infrastructure, that will, in the event of destruction, loss of function or data leak, result in severe damage to national security, economy, people’s livelihoods, or public interest. Furthermore, on September 12, 2022, the CAC released the Draft Amendment to the Cybersecurity Law, which increases the legal liability for violations under the current Cybersecurity Law, integrates and unifies the penalties for violation of network operation security protection obligations, violation of critical information infrastructure security protection obligations and violation of personal information protection obligations. Since the Amendment was released only for soliciting public comments at this stage, uncertainties exist with respect to the enactment timetable, final content, interpretation and implementation. 76 Table of Contents Pursuant to the Notice of the Supreme People’s Court, the Supreme People’s Procuratorate and the Ministry of Public Security on Legally Punishing Criminal Activities Infringing upon the Personal Information of Citizens, issued in 2013, and the Interpretation of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues regarding Legal Application in Criminal Cases Infringing upon the Personal Information of Citizens, which was issued on May 8, 2017 and took effect on June 1, 2017, the following activities may constitute the crime of infringing upon a citizen’s personal information: (i) providing a citizen’s personal information to specified persons or releasing a citizen’s personal information online or through other methods in violation of relevant national provisions; (ii) providing legitimately collected information relating to a citizen to others without such citizen’s consent (unless the information is processed, not traceable to a specific person and not recoverable); (iii) collecting a citizen’s personal information in violation of applicable rules and regulations when performing a duty or providing services; or (iv) collecting a citizen’s personal information by purchasing, accepting or exchanging such information in violation of applicable rules and regulations. In addition, the Opinions of the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security on Several Issues Concerning the Application of Criminal Procedures in Handling of Criminal Cases Involving Information Networks, which took effect on September 1, 2022, further provide detailed procedures on facilitating the handling of criminal cases of (i) refusing to perform the obligation of managing the security of the information networks, (ii) illegally using the information networks, or (iii) assisting in the criminal activities of the information networks. According to the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues concerning the Application of the Law in Handling Criminal Cases Involving Crimes of Illegally Using the Information Network or Providing Aid for Criminal Activities regarding Information Network issued on October 21, 2019 and taking effect on November 1, 2019, a violator refusing to perform the obligation of safety management for the information network, causing the disclosure of user information, and falling under one of the following circumstances shall be deemed “causing serious consequences” as prescribed under the PRC Criminal Law: (i) causing the disclosure of not less than 500 pieces of location information, communication content, credit information, and property information; (ii) causing the disclosure of not less than 5,000 pieces of accommodation information, communication records, health and physiological information, transaction information and other user information that may affect personal or property safety; (iii) causing the disclosure of not less than 50,000 pieces of user information other than the information set forth in items (i) and (ii); (iv) causing the disclosure of user information which quantity does not meet the standards set forth in items (i), (ii) and (iii), but meets the relevant quantity standards after conversion at the corresponding proportion in aggregate; (v) causing deaths, serious injuries, mental disorders or kidnapping of others, or other serious consequences; (vi) causing material economic losses; (vii) seriously disturbing the social order; or (viii) causing other serious consequences. Pursuant to the Ninth Amendment to the Criminal Law issued by the SCNPC in August 2015, which became effective in November 2015, any person or entity that fails to fulfill the obligations related to Internet information security administration as required by applicable laws and refuses to rectify upon orders is subject to criminal penalty for the result of (i) any dissemination of illegal information in large scale; (ii) any severe effect due to the leakage of the client’s information; (iii) any serious loss of criminal evidence; or (iv) other severe situation, and any individual or entity that (i) sells or provides personal information to others in a way violating the applicable law, or (ii) steals or illegally obtain any personal information is subject to criminal penalty in severe situation. On November 28, 2019, the Secretary Bureau of the CAC, the General Office of the MIIT, the General Office of the Ministry of Public Security and the General Office of the SAMR jointly issued the Notice on the Measures for Determining the Illegal Collection and Use of Personal Information through Mobile Applications, which aims to provide reference for supervision and administration departments and provide guidance for mobile applications operators’ self-examination and self-correction and social supervision by netizens, and further elaborates the forms of behavior constituting illegal collection and use of the personal information through mobile applications including: (i) failing to publish the rules on the collection and use of personal information; (ii) failing to explicitly explain the purposes, methods and scope of the collection and use of personal information; (iii) collecting and using personal information without the users’ consent; (iv) collecting personal information unrelated to the services it provides and beyond the necessary principle; (v) providing personal information to others without the users’ consent; (vi) failing to provide the function of deleting or correcting the personal information according to the laws or failing to publish information such as ways of filing complaints and reports. 77 Table of Contents On June 10, 2021, the SCNPC promulgated the Data Security Law, which took effect in September 2021. The Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities. The Data Security Law also introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. The appropriate level of protection measures is required to be taken for each respective category of data. For example, a processor of important data shall have designated personnel and management body in responsible for data security, conduct risk assessments for its data processing activities and file risk assessment reports with the competent authorities. In addition, the Data Security Law provides a national security review procedure for those data activities which may affect national security and imposes export restrictions on certain data and information. We may be required to make further adjustments to our business practices to comply with this law. On July 30, 2021, the State Council promulgated the Regulations on Security Protection of Critical Information Infrastructure, effective on September 1, 2021. According to the Regulations on Security Protection of Critical Information Infrastructure, a “critical information infrastructure” refers to an important network facility and information system in important industries such as, among others, public communications and information services, as well as other important network facilities and information systems that may severely endanger national security, economy, people’s livelihood, or the public interests in the event of damage, loss of function, or data leakage. The competent governmental authorities and supervision and management authorities of the aforementioned important industries will be responsible for (i) organizing the identification of critical information infrastructures in their respective industries in accordance with certain identification rules, and (ii) promptly notifying the identified operators and the public security department of the State Council of the identification results. On December 28, 2021, the CAC, together with certain other PRC governmental authorities, promulgated the Cybersecurity Review Measures that replaced the previous version and took effect from February 15, 2022. Pursuant to these measures, the purchase of network products and services by an operator of critical information infrastructure or the data processing activities of a network platform operator that affect or may affect national security will be subject to a cybersecurity review. In addition, any online platform operator possessing over one million users’ individual information must apply for a cybersecurity review before listing abroad. The competent governmental authorities may also initiate a cybersecurity review against the operators if the authorities believe that the network product or service or data processing activities of such operators affect or may affect national security. Article 10 of the Cybersecurity Review Measures also set out certain general factors which would be the focus in assessing the national security risk during a cybersecurity review, including (i) risks of critical information infrastructure being illegally controlled or subject to interference or destruction; (ii) the harm caused by the disruption of the supply of the product or service to the business continuity of critical information infrastructure; (iii) the security, openness, transparency and diversity of sources of the product or service, the reliability of supply channels, and risks of supply disruption due to political, diplomatic, trade and other factors; (iv) compliance with PRC laws, administrative regulations and departmental rules by the provider of the product or service; (v) the risk of core data, important data or a large amount of personal information being stolen, leaked, damaged, illegally used, or illegally transmitted overseas; (vi) the risk that critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, and maliciously used by foreign governments for a listing, as well as network information security risks; and (viii) other factors that may endanger the security of critical information infrastructure, cybersecurity and data security. 78 Table of Contents On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law, which took effect on November 1, 2021. Pursuant to the Personal Information Protection Law, “personal information” refers to any kind of information related to an identified or identifiable individual as electronically or otherwise recorded and exclude anonymized information. The processing of personal information includes the collection, storage, use, processing, transmission, provision, disclosure and deletion of personal information. The Personal Information Protection Law applies to the processing of personal information of individuals within the territory of the PRC, as well as personal information processing activities outside the territory of PRC, for the purpose of providing products or services to natural persons located within PRC, for analyzing or evaluating the behaviors of natural persons located within PRC, or for other circumstances as prescribed by laws and administrative regulations. A personal information processor may process the personal information of this individual only under the following circumstances: (i) where consent is obtained from the individual; (ii) where it is necessary for the execution or performance of a contract to which the individual is a party, or where it is necessary for carrying out human resource management pursuant to employment rules or collective contracts made and executed in accordance with laws; (iii) where it is necessary for performing a statutory responsibility or statutory obligation; (iv) where it is necessary in response to a public health emergency, or for protecting the life, health or property of a natural person in the case of an emergency; (v) where the personal information is processed within a reasonable scope to carry out news reporting, supervision by public opinions or any other activity for public interest purposes; (vi) where the personal information, which has already been disclosed by the individual or otherwise legally disclosed, is processed within a reasonable scope; or (vii) any other circumstance as provided by laws or administrative regulations. In principle, the consent of an individual must be obtained for the processing of his or her personal information, except under the circumstances of the aforementioned items (ii) to (vii). Where personal information is to be processed based on the consent of an individual, such consent shall be a voluntary and explicit indication of intent given by such individual on a fully informed basis. If laws or administrative regulations provide that the processing of personal information shall be subject to a separate consent or written consent of the individual concerned, such provisions shall prevail. In addition, the processing of the personal information of a minor under 14 years old must obtain the consent by a parent or a guardian of such minor and the personal information processors must adopt special rules for processing personal information of minors under 14 years old. On November 14, 2021, the CAC published a discussion draft of Regulations on the Network Data Security for public comment until December 13, 2021, which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) merger, reorganization or division of internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests affects or may affect national security; (ii) listing abroad of data processors processing over one million users’ personal information; (iii) listing in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. As of the date of this annual report, this draft has not been formally adopted, and substantial uncertainties exist with respect to the enactment timetable, final content, interpretation and implementation. In the meantime, the PRC regulatory authorities have also enhanced the supervision and regulation on cross-border data transmission. For example, on July 7, 2022, the CAC promulgated the Measures for the Security Assessment of Cross-border Data Transfer, which came into effect on September 1, 2022. These measures require a data processor who provides data to overseas recipients and falls under any of the specified circumstance to apply for a security assessment of cross-border data transfer by the national cybersecurity authority through its local counterpart. On February 22, 2023, the CAC promulgated the Measures on the Standard Contract for Cross-border Transfer of Personal Information which became effective on June 1, 2023. These measures require personal information processors who provide personal information to overseas recipients through standard contracts and fall under any of the specified circumstance to file with the local counterpart of the CAC within ten business days from the effective date of the relevant standard contracts. Furthermore, on March 22, 2024, the CAC promulgated the Provisions on Promoting and Standardizing Cross-Border Data Transfer, which set forth the circumstances exempted from performing the security assessment or filing procedures for cross-border data transfer and further clarify the thresholds and scenarios for data processors to go through these procedures as stipulated under the aforementioned measures. However, uncertainties still exist with respect to the interpretation and implementation of these measures in practice and how they will affect the Group’s business operation and the value of our securities. The Group has been in compliance with the regulations and policies that have been issued by the CAC to the date of this annual report in all material respects. 79 Table of Contents Regulation Related to VATS License Among all of the applicable laws and regulations, the Telecommunications Regulations of the People’s Republic of China, or the Telecom Regulations, promulgated by the PRC State Council in September 25, 2000 and amended on July 29, 2014 and February 6, 2016 respectively, is the primary governing law, and sets out the general framework for the provision of telecommunications services by domestic PRC companies. Under the Telecom Regulations, telecommunications service providers are required to procure operating licenses prior to their commencement of operations. The Telecom Regulations distinguish “basic telecommunications services” from “value-added telecommunications services”, or “VATS”. VATS are defined as telecommunications and information services provided through public networks, and are further divided into Class I VATS and Class II VATS. The Telecom Catalogue was issued as an attachment to the Telecom Regulations to categorize telecommunications services as either basic or value-added. The Telecom Catalogue was most recently updated in June 2019, categorizing online data and transaction processing, information services, among others, as Class II VATS. The Administrative Measures on Telecommunications Business Operating Licenses, promulgated by the MIIT in 2009 and most recently amended in July 2017, which set forth more specific provisions regarding the types of licenses required to operate VATS, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses. Under these regulations, a commercial operator of VATS must first obtain a VATS License, from the MIIT or its provincial level counterparts, otherwise such operator might be subject to sanctions including corrective orders and warnings from the competent administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites may be ordered to close. Regulation Related to Foreign Investment Foreign Investment Law On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, and on December 26, 2019, the State Council promulgated the Implementing Rules to further clarify and elaborate the relevant provisions of the Foreign Investment Law. The Foreign Investment Law and the Implementing Rules both took effect on January 1, 2020 and replaced three major previous laws on foreign investments in China, namely, the Sino-foreign Equity Joint Venture Law, the Sino-foreign Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their respective implementing rules. Pursuant to the Foreign Investment Law, “foreign investments” refer to investment activities conducted by foreign investors (including foreign natural persons, foreign enterprises or other foreign organizations) directly or indirectly in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in the PRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified in laws, administrative regulations, or as stipulated by the State Council. The Implementing Rules introduce a see-through principle and further provide that foreign-invested enterprises that invest in the PRC shall also be governed by the Foreign Investment Law and the Implementing Rules. The Foreign Investment Law and the Implementing Rules provide that a system of pre-entry national treatment and negative list shall be applied for the administration of foreign investment, where “pre-entry national treatment” means that the treatment given to foreign investors and their investments at market entry stage is no less favorable than that given to domestic investors and their investments, and “negative list” means the special administrative measures for foreign investment’s entry to specific fields or industries, which will be proposed by the competent investment department of the State Council in conjunction with the competent commerce department of the State Council and other relevant departments, and be reported to the State Council for promulgation, or be promulgated by the competent investment department or competent commerce department of the State Council after being reported to the State Council for approval. Foreign investments beyond the negative list will be granted national treatment. Foreign investors shall not invest in the prohibited fields as specified in the negative list, and foreign investors who invest in the restricted fields shall comply with the special requirements on the shareholding, senior management personnel, etc. In the meantime, relevant competent government departments will formulate a catalogue of industries for which foreign investments are encouraged according to the needs for national economic and social development, to list the specific industries, fields and regions in which foreign investors are encouraged and guided to invest. The current industry entry clearance requirements governing investment activities in the PRC by foreign investors are set out in two categories, namely the Special Entry Management Measures (Negative List) for the Access of Foreign Investment (2021 version), or the 2021 Negative List, as promulgated by the National Development and Reform Commission and the MOFCOM on December 27, 2021 and taking effect on January 1, 2022, and the Encouraged Industry Catalogue for Foreign Investment (2022 version) as promulgated by the National Development and Reform Commission and the MOFCOM on October 26, 2022 and taking effect on January 1, 2023. Industries not listed in these two catalogues are generally deemed “permitted” for foreign investment unless specifically restricted by other PRC laws. 80 Table of Contents According to the Implementing Rules, the registration of foreign-invested enterprises shall be handled by the SAMR or its authorized local counterparts. Where a foreign investor invests in an industry or field subject to licensing in accordance with laws, the relevant competent government department responsible for granting such license shall review the license application of the foreign investor in accordance with the same conditions and procedures applicable to PRC domestic investors unless it is stipulated otherwise by the laws and administrative regulations, and the competent government department shall not impose discriminatory requirements on the foreign investor in terms of licensing conditions, application materials, reviewing steps and deadlines, etc. Pursuant to the Foreign Investment Law and the Implementing Rules, and the Information Reporting Measures for Foreign Investment jointly promulgated by the MOFCOM and the SAMR, which took effect on January 1, 2020, a foreign investment information reporting system shall be established and foreign investors or foreign-invested enterprises shall report investment information to competent commerce departments of the government through the enterprise registration system and the enterprise credit information publicity system, and the administration for market regulation shall forward the above investment information to the competent commerce departments in a timely manner. Foreign Investment Restriction on VATS According to the 2021 Negative List and the Administrative Regulations on Foreign-Invested Telecommunications Enterprises, which were most recently amended by the State Council on April 7, 2022 and took effect on May 1, 2022 and replaced the previous version afterwards, as for the telecommunications businesses open for foreign investment according to China’s WTO commitment, except as otherwise stipulated by the state, the equity interest of foreign investors in the value-added telecommunications enterprises shall not exceed 50%, except for e-commerce, domestic conferencing, store-and-forward, and call center services. In particular, from May 1, 2022, the amended Administrative Regulations on Foreign-Invested Telecommunications Enterprises removed the qualification requirement on the primary foreign investor in a foreign invested value-added telecommunications enterprise for having a good track record and operational experience in the value-added telecommunications industry as stipulated in the currently effective version. Regulation Related to Financing Guarantee Companies The State Council promulgated the Regulations on the Administration of Financing Guarantee Companies on August 2, 2017, and on April 2, 2018, the CBIRC, together with several other governmental authorities, jointly adopted four supporting rules of the Administration of Financing Guarantee Companies, which was amended in June 2021: (i) the Administrative Measures for the Financing Guarantee Business Permit, (ii) Measures for Measuring the Outstanding Amount of Financing Guarantee Liabilities, (iii) Administrative Measures for the Asset Percentages of Financing Guarantee Companies and (iv) Guidelines on Business Cooperation between Banking Financial Institutions and Financing Guarantee Companies, or the Four Supporting Measures of the Financing Guarantee Rules. In addition, the CBIRC, together with several other governmental authorities, jointly issued the Supplementary Provisions on the Supervision and Administration of Financing Guarantee Companies on October 9, 2019, which was amended in June 2021. According to the above rules on financing guarantee companies, or the Financing Guarantee Rules, “financing guarantee” refers to the activities in which guarantors provide guarantee to the guaranteed parties as to loans, bonds or other types of debt financing, including, among other things, the activities whereby a guarantor provides guarantee for loans, online lending, financial leasing, commercial factoring, bill acceptance, letters of credit or other forms of debt financing. “Financing guarantees companies” refer to companies legally established and operating financing guarantee business. According to such rules, the establishment of financing guarantee companies shall be subject to the approval by the competent government authority, and unless otherwise stipulated, no entity may operate financing guarantee business without such approval. If any entity violates these regulations and operates financing guarantee business without approval, the entity may be subject to penalties including ban or suspension of business, fines of RMB500,000 to RMB1,000,000, confiscation of illegal gains if any, and if the violation constitutes a criminal offense, criminal liability shall be imposed in accordance with the law. As required by the Financing Guarantee Rules, a financing guarantee company shall measure its outstanding guarantee liabilities according to the risk weights stipulated by the government authorities, and the outstanding guarantee liabilities of a financing guarantee company shall not exceed ten times of its net assets, such limitation may be raised to fifteen times for financing guarantee companies which mainly serves small and micro-sized enterprises as well as the agricultural industry, rural areas and farmers. The outstanding guarantee liabilities of a financing guarantee company vis-à-vis the same guaranteed party shall not exceed 10% of the net assets of the financing guarantee company, while the outstanding guarantee liabilities of a financing guarantee company vis-à-vis the same guaranteed party and its affiliated parties shall not exceed 15% of its net assets. 81 Table of Contents Furthermore, a financing guarantee company shall not provide financing guarantee for its controlling shareholder and actual controller. When a financing guarantee company provides financing guarantee for other affiliated parties, the conditions shall not be more favorable than those for providing similar guarantee for non-affiliated parties. In addition, a financing guarantee company shall not engage in any of the following activities: (i) taking deposits directly or in any disguised form; (ii) being engaged in proprietary lending or entrusted lending business; or (ii) making investment upon entrustment. If the competent governing authority finds that the business activities of a financing guarantee company may cause material risks, the government authority may take any of the following measures depending on actual circumstances: (i) ordering the financing guarantee company to suspend certain business; (ii) restricting the size and manner of use of proprietary funds by the financing guarantee company; or (iii) ordering the financing guarantee company to stop setting up any additional branch. A financing guarantee company that falls under any of the following circumstances shall be ordered by the competent government authority to make correction within the prescribed time limit; and, where it fails to correct by the prescribed deadline, the financing guarantee company may be subject to penalties including, fines of RMB100,000 to RMB500,000, confiscation of illegal gains if any, being ordered to suspend business for rectification, or being revoked of its permit for financing guarantee business under grave circumstances: (i) where the ratio of the outstanding guarantee liabilities of the financing guarantee company to its net assets is not in compliance with relevant requirements; (ii) where the financing guarantee company provides financing guarantee for its controlling shareholder or actual controller, or where the conditions by which the financing guarantee company provides financing guarantee for other affiliated parties are more favorable than those for providing similar guarantee for non-affiliated parties; (iii) where the financing guarantee company fails to accrue corresponding reserves in accordance with relevant provisions; or (iv) where the financing guarantee company fails to use its proprietary funds pursuant to the applicable governmental provisions on the safety and liquidity of the assets of financing guarantee companies. With respect to the cooperation on guarantee business between financing guarantee companies and banking financial institutions, as required by the Financing Guarantee Rules, the two parties of such cooperation shall follow the principles of free will, equality, fairness and honesty, being compliant with laws, and prudent operation. Financing guarantee companies and banking financial institutions shall enter into cooperation agreements in writing to specify the rights and obligations of both parties, which shall include the scope of business cooperation, duration of cooperation, credit line, risk sharing, grace period for compensation, and information disclosure, among others. Furthermore, banking financial institutions shall not carry out cooperation on guarantee business with any company that does not hold the approval or license to operate financing guarantee business. In connection with the Group’s automotive financing facilitation business, the Group provides credit assessment service to financial institutions to assist them in making ultimate credit decisions. Under the arrangements with certain financial institutions, the Group is obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. It is uncertain whether such practices would be deemed to operate financing guarantee business because of the current arrangements with certain financial institutions, which has caused certain risks to the Group’s business, financial condition, results of operations and prospects. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Industry and Business—The laws and regulations governing the automotive and mobility industries or other industries related to the Group’s business in the PRC are subject to further changes and interpretation. If such business practices or the business practices of third parties that the Group collaborate with are deemed to violate any PRC laws or regulations, the Group’s business, financial condition, results of operations and prospects would be materially and adversely affected.” and “Item 3. Key Information—D. Risk Factors —Risks Relating to Our Industry and Business—Shanghai Cango may be deemed to operate financing guarantee business by the PRC regulatory authorities.” Regulation Related to Insurance Brokerage Business According to the Measures for the Administration of Licenses of Banking and Insurance Institutions promulgated by the CBIRC on April 28, 2021 and effective on July 1, 2021 and the PRC Insurance Law promulgated by the SCNPC in June 1995 and most recently amended in April 2015, an insurance brokerage company is an entity that, in the interest of the applicant, provides intermediary services between the applicant and the insurer for the conclusion of an insurance contract and receives a commission in accordance with relevant laws. An insurance brokerage company shall obtain an insurance intermediary licenses before it engages in insurance brokerage business. 82 Table of Contents In accordance with the Regulatory Provisions on Insurance Brokerages, which was promulgated by the CBIRC on February 1, 2018 and took effect on May 1, 2018, or the Insurance Brokerages Provisions, an insurance brokerage company, in order to operate the insurance brokerage business, shall satisfy the relevant statutory requirements with respect to its shareholders, registered capital, business scope, articles of associations, company name, senior management personnel, governance structure, internal control system, feasible business mode, business premise, etc. If the insurance brokerage practitioners of an insurance brokerage company intend to practice the insurance brokerage business, such insurance brokerage company shall complete the practicing registration for those practitioners in the regulatory information system of the CBIRC for insurance intermediaries including the insurance brokerage companies. The practicing registration for each insurance brokerage practitioner shall only be conducted through one insurance brokerage company. Violations of the Insurance Brokerages Provisions by the insurance brokerage companies may subject them to penalties including without limitation warning, fines, confiscation of illegal gains, rectification, revocation of licenses, and the insurance brokerage companies may be prevented from applying for administrative approval again within a specified time. On April 2, 2019, the CBIRC promulgated the Circular on Issuing the 2019 Plan for the Rectification of Chaos in the Insurance Intermediary Market, or the Rectification Plan, aiming to further curb the chaos of violations of laws and regulations in the insurance intermediary market. The Rectification Plan mainly provides three key targets: (i) to ascertain insurance companies’ responsibility for management and control of various intermediary channels; (ii) to carefully investigate business compliance of insurance intermediaries; and (iii) to strengthen the rectification of insurance business of the third-party online platforms in cooperation with insurance institutions. Insurance intermediaries, like the insurance brokerage companies, shall strengthen the internal control management, prevent business risks, and focus on the rectification based on the following factors: (i) whether the professional insurance intermediary assists an insurance company in maliciously obtaining insurance proceeds by fabricating agency business, etc.; (ii) whether the professional insurance intermediary sells unapproved non-insurance financial products; (iii) whether the professional insurance intermediary grants benefits other than those stipulated in relevant insurance contracts to policyholders, the issued and beneficiaries; and (iv) whether the professional insurance intermediary has filed registration for sales personnel for practice in accordance with relevant regulations, etc. On December 7, 2020, the CBIRC promulgated the Regulatory Measures for Online Insurance Business, or the Online Insurance Measures, which took effect on February 1, 2021. The Online Insurance Measures set forth the fundamental business rules applicable to the business operation of all insurance institutions (including insurance companies and insurance intermediaries) and their self-operated online platforms, as well as the specific business rules applicable to various types of insurance institutions and their business operation. In particular, the Online Insurance Measures provide that insurance institutions shall sell the Internet insurance products or provide insurance brokerage and insurance adjustment services through their self-operated online platforms or the self-operated online platforms of other insurance institutions, and the insurance application page must belong to the self-operated online platforms of insurance institutions. If an insurance intermediary conducts the Internet insurance business, its insurance type shall not exceed the insurance coverage and business area of the underwriting insurance company, and its business scope shall not exceed the scope agreed upon in the cooperation or entrustment agreement. An insurance institution operating the Internet insurance business shall submit information related to its self-operated online platforms, Internet insurance products, cooperative sales channels, and related changes to the relevant information system of the relevant regulatory authority. An insurance institution shall submit a report on the operation of the Internet insurance business over the previous year to the relevant information system before April 30 each year. In addition, insurance institutions are required to conduct rectification in accordance with the Online Insurance Measures, complete the rectification of system construction, marketing, sales management, information disclosure and other issues within three months following the implementation of the Online Insurance Measures, and complete the rectification of other business operation issues within six months thereafter, and complete the network security level protection certification of the self-operated network platform within 12 months thereafter. Any insurance institutions in violation of the Online Insurance Measures may be ordered to make rectification or subject to other regulatory measures. On September 20, 2023, the National Financial Regulatory Administration promulgated the Administrative Measures for Insurance Sales Practices, which took effect on March 1, 2024. The Administrative Measures for Insurance Sales Practices further regulates the insurance sales activities of insurance companies and insurance intermediaries. Pursuant to the measures, insurance sales practices are divided into three categories based on the stage when the practices are conducted, namely the pre - insurance sales practices, in - process insurance sales practices and post - insurance sales practices. Such division expands the scope of insurance sales practices to include, among others, activities such as creating an environment for the conclusion of insurance contracts, preparing conditions and soliciting insurance contract counterparties. The measures explicitly prohibit any other entities or individuals other than insurance companies, insurance intermediaries or insurance sales personnel from conducting any insurance sales practices. 83 Table of Contents Regulations Related to Used Automobiles Transaction Business On August 29, 2005, the MOFCOM, the Ministry of Public Security, the SAIC, and State Administration of Taxation together promulgated the Measures for the Administration of the Circulation of Used Automobiles, which were amended on September 14, 2017. On November 22, 2005, the MOFCOM further promulgated the Notice on Issues Concerning the Implementation of the Measures for the Administration of the Circulation of Used Automobiles. According to aforesaid regulations, the term “business operators of used automobiles” refers to the enterprises that have gone through the registration formalities according to law with the administration for market regulation and undertake the retail, auction, brokerage, authentication and evaluation of used automobiles. After obtaining the business license from the local administration for market regulation, the business operators of used automobiles shall also file for record with the provincial commerce administration within two months. In addition, on September 6, 2020, the MOFCOM and the Ministry of Public Security promulgated the Circular on Improving the Administration of the Record-filing of Participants of the Used Automobile Market and Automobile Transaction Registration, which provides that an enterprise that files a record shall truthfully provide its corporate name, social credit code, address and other business information. All local competent commerce departments shall take effective measures, strengthen the intensity and frequency of law enforcement inspections on sales enterprises and the trading market, and investigate and punish illegal activities in accordance with the laws and regulations. Enterprises which fail to make filing as required shall be dealt with in accordance with the laws and regulations, and the competent commerce departments shall impose restrictions in the pilot demonstration work, and may give warnings, etc. Regulations Related to Online and Mobile Commerce On August 31, 2018, the SCNPC promulgated the E - commerce Law, which came into effect on January 1, 2019. The E - commerce Law imposes a series of requirements on e - commerce operators including e - commerce platform operators, merchants operating on the platform and the individuals and entities carrying out business online. The E - commerce Law requires e - commerce platform operators to, among other things, verify and register the identities, addresses, contacts and licenses of merchants who apply to provide goods or services on their platforms; establish registration archives and update this information on a regular basis; submit the required identification information of the merchants on their platforms to market regulatory administrative authorities and remind the merchants to complete registration with market regulatory administrative authorities; submit identification information and tax - related information to tax authorities as required in accordance with the laws and regulations regarding the administration of tax collection and remind the individual merchants to complete the tax registration; and establish intellectual property rights protection rules and take necessary measures against infringement of intellectual property rights by merchants on their platforms. In addition, e - commerce platform operators are not allowed to impose unreasonable restrictions over or add unjustified conditions to transactions concluded on their platforms by merchants, or charge any unreasonable fees from merchants operating on their platforms. According to the E - commerce Law, e - commerce platform operators are required to assume joint liability with the merchants and may be subject to warnings and fines up to RMB2,000,000 when (i) they fail to take necessary actions when they know or should have known that the products or services provided by the merchants on the platform do not meet personal and property security requirements, or otherwise infringe upon consumers' legitimate rights; or (ii) they fail to take necessary actions, such as deleting and blocking information, disconnecting, terminating transactions and services, when they know or should have known that the merchants on the platform infringe upon the intellectual property rights of others. On March 15, 2021, the SAMR promulgated the Measures for the Supervision and Administration of Online Trading, which took effect on May 1, 2021. These Measures further strengthen the administration and supervision of online trading activities, specify typical examples of unreasonable restrictions or conditions imposed by e - commerce platform operators on transactions concluded on their platforms, and require e - commerce platform operators to verify and update each merchant's profile on a regular basis and monitor their market participant registration status. Anti-money Laundering Regulation The PRC Anti-money Laundering Law, which became effective in January 2007, sets forth the principal anti-money laundering requirements applicable to financial institutions as well as non-financial institutions with anti-money laundering obligations, including the adoption of precautionary and supervisory measures, establishment of various systems for client identification, retention of clients’ identification information and transactions records, and reports on large transactions and suspicious transactions. According to the PRC Anti-money Laundering Law, financial institutions subject to the PRC Anti-money Laundering Law include banks, credit unions, trust investment companies, stock brokerage companies, futures brokerage companies, insurance companies and other financial institutions as listed and published by the State Council, while the list of the non-financial institutions with anti-money laundering obligations will be published by the State Council. The PBOC and other governmental authorities issued a series of administrative rules and regulations to specify the anti-money laundering obligations of financial institutions and certain non-financial institutions, such as payment institutions. However, the State Council has not promulgated the list of the non-financial institutions with anti-money laundering obligations. 84 Table of Contents The Internet Finance Guidelines jointly released by ten PRC regulatory agencies in July 2015, purport, among other things, to require Internet finance service providers to comply with certain anti-money laundering requirements, including the establishment of a customer identification program, the monitoring and reporting of suspicious transactions, the preservation of customer information and transaction records, and the provision of assistance to the public security department and judicial authority in investigations and proceedings in relation to anti-money laundering matters. In addition, the PBOC, CBIRC and CSRC jointly promulgated the Measures for the Administration of Anti-money Laundering and Countering the Terrorist Financing by Internet Finance Service Providers (for Trial Implementation) on September 29, 2018, or the Anti-money Laundering Measures for the Internet Finance Service Providers, which took effect from January 1, 2019. The Anti-money Laundering Measures for the Internet Finance Service Providers apply to the institutions established in the PRC with the approval of or upon filing with the appropriate authorities and legally engaged in Internet financial services. According to such measures, the specific work scope of combating money laundering and terrorist financing in the Internet finance industry shall be determined, adjusted and published by the PBOC in conjunction with the relevant financial regulatory authorities of the State Council in accordance with laws and regulatory policies, including but not limited to online payment, peer-to- peer lending, information intermediaries of peer-to-peer lending, equity crowdfunding, online sale of funds, online insurance, online trust, and online consumer finance. Internet finance service providers other than financial institutions and non-bank payment institutions shall file the record of their internal control system for anti-money laundering and countering the terrorist financing to the competent governmental authority. Furthermore, Internet finance service providers other than financial institutions and non-bank payment institutions shall complete the performance registration with the online monitoring platform for anti-money laundering and countering the terrorist financing of Internet finance established by the PBOC. Any Internet finance service provider in violation of such provisions will be ordered to rectify within prescribed time limit and be subject to administration penalties by the PBOC, the financial regulatory authority of the State Council and their local counterparts respectively, or even subject to criminal liabilities. In addition, pursuant to the Notice of Strengthening Anti-money Laundering in Insurance Industry promulgated by the CBIRC on August 10, 2010 and Administrative Measures for Anti-money Laundering Agenda in Insurance Industry promulgated on September 13, 2011 by the CBIRC and became effective on October 1, 2011, the CBIRC shall organize, coordinate and direct anti-money laundering efforts in insurance industry. Pursuant to the Notice of Strengthening Anti-money Laundering in Insurance Industry, equity investments in insurance intermediaries and equity structure changes therein should be in line with relevant requirements on fund sources in anti- money laundering laws and regulations of the PRC. According to the foregoing regulations, insurance brokerage companies shall, in the light of the real-name system for policies and in accordance with the working principles that client materials are complete, transaction records are available for inspection and circumstance of funds is regulated, effectively enhance the internal control level of anti-money laundering. They shall establish an internal control system for anti-money laundering and prohibit funds of illegal source from investing into them. The senior management officers of insurance brokerage companies shall understand laws and regulations on anti-money laundering. Furthermore, they shall meet anti-money laundering criteria specified by the CBIRC, including (i) establishment of system for client identity recognition, client identity and transaction record keeping, training and education, auditing, confidentiality, internal control system and operation protocols including those facilitating monitoring and inspection and administrative investigation; (ii) dedicated anti-money laundering posts and job descriptions, manning and training for such posts; and (iii) other requirements according to regulatory provisions. Regulation Related to Intellectual Property Rights The SCNPC, the State Council and the National Copyright Administration, or the NCAC, have promulgated various rules and regulations relating to the protection of software in China, including without limitation the PRC Copyright Law, adopted in 1997 and last revised in November 2020 (this amendment took effect on June 1, 2021), with its implementation rules adopted in 1991 and revised in 2013, and the Regulations for the Protection of Computer Software as promulgated on January 30, 2013. Under these rules and regulations, software owners, licensees and transferees may register their rights in software with the NCAC or its local branches and obtain software copyright registration certificates. Although such registration is not mandatory under PRC law, software owners, licensees and transferees are encouraged to go through the registration process to enjoy the better protections afforded to registered software rights. The PRC Trademark Law, adopted in 1982 and last revised in 2019, respectively, with its implementation rules adopted in 2002 and revised in 2014, protects registered trademarks. The State Intellectual Property Office, formerly known as the Trademark Office of the State Administration for Industry and Commerce, handles trademark registrations and grants a protection term of ten years to registered trademarks. 85 Table of Contents The MIIT promulgated its Administrative Measures on Internet Domain Names in 2017. According to these measures, the MIIT is in charge of the overall administration of domain names in China. The registration of domain names in PRC is on a “first-apply-first- registration” basis. A domain name applicant will become the domain name holder upon the completion of the application procedure. Regulation Related to Employment On June 29, 2007, the SCNPC, adopted the Labor Contract Law, which became effective as of January 1, 2008 and was revised on December 28, 2012 and became effective on July 1, 2013. The Labor Contract Law requires employers to enter into written contracts with their employees, restricts the use of temporary workers and aims to give employees long-term job security. Pursuant to the Labor Contract Law, employment contracts lawfully concluded prior to the implementation of the Labor Contract Law and continuing as of the date of its implementation will continue to be performed. Where an employment relationship was established prior to the implementation of the Labor Contract Law but no written employment contract was concluded, a contract must be concluded within one month after the Labor Contract Law’s implementation. According to the Social Insurance Law promulgated by SCNPC, most recently amended on December 29, 2018, the Regulation of Insurance for Work-Related Injury, the Provisional Measures on Insurance for Maternity of Employees, Regulation of Unemployment Insurance, the Decision of the State Council on Setting Up Basic Medical Insurance System for Staff Members and Workers in Cities and Towns and the Interim Regulation on the Collection and Payment of Social Insurance Premiums, an employer is required to contribute the social insurance for its employees in the PRC, including the pension insurance, medical insurance, unemployment insurance, maternity insurance and work-related injury insurance. Under the Regulations on the Administration of Housing Funds, promulgated by the State Council on April 3, 1999 and as amended on March 24, 2002 and March 24, 2019 respectively, an employer is required to make contributions to a housing fund for its employees. The use of employees of third-party labor dispatch agencies, who are known in China as “dispatched workers,” is mainly regulated by the Interim Provisions on Labor Dispatching, which was promulgated by the Ministry of Human Resources and Social Security in January 2014. It provides that an employer may use dispatched workers only for temporary, auxiliary or substitute positions, and shall strictly control the number of workers under labor dispatching arrangements. The number of dispatched workers used by an employer shall not exceed 10% of the total number of its employees. Regulation Related to Foreign Exchange Regulation on Foreign Currency Exchange The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital account items, such as direct investments, repayment of foreign currency-denominated loans, repatriation of investments and investments in securities outside of China. In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated another circular in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way of registration and banks must process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. On February 28, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conduct the registration. 86 Table of Contents On March 30, 2015, SAFE promulgated the Circular of SAFE on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 came into force on June 1, 2015, recently amended on March 23, 2023 and replaced both the Circular of the State Administration of Foreign Exchange on Issues Relating to the Improvement of Business Operations with Respect to the Administration of Foreign Exchange Capital Payment and Settlement of Foreign-invested Enterprises, or Circular 142 and the Circular of the State Administration of Foreign Exchange on Issues concerning the Pilot Reform of the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals of Foreign-invested Enterprises in Certain Areas, or Circular 36 on June 1, 2015. Circular 19 allows all foreign-invested enterprises established in the PRC to use their foreign exchange capitals to make equity investment and removes certain other restrictions had been provided in Circular 142. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using RMB fund converted from its foreign exchange capitals for expenditure beyond its business scope and providing entrusted loans or repaying loans between non- financial enterprises. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective in June 2016 and amended in December 2023, which reiterates some of the rules set forth in Circular 19, but Compared to Circular 19, Circular 16 provides that discretionary foreign exchange settlement applies to foreign exchange capital, foreign debt offering proceeds and remitted foreign listing proceeds, and the corresponding RMB capital converted from foreign exchange are not restricted from extending loans to related parties or repaying the inter-company loans (including advances by third parties). However, there exist substantial uncertainties with respect to the interpretation and implementation in practice with respect to the Circular 16. Circular 19 or Circular 16 may delay or limit us from using the proceeds of offshore offerings to make additional capital contributions or loans to our PRC subsidiary and any violations of these circulars could result in severe monetary or other penalties. In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment. On October 23, 2019, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or Circular 28, which was amended in December 2023, which permits non-investment foreign-invested enterprises to use their capital funds to make equity investments in China, with genuine investment projects and in compliance with effective foreign investment restrictions and other applicable laws. On December 4, 2023, SAFE issued the Notice on Further Deepening Reforms to Promote the Facilitation of Trade and Investment, which provides that qualified high-tech, “professional, sophisticated, unique and new” and technology-based small and medium-sized enterprises located in specified provinces or cities may borrow foreign debt on their own, provided the amount of debt does not exceed the equivalent of US$10 million. In addition, this notice restructured the asset realization account of capital accounts to the settlement account of capital accounts. Funds denominated in foreign currency received in consideration of an equity transfer by a domestic equity transferor (including entities and individuals) from domestic parties, as well as the foreign exchange funds raised by domestic enterprises through overseas listing may be directly remitted to the settlement account of capital accounts. Funds in the settlement account of capital accounts may be settled and used at the discretion of the account holder. 87 Table of Contents Regulation on Foreign Exchange Registration of Overseas Investment by PRC Residents SAFE issued SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, that became effective in July 2014, replacing the Circular of the State Administration of Foreign Exchange on Issues Concerning the Regulation of Foreign Exchange in Equity Finance and Return Investments by Domestic Residents through Offshore Special Purpose Vehicles, or SAFE Circular 75. SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. Under SAFE Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate onshore or offshore assets or interests, while “round trip investment” refers to direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 provides that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. PRC residents or entities who had contributed legitimate onshore or offshore interests or assets to SPVs but had not obtained registration as required before the implementation of the SAFE Circular 37 must register their ownership interests or control in the SPVs with qualified banks. An amendment to the registration is required if there is a material change with respect to the SPV registered, such as any change of basic information (including change of the PRC residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure to comply with the registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of the foreign- invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested enterprise, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations. Regulation Related to Stock Incentive Plans SAFE promulgated the Circular of the State Administration of Foreign Exchange on Issues concerning the Administration of Foreign Exchange Used for Domestic Individuals’ Participation in Equity Incentive Plans of Companies Listed Overseas, or the Stock Option Rules in February 2012, replacing the previous rules issued by SAFE in March 2007. Under the Stock Option Rules and other relevant rules and regulations, PRC residents who participate in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC agent, which could be a PRC subsidiary of the overseas publicly listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of the participants. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or other material changes. The PRC agent must, on behalf of the PRC residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the PRC residents’ exercise of the employee share options. The foreign exchange proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents before distribution to such PRC residents. Regulation Related to Dividend Distribution The principal laws, rules and regulations governing dividends distribution by companies in the PRC are the PRC Company Law, which applies to both PRC domestic companies and foreign-invested companies, and the Foreign Investment Law and the Implementing Rules, which apply to foreign-invested companies. Under these laws, regulations and rules, both domestic companies and foreign- invested companies in the PRC are required to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of their reserves reaches 50% of their registered capital. PRC companies are not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. 88 Table of Contents Regulation Related to Taxation Enterprise Income Tax In March 2007, the National People’s Congress enacted the Enterprise Income Tax Law, which was most recently amended in December 2018, and in December 2007, the State Council promulgated the Implementing Rules of the Enterprise Income Tax Law, which were most recently amended in April 2019. The Enterprise Income Tax Law (i) reduces the top rate of enterprise income tax from 33% to a uniform 25% rate applicable to both foreign-invested enterprises and domestic enterprises and eliminates many of the preferential tax policies afforded to foreign investors, (ii) permits companies to continue to enjoy their existing tax incentives, subject to certain transitional phase-out rules and (iii) introduces new tax incentives, subject to various qualification criteria. The Enterprise Income Tax Law also provides that enterprises organized under the laws of jurisdictions outside China with their “de facto management bodies” located within China may be considered PRC resident enterprises and therefore be subject to PRC enterprise income tax at the rate of 25% on their worldwide income. The Implementing Rules of the Enterprise Income Tax Law further define the term “de facto management body” as the management body that exercises substantial and overall management and control over the production and operations, personnel, accounts and properties of an enterprise. If an enterprise organized under the laws of jurisdiction outside China is considered a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, it would be subject to the PRC enterprise income tax at the rate of 25% on its worldwide income. Second, a 10% withholding tax would be imposed on dividends it pays to its non-PRC enterprise shareholders and a 10% tax would apply with respect to gains derived by its non-PRC enterprise shareholders from transfer of its shares. According to the Enterprise Income Tax Law, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign enterprise investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a preferential withholding arrangement. Pursuant to the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates, which was issued on January 29, 2008 and supplemented and revised on February 29, 2008, and the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income, which became effective on December 8, 2006 and applies to income derived in any year of assessment commencing on or after April 1, 2007 in Hong Kong and in any year commencing on or after January 1, 2007 in the PRC, such withholding tax rate may be lowered to 5% if a Hong Kong enterprise is deemed the beneficial owner of any dividend paid by a PRC subsidiary by PRC tax authorities and holds at least 25% of the equity interest in that particular PRC subsidiary at all times within the 12-month period immediately before distribution of the dividends. Furthermore, the State Administration of Taxation promulgated the Public Announcement on Certain Questions in the Recognition of Beneficial Owners in Tax Treaties in 2018, which stipulates that, in determining whether a non-resident enterprise has the status of a beneficial owner, comprehensive analysis shall be conducted based on the factors listed therein and the actual circumstances of the specific case shall be taken into consideration. Non-resident enterprises that cannot provide valid supporting documents as “beneficial owners” may not be approved to enjoy tax treaty benefits. Specifically, it expressly excludes an agent or a “designated payee” from being considered as a “beneficial owner” and a “beneficial owner” analysis is required to be conducted on a case-by-case basis following the “substance-over-the-form” principle. Value-Added Tax and Business Tax Pursuant to the Provisional Regulations on Value-Added Tax of the PRC and its implementation regulations, unless otherwise specified by relevant laws and regulations, any entity or individual engaged in the sales of goods, provision of processing, repairs and replacement services and importation of goods into China is generally required to pay a value-added tax, or VAT, for revenues generated from sales of products, while qualified input VAT paid on taxable purchase can be offset against such output VAT. On April 4, 2018, the Ministry of Finance and the State Administration of Taxation issued the Notice on Adjustment of VAT Rates, which came into effect on May 1, 2018. According to the abovementioned notice, the taxable goods previously subject to VAT rates of 17% and 11% respectively become subject to lower VAT rates of 16% and 10% respectively starting from May 1, 2018. Furthermore, according to the Announcement on Relevant Policies for Deepening Value-added Tax Reform jointly promulgated by the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs, which became effective on April 1, 2019, the taxable goods previously subject to VAT rates of 16% and 10% respectively become subject to lower VAT rates of 13% and 9% respectively starting from April 1, 2019. 89 Table of Contents Furthermore, on September 1, 2023, the Standing Committee of the National People’s Congress of China released the second draft version of the Value Added Tax Law of the People’s Republic of China, or the Draft VAT Law. If passed, the Draft VAT Law will consolidate China’s current VAT regulations into one overarching piece of legislation. The Draft VAT Law was released only for soliciting public comments at this stage and thus substantial uncertainties exist with respect to the enactment timetable, final content, interpretation and implementation. M&A Rules and Overseas Listings On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-owned Assets Supervision and Administration Commission, the State Administration of Taxation, the SAIC, the CSRC, and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was amended on June 22, 2009. The M&A Rules, among other things, require that (i) PRC entities or individuals obtain MOFCOM approval before they establish or control a SPV overseas, provided that they intend to use the SPV to acquire their equity interests in a PRC company at the consideration of newly issued share of the SPV, or Share Swap, and list their equity interests in the PRC company overseas by listing the SPV in an overseas market; (ii) the SPV obtains MOFCOM’s approval before it acquires the equity interests held by the PRC entities or PRC individual in the PRC company by Share Swap; and (iii) the SPV obtains CSRC approval. Certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities, which were available to the public on July 6, 2021 and emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies, and proposed to take effective measures, such as promoting the establishment of relevant regulatory systems for prevention and resolution of the risks and contingencies faced by China-based overseas- listed companies, amending the special provisions of the State Counsel on overseas offering and listing by companies limited by shares, and clarifying the responsibilities of administrative and regulatory authorities. On February 17, 2023, the CSRC promulgated the Overseas Listing Trial Measures, and relevant five guidelines on the application of regulatory rules, which took effect from March 31, 2023, requiring Chinese domestic companies’ overseas offerings and listings of equity securities be filed with the CSRC. The Overseas Listing Trial Measures clarify the scope of overseas offerings and listings by Chinese domestic companies which are subject to the filing and reporting requirements thereunder, and provide, among others, that Chinese domestic companies that have already directly or indirectly offered and listed securities in overseas markets prior to the effectiveness of the Overseas Listing Trial Measures shall fulfil their filing obligations and report relevant information to the CSRC within three working days after conducting a follow-on offering of equity securities on the same overseas market, and follow the relevant reporting requirements within three working days upon the occurrence and public disclosure of any specified circumstances provided thereunder, including (i) change of control; (ii) investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities; (iii) change of listing status or transfer of listing segment and (iv) voluntary or mandatory delisting. In addition, where the main business of an issuer undergoes material change after overseas offering and listing, and is therefore beyond the scope of business stated in the filing documents, such issuer shall follow the relevant reporting requirements within three working days after occurrence of the changes. For violations of these provisions or measures, the competent Chinese authorities may impose administrative regulatory measures, such as orders for correction, warnings, fines, and may pursue legal liability in accordance with law. 90 Table of Contents Furthermore, on February 24, 2023, the CSRC, together with certain other PRC governmental authorities, promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Revised Confidentiality and Archives Administration Provisions, which took into effect on March 31, 2023. According to the Revised Confidentiality and Archives Administration Provisions, Chinese companies that directly or indirectly conduct overseas offerings and listings, shall strictly abide by the relevant laws and regulations on confidentiality when providing or publicly disclosing, either directly or through their overseas listed entities, documents and materials to securities services providers such as securities companies and accounting firms or overseas regulators in the process of their overseas offering and listing. In the event such documents or materials contain state secrets or working secrets of government agencies, the Chinese companies shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level with the approving authority. In the event that such documents or materials, if divulged, will jeopardize national security or public interest, the Chinese companies shall strictly fulfill relevant procedures stipulated by applicable national regulations. The Chinese companies shall also provide a written statement of the specific state secrets and sensitive information provided when providing documents and materials to securities companies and securities service providers, and the securities companies and securities service providers shall properly retain such written statements for inspection. According to the Revised Confidentiality and Archives Administration Provisions, where overseas securities regulators or relevant competent authorities request to inspect, investigate or collect evidence from Chinese domestic companies concerning their overseas offering and listing or their securities firms and securities service providers that undertake securities business for such Chinese domestic companies, such inspection, investigation and evidence collection must be conducted under the cross-border regulatory cooperation mechanism, and the CSRC or competent authorities of the Chinese government will provide necessary assistance pursuant to bilateral and multilateral cooperation mechanism. C. Organizational Structure The following diagram illustrates the Group’s corporate structure. The following diagram omits certain entities that are immaterial to the Group’s results of operations, business and financial condition. Except as otherwise specified, equity interests depicted in this diagram are held as to 100%. The relationships between each of Can Gu Long, the consolidated VIEs and their shareholders as illustrated in this diagram are governed by contractual arrangements and do not constitute equity ownership. (1) Investors in our ADSs hold equity interest in Cango Inc., which does not conduct operations. 91 Table of Contents (2) Min Gu and Meng Xu hold 99.0% and 1.0% equity interest in Shanghai Yungu, respectively. Meng Xu is an employee of the Group. Min Gu resigned from the Group due to personal reasons in November 2023. Her equity interest in Shanghai Yungu is in the process of transferring to Zhipeng Song, a director of us. Zhipeng Song entered into a series of contractual arrangements with Shanghai Yungu and Can Gu Long, which are expected to be effective in the second quarter of 2024. Shanghai Yungu is consolidated with the Group’s results of operations for accounting purposes, but it is not an entity in which we own equity interest. Shanghai Yungu is primarily involved in operating the Cango U-car app. (3) Include Shanghai Wangjin Investment Management Co., Ltd. (controlled by Mr. Xiaojun Zhang), Mr. Jiayuan Lin, Tencent Mobility Limited, Shanghai Xiehuai Investment Management L.P., the Taikang Onshore Entities (including Taikang Life Insurance Co., Ltd. and Shandong State-controlled Taikang Phase I Industrial Development Fund Partnership Enterprise (Limited Partnership)) and Shanghai Huaiyuan Investment Management L.P. (of which Shouyan Xu is the general partner) respectively holding 15.6%, 15.8%, 12.5%, 8.4%, 6.3% and 5.2% of equity interests in Shanghai Cango. The remaining equity interests in Shanghai Cango are held by nine other shareholders. Shanghai Cango is consolidated with the Group’s results of operations for accounting purposes, but it is not an entity in which we own equity interest. (4) Includes 15 subsidiaries that are majority owned by Shanghai Cango. These subsidiaries are located in various cities across China and are primarily involved in providing automotive financing facilitation services and after-market services facilitation to financial institutions and car buyers. (5) Primarily involved in the operation of the Group’s automobile trading, including purchasing cars from OEMs to facilitate the sales of such cars to registered dealers. (6) Includes two subsidiaries that are wholly-owned by Shanghai Chejia, which primarily engages in providing financing leases to car buyers. Shanghai Cango, one of our consolidated VIEs, currently owns 61.25% equity interest (directly and through Shanghai Wangtian Investment Co., Ltd., its wholly-owned subsidiary) in Shanghai Chejia and Express Group Development Limited, our wholly-owned consolidated subsidiary, owns 38.75% equity interest in Shanghai Chejia. As a result, Shanghai Chejia is the Group’s consolidated affiliate. Contractual Arrangements among Can Gu Long, the Consolidated VIEs and Their Shareholders PRC laws and regulations currently restrict foreign ownership and investment in VATS in China. Cango Inc. is a Cayman Islands holding company. We currently engage in VATS business, namely value-added online services for platform participants through Shanghai Yungu, one of our consolidated VIEs. We control the consolidated VIEs through a series of contractual arrangements with the consolidated VIEs, their shareholders and Can Gu Long, as described in more detail below, which collectively enables us to: ● receive substantially all the economic benefits of our consolidated VIEs; and ● have an exclusive option to purchase all or part of the equity interests in the equity interest in or all or part of the assets of our consolidated VIEs when and to the extent permitted by PRC law. As a result of these contractual arrangements, we are the primary beneficiary of the consolidated VIEs and their subsidiaries for accounting purposes. We have consolidated their financial results in our consolidated financial statements in accordance with U.S. GAAP. In the opinion of Fangda Partners, our PRC legal counsel: ● the ownership structures of Can Gu Long and our consolidated VIEs in China do not violate any applicable PRC law, regulation, or rule currently in effect; and 92 Table of Contents ● the contractual arrangements among Can Gu Long, the consolidated VIEs and their shareholders governed by PRC laws are valid, binding and enforceable in accordance with their terms and applicable PRC laws, rules, and regulations currently in effect, and do not violate any applicable PRC law, regulation, or rule currently in effect, except that the pledges in respect of the consolidated VIEs’ equity interests would not be deemed validly created until they are registered with the local administration for market regulation. However, these contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated VIEs. If any of our consolidated VIEs or their shareholders fails to perform their obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements, and rely on legal remedies under PRC laws, including contractual remedies, which may not be sufficient or effective. All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. We have been advised by our PRC legal counsel, Fangda Partners, that there are uncertainties regarding the interpretation and application of current and future PRC laws, rules and regulations. There are very few precedents and little formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law. The PRC regulatory authorities may in the future take a view that is contrary to the opinion of our PRC legal counsel. We have been further advised by our PRC legal counsel that if the PRC government finds that the agreements that establish the structure for operating the Group’s business do not comply with PRC government restrictions on foreign investment in the aforesaid business the Group engages in or other applicable PRC laws, regulations and rules, the Group could be subject to severe penalties including being prohibited from continuing operations. Furthermore, the interests of the shareholders of our consolidated VIEs in their capacities as such shareholders may differ from the interests of our company as a whole. As the result, there can be no assurance that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or those conflicts of interest will be resolved in our favor. Furthermore, there remain significant uncertainties regarding the ultimate outcome of arbitration should legal action become necessary. Under PRC laws, rulings by arbitrators are final, and parties cannot appeal the arbitration results in courts. If the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in the PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant time delays or other obstacles in the process of enforcing these contractual arrangements, it would be very difficult to allow us to receive economic benefits from our consolidated VIEs, and the Group’s business, financial condition and results of operations may be materially and adversely affected. For additional information, see “Item. 3 Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure.” Nevertheless, arbitration provisions under these contractual arrangements have no effect on the rights of our shareholders to pursue claims against us under United States federal securities laws. The following is a summary of the currently effective contractual arrangements by and among (i) our wholly-owned subsidiary, Can Gu Long, Shanghai Cango, and its subsidiaries, and the shareholders of Shanghai Cango and (ii) Can Gu Long, Shanghai Yungu and the shareholders of Shanghai Yungu. Contractual Arrangements with Shanghai Cango and Its Shareholders Equity Interest Pledge Agreements Pursuant to the equity interest pledge agreements, each shareholder of Shanghai Cango, other than Taikang Life Insurance Co. Ltd., has pledged all of such shareholder’s equity interest in Shanghai Cango as a security interest, as applicable, to respectively guarantee Shanghai Cango and its shareholders’ performance of their obligations under the relevant contractual arrangement, which include the exclusive business cooperation agreement, exclusive option agreement and power of attorney. If Shanghai Cango or any of its shareholders breaches their contractual obligations under these agreements, Can Gu Long, as pledgee, will be entitled to certain rights regarding the pledged equity interests. In the event of such breaches, Can Gu Long’s rights include being paid in priority with the equity interest of Shanghai Cango based on the monetary valuation that such equity interest is converted into or from the proceeds from auction or sale of the equity interest. Each of the shareholders of Shanghai Cango agrees that, during the term of the equity interest pledge agreements, such shareholder shall not transfer the equity interest, place or permit the existence of any security interest or other encumbrance on the equity interest or any portion thereof, without the prior written consent of Can Gu Long, except for the performance of the relevant contractual agreement. Can Gu Long is entitled to collect dividends distributed on the equity interest of Shanghai Cango, and Shanghai Cango’s shareholders may receive dividends distributed on the equity interest only with prior written consent of Can Gu Long. The equity interest pledge agreements remain effective until all obligations under the relevant contractual agreements have been fully performed and all secured indebtedness have been fully paid. We have registered pledges of equity interest of shareholders other than the Taikang Life Insurance Co., Ltd. in Shanghai Cango with the relevant offices of the administration for market regulation in accordance with the PRC Civil Code. 93 Table of Contents Power of Attorney Pursuant to the power of attorney, each shareholder of Shanghai Cango has irrevocably authorized Can Gu Long to exercise the following rights relating to all equity interests held by such shareholder in Shanghai Cango during the term of the power of attorney: to act on behalf of such shareholder as its exclusive agent and attorney with respect to all matters concerning its shareholding in Shanghai Cango, including without limitation to: (1) attending shareholders’ meetings of Shanghai Cango; (2) exercising all the shareholder’s rights and shareholder’s voting rights such shareholder is entitled to under the laws of China and Shanghai Cango’s articles of association, including but not limited to the sale or transfer or pledge or disposition of its shareholding in part or in whole; and (3) designate and appoint on behalf of such shareholder the legal representative, the directors, supervisors, the chief executive officer and other senior management members of Shanghai Cango. During the period that such shareholders remains a shareholder of Shanghai Cango, the power of attorney shall be irrevocable and continuously effective and valid from the date of execution of the power of attorney. Exclusive Business Cooperation Agreement Under the exclusive business cooperation agreement, Shanghai Cango appoints Can Gu Long as its exclusive services provider to provide Shanghai Cango with comprehensive technical support, consulting services and other services during the term of the exclusive business cooperation agreement. In consideration of the services provided by Can Gu Long, Shanghai Cango shall pay Can Gu Long fees equal to 100% of the consolidated basis net income of Shanghai Cango, which equals the balance of the gross income less the costs of Shanghai Cango acceptable to Can Gu Long and Shanghai Cango. Can Gu Long shall have exclusive and proprietary ownership, rights and interests in any and all intellectual properties arising out of or created during the performance of the exclusive business cooperation agreement. In addition, Shanghai Cango grants to Can Gu Long an irrevocable and exclusive option to purchase from Shanghai Cango, Shanghai Chejia and any other subsidiary controlled by Shanghai Cango, at Can Gu Long’s sole discretion, any or all of the assets and business of Shanghai Cango, to the extent permitted under PRC law, at the lowest purchase price permitted by PRC law. Unless terminated in accordance with the provisions of the exclusive business cooperation agreement or terminated in writing by Can Gu Long, the exclusive cooperation agreement shall remain effective. Exclusive Option Agreement Pursuant to the exclusive option agreement, each of Shanghai Cango’s shareholders have irrevocably granted Can Gu Long an irrevocable and exclusive right to purchase, or designate one or more persons agreed by the board of directors of Can Gu Long to purchase the equity interests in Shanghai Cango then held by its shareholders once or at multiple times at any time in part or in whole at Can Gu Long’s sole and absolute discretion to the extent permitted by PRC law. The minimum price regulated by PRC law shall be the purchase price. Shanghai Cango and its shareholders have agreed that, without Can Gu Long’s prior written consent, Shanghai Cango shall not in any manner supplement, change or amend the articles of association of Shanghai Cango, increase or decrease its registered capital, change its structure of registered capital in other manners, sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Shanghai Cango held by such shareholders, or allow the encumbrance thereon, except for the interest placed in accordance with the equity interest pledge agreement and the power of attorney. Shanghai Cango’s shareholders shall promptly donate any profit, interest, dividend or proceeds of liquidation to Can Gu Long or any other person designated by Can Gu Long to the extent permitted under applicable PRC laws. This agreement will remain effective until all equity interests of Shanghai Cango held by its shareholders have been transferred or assigned to Can Gu Long or its designated person(s). 94 Table of Contents Contractual Arrangements with Shanghai Yungu and Its Shareholders Equity Interest Pledge Agreements Pursuant to the equity interest pledge agreements, each shareholder of Shanghai Yungu, has pledged all of such shareholder’s equity interest in Shanghai Yungu as a security interest, as applicable, to respectively guarantee Shanghai Yungu and its shareholders’ performance of their obligations under the relevant contractual arrangement, which include the exclusive business cooperation agreement, exclusive option agreement and power of attorney. If Shanghai Yungu or any of its shareholders breaches their contractual obligations under these agreements, Can Gu Long, as pledgee, will be entitled to certain rights regarding the pledged equity interests. In the event of such breaches, Can Gu Long’s rights include being paid in priority with the equity interest of Shanghai Yungu based on the monetary valuation that such equity interest is converted into or from the proceeds from auction or sale of the equity interest. Each of the shareholders of Shanghai Yungu agrees that, during the term of the equity interest pledge agreements, such shareholder shall not transfer the equity interest, place or permit the existence of any security interest or other encumbrance on the equity interest or any portion thereof, without the prior written consent of Can Gu Long, except for the performance of the relevant contractual agreement. Can Gu Long is entitled to collect dividends distributed on the equity interest of Shanghai Yungu, and Shanghai Yungu’s shareholders may receive dividends distributed on the equity interest only with prior written consent of Can Gu Long. The equity interest pledge agreements remain effective until all obligations under the relevant contractual agreements have been fully performed and all secured indebtedness have been fully paid. We have registered pledges of equity interest of shareholders in Shanghai Yungu with the relevant offices of the administration for market regulation in accordance with the PRC Civil Code. Power of Attorney Pursuant to the power of attorney, each shareholder of Shanghai Yungu has irrevocably authorized Can Gu Long to exercise the following rights relating to all equity interests held by such shareholder in Shanghai Yungu during the term of the power of attorney: to act on behalf of such shareholder as its exclusive agent and attorney with respect to all matters concerning its shareholding in Shanghai Yungu, including without limitation to: (1) attending shareholders’ meetings of Shanghai Yungu; (2) exercising all the shareholder’s rights and shareholder’s voting rights such shareholder is entitled to under the laws of China and Shanghai Yungu’s articles of association, including but not limited to the sale or transfer or pledge or disposition of its shareholding in part or in whole; and (3) designate and appoint on behalf of such shareholder the legal representative, the directors, supervisors, the chief executive officer and other senior management members of Shanghai Yungu. During the period that such shareholders remains a shareholder of Shanghai Yungu, the power of attorney shall be irrevocable and continuously effective and valid from the date of execution of the power of attorney. Exclusive Business Cooperation Agreement Under the exclusive business cooperation agreement, Shanghai Yungu appoints Can Gu Long as its exclusive services provider to provide Shanghai Yungu with comprehensive technical support, consulting services and other services during the term of the exclusive business cooperation agreement. In consideration of the services provided by Can Gu Long, Shanghai Yungu shall pay Can Gu Long fees equal to 100% of the consolidated basis net income of Shanghai Yungu, which equals the balance of the gross income less the costs of Shanghai Yungu acceptable to Can Gu Long and Shanghai Yungu. Can Gu Long shall have exclusive and proprietary ownership, rights and interests in any and all intellectual properties arising out of or created during the performance of the exclusive business cooperation agreement. In addition, Shanghai Yungu grants to Can Gu Long an irrevocable and exclusive option to purchase from Shanghai Yungu and any other subsidiary controlled by Shanghai Yungu, at Can Gu Long’s sole discretion, any or all of the assets and business of Shanghai Yungu, to the extent permitted under PRC law, at the lowest purchase price permitted by PRC law. Unless terminated in accordance with the provisions of the exclusive business cooperation agreement or terminated in writing by Can Gu Long, the exclusive cooperation agreement shall remain effective. 95 Table of Contents Exclusive Option Agreement Pursuant to the exclusive option agreement, each of Shanghai Yungu’s shareholders have irrevocably granted Can Gu Long an irrevocable and exclusive right to purchase, or designate one or more persons agreed by the board of directors of Can Gu Long to purchase the equity interests in Shanghai Yungu then held by its shareholders once or at multiple times at any time in part or in whole at Can Gu Long’s sole and absolute discretion to the extent permitted by PRC law. The minimum price regulated by PRC law shall be the purchase price. Shanghai Yungu and its shareholders have agreed that, without Can Gu Long’s prior written consent, Shanghai Yungu shall not in any manner supplement, change or amend the articles of association of Shanghai Yungu, increase or decrease its registered capital, change its structure of registered capital in other manners, sell, transfer, mortgage or dispose of in any other manner any legal or beneficial interest in the equity interests in Shanghai Yungu held by such shareholders, or allow the encumbrance thereon, except for the interest placed in accordance with the equity interest pledge agreement and the power of attorney. Shanghai Yungu’s shareholders shall promptly donate any profit, interest, dividend or proceeds of liquidation to Can Gu Long or any other person designated by Can Gu Long to the extent permitted under applicable PRC laws. This agreement will remain effective until all equity interests of Shanghai Yungu held by its shareholders have been transferred or assigned to Can Gu Long or its designated person(s). Financial Support Undertaking Letters We executed a financial support undertaking letter addressed to each consolidated VIE, pursuant to which we irrevocably undertake to provide unlimited financial support to each consolidated VIE to the extent permissible under the applicable laws and regulations of the Cayman Islands and the PRC, regardless of whether such consolidated VIE has incurred an operational loss. The form of financial support includes but is not limited to cash, entrusted loans and borrowings. We will not request repayment of any outstanding loans or borrowings from the relevant consolidated VIE if it or its shareholders do not have sufficient funds or are unable to repay such loans or borrowings. Each letter is effective from the date of the other agreements entered into among Can Gu Long, the relevant consolidated VIE and its shareholders until the date on which all of the equity interests of such consolidated VIE have been acquired by Can Gu Long or its designated representative(s). We expect to provide the financial support if and when required with a portion of the proceeds from our initial public offering and proceeds from the issuance of equity or debt securities in the future. D. Facilities The Group’s corporate headquarters are located in Shanghai, China, where it leases approximately 5,592 square meters of office space. The Group also maintains leased properties of approximately 3,354 square meters of office space in 14 other cities as regional offices. In addition, the Group cooperates with a third-party warehouse service provider to lease warehouses for car storage for its automobile trading solutions. The space available for leasing is approximately 480,000 square meters of 96 warehouses in 31 provinces of China. The Group leases parking units on monthly basis, depending on its inventory needs. We believe that the Group will be able to obtain adequate facilities, principally by lease, to accommodate future expansion plans. ITEM 4A. UNRESOLVED STAFF COMMENTS None. 96 Table of Contents ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS You should read the following discussion and analysis of the Group’s financial condition and results of operations in conjunction with its consolidated financial statements and the related notes included elsewhere in this annual report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. The Group’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information — D. Risk Factors” or in other parts of this annual report. A. Operating Results Overview The Group is a leading technology-enabled automotive transaction service platform in China, connecting dealers, OEMs, car buyers and other industry participants. The Cango platform empowers and serves upstream and downstream of the automotive transaction value chain and offers comprehensive services, working together with platform participants to deliver simple and enjoyable car purchasing and ownership experience. The Group has extensive, technology-enabled service offerings that cover key components of the automotive transaction value chain, including pre-sale automobile trading solutions and post-sale after-market services facilitation. To a lesser extent, the Group also provides during-sale automotive financing facilitation. Automobile Trading Solutions The Group enables automobile trading transactions among platform participants by providing car sourcing and transaction facilitation services, along with logistics and warehousing support for dealers. Such services were accessible primarily through two apps: Cango Haoche app, which was launched in 2022 and provided new car transaction services, and Cango U-car app, which was launched in January 2023 and provided used car transaction services. As new car dealers are starting to engage in used car retail while used car dealers are now attempting to sell new cars as well, the Group merged Cango Haoche’s services into the Cango U-car platform in the fourth quarter of 2023 to cater to the rapidly disappearing boundary between new car and used car sales channels. Currently, the Group’s automobile trading solutions are accessible primarily through Cango U-car app. The Group’s automobile trading solutions enable transactions among dealers, as well as those between dealers and OEMs. The Group takes limited inventory risk, as the Group first aggregates demand from dealers, and then makes bulk purchase of cars from OEMs and arranges delivery of cars to the dealers. The Group also owns used cars from cars disposed by individual car buyers who have used the Group’s automotive financial services in the past, as well as cars used as collaterals and later collected and disposed by financial institutions. The transaction facilitation services connect dealers looking for cars with dealers wishing to supply cars. 1,801 dealers were registered on Cango U-car app as of December 31, 2023. In 2023, the Group’s automobile trading solutions enabled 12,695 car transactions with a total transaction value of RMB1,310 million (US$184 million). After-market Services Facilitation The Group facilitates the sale of insurance policies and other after-market services for car buyers. As of December 31, 2023, the Group collaborated with eight insurance brokers and companies to facilitate the sale of their products, such as auto insurance, accident insurance and other automotive related insurance services, to car buyers. The Group continues to explore opportunities to facilitate other after-market services on Cango platform, including additional types of insurance, extended warranties and car customization services. Automotive Financing Facilitation Services The Group provides automotive financing facilitation services primarily by connecting financial institutions and car buyers, leveraging its vast dealer network. Funding for such financing solutions is provided by either third-party financial institutions or Shanghai Chejia, which is the Group’s consolidated affiliate. Based on its observation of the market, the Group made a business transition in 2022 to scale down its automotive financing facilitation services. Currently, the Group cooperates with third-party financial institutions to fund existing loans facilitated through Cango platform. In the future, the Group may decide to facilitate loans which do not require it to bear credit risks or provide guarantees. The Group also provides value-added services, such as assistance with administrative procedures associated with car purchasing and financing. The Group receives sales revenue and fee income for its automobile trading solutions. For the after-market services, the Group earns fixed service fee for facilitating the sale of different kinds of insurance products, such as accident insurances, automotive insurances and other automotive related insurance services. In automotive financing, the Group charges financial institutions service fee based on a percentage of the principal amount of the relevant financing transactions. 97 Table of Contents Key Factors Affecting Our Results of Operations Solution and Service Offerings and Pricing The Group’s revenue depends on its ability to improve existing solutions and services, continue identifying evolving business needs, refine collaboration models with business partners and provide value-added services. The Group’s revenue also depends on its abilities to effectively price solutions and services and monetize new business opportunities. The Group drives a significant portion of its revenues from automotive transaction value chain. As such, its financial performance depends in part on the ability to attract and maintain dealers and collaborate with OEMs to provide dealers with sufficient car sources at attractive prices. The Group’s ability to aggregate dealer’s demand enables the Group to obtain favorable car purchase price from OEMs, which further improve dealers’ loyalty to the Group’s automobile trading platform. In addition, the growth of the Group’s transaction facilitation services depends on, among others, the Group’s ability to efficiently matching selling dealers with buying dealers and providing logistics and warehousing services that effectively support the transaction between dealers. Covering the key components of the automotive transaction value chain, the Group also derives revenue from after-market service facilitation. Such business initiatives, and the ability to execute them, may affect future business growth and profitability. Since the Group’s new solution and service offerings may have different pricing strategies and cost structures, expansion of business and changes to revenue mix may affect financial position and profitability going forward. In addition, the Group made a business transition in 2022 to focus on automobile trading solutions and after-market services facilitation while scaling down its automotive financing facilitation services based on its observation of the market. As a result, the Group’s loan facilitation income and leasing income have been decreased and are expected to continue decreasing. The Group may also experience an increase in net loss as a result of the strategic shift. Market Conditions and Government Policies in China The demand for the Group’s services is dependent upon overall market conditions in China. China’s automotive industry, especially the automotive transaction industry, may be affected by, among other factors, the general economic conditions in China and the growth of disposable income. With the expansion of China’s automotive industry, dealers, financial institutions, OEMs and other industry participants have been utilizing technology-enabled automotive transaction service platforms to solve their pain points and capture market opportunities. The growth of the Group’s business will depend in part of the continuation of these trends. The Group experienced certain disruptions in its operations in certain periods from 2020 to 2022 as a result of the COVID-19 outbreak in China and measures undertaken by the Chinese government to contain the spread of COVID-19, which negatively affected the Group’s business to some extent. The Group gradually recovered from the impact of the COVID-19 pandemic. Nonetheless, the Group may be affected by any future COVID-19 resurgence in China. Governmental policies affecting the automotive industry in China are developing and evolving, creating both challenges and opportunities that could affect the Group’s financial performance. The Group will continue to make efforts to ensure that it is compliant with the existing laws, regulations and governmental policies relating to the automotive industry and to comply with new laws and regulations or changes under existing laws and regulations that may arise in the future. While new laws and regulations or changes to existing laws and regulations could make current business operations more difficult or expensive, or result in changes to solutions and services offerings and hence the ability to price solutions, these events could also provide new product and market opportunities. 98 Table of Contents Ability to Retain Existing Dealers and Engage New Dealers The Group’s ability to retain existing dealers it collaborates with and engage new dealers is important for the Group’s business. The growth in the number of dealers is driven by various factors, such as further penetrating existing markets and expanding geographic coverage, attracting more dealers to register on Cango U-car app and increasing dealers’ engagement, maintaining a plethora of choices of cars in attractive prices and enhancing customer relationship management system for dealers to better serve existing car buyers and engage potential car buyers. In addition, the collaborations with dealers may be affected by factors beyond the Group’s control, such as the overall automotive and mobility markets, general economic conditions and the regulatory environment. Ability to Perform Credit Assessment and Delinquent Asset Management Effectively In offering the automotive financing facilitation services, the quality of the Group’s risk management efforts and the credit performance of loans facilitated by Cango platform affects its reputation and results of operations. After a delinquency occurs, the Group aims to collect repayments and/or recover the car collateral from the car buyer. The Group relies on in-house delinquent asset management team to collect repayments and recover the car collateral at different stages of delinquent asset management process. The ability to collect repayments and recover car collaterals in a cost-effective way may affect the Group’s relationships with financial institutions and/or results of operations. Operating Leverage of Cango Platform The Group operates a platform that connects the industry participants throughout the entire automotive transaction value chain, and such business model is highly scalable. Personnel costs have been and we expect will continue to be a large component of the Group’s operating cost and expenses. To maintain and improve the operating leverage of Cango platform, the Group must manage to grow the business by increasing productivity and continuing automating its operations with technology. Ability to Compete Effectively The Group’s business and results of operations depend on its ability to compete effectively. The competitive position may be affected by, among other things, service quality and ability to price solutions and services competitively. The Group will continue to invest in technologies to improve service quality and user experience. The Group aims to enhance the speed in processing and aggregating dealers’ orders for its car sourcing services and improve the efficiency in matching selling dealers and buying dealers for its transaction facilitation services. As new competitors or new solutions and services emerges that compete with the Group’s, it will need to continue to introduce new solutions and services or enhance existing ones to attract dealers, financial institutions, car buyers and other industry participants. Whether and how quickly the Group can do so will have a significant impact on its financial performance. Transaction Volume Metrics The Group regularly reviews a number of transaction volume metrics, including the following metrics, to monitor transaction volume, identify trends, formulate financial projections and make strategic decisions. We believe that these transaction volume metrics are useful to investors because they are frequently used by analysts, investors and other interested parties to evaluate companies in the automotive transaction industry. 99 Table of Contents The tables below set forth the transaction volume metrics in the periods presented: Number of financing transactions facilitated Number of automobile trading transactions 2021 For the Year Ended December 31, 2022 30,983 16,418 318,772 23,166 2023 27 12,695 The table below sets forth a breakdown for the outstanding principal and amount of financing transactions facilitated in the periods presented: As of / For the Year Ended December 31, 2023 2021 RMB 2022 RMB RMB US$ Outstanding principal of financing transactions facilitated Amount of financing transactions facilitated 46,702,054 25,581,254 9,971,559 1,404,465 238 30,128,194 2,838,827 1,686 (in thousands) We define “financing transactions” as loans and financing leases. Financing transactions facilitated include financing transactions funded by financial institutions and financing transactions funded by Shanghai Chejia. We define “amount of financing transactions” as the principal amount of financing transactions facilitated in a specified period. Credit Performance Metrics As of December 31, 2023, the total outstanding balance of financing transactions for which the Group is not obligated to bear credit risk was RMB1.9 billion (US$0.3 billion), representing 18.6% of the total outstanding balance of financing transactions facilitated. The remainder was funded by either (i) financial institutions from which the Group is obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers or (ii) Shanghai Chejia, the Group’s consolidated affiliate. We monitor credit performance based on M1+ overdue ratio and M3+ overdue ratio. We define “M1+ overdue ratio” as (i) exposure at risk relating to financing transactions for which any installment payment is 30 to 179 calendar days past due as of a specified date, divided by (ii) exposure at risk relating to all financing transactions which remain outstanding as of such date, excluding amounts of outstanding principal that are 180 calendar days or more past due. We define “M3+ overdue ratio” as (i) exposure at risk relating to financing transactions for which any installment payment is 90 to 179 calendar days past due as of a specified date, divided by (ii) exposure at risk relating to all financing transactions which remain outstanding as of such date, excluding amounts of outstanding principal that are 180 calendar days or more past due. Amounts which are 180 calendar days or more past due are deducted from exposure at risk, as such amounts are typically charged off by third-party financial institutions. However, the relevant financial institutions may follow charge-off policies that differ from such practice. We believe that these credit performance metrics are useful to investors because they are frequently used by analysts, investors and other interested parties to evaluate companies in the automotive transaction industry. The table below sets forth M1+ overdue ratio and M3+ overdue ratio for all financing transactions which the Group facilitated and remained outstanding as of the specified dates. As of March June September December March June September December March June September December 31, 30, 30, 2021 31, 31, 30, 30, 2022 (%) 31, 31, 30, 30, 2023 31, 1.23 1.35 1.58 1.62 1.76 2.21 2.44 2.61 2.33 2.12 2.42 2.66 0.54 0.69 0.76 0.86 0.80 1.07 1.27 1.38 1.29 1.09 1.24 1.37 M1+ overdue ratio M3+ overdue ratio Risk Assurance Liabilities Under the arrangements with certain financial institutions, the Group is obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. After purchasing such financing receivables, security interest in the collateral is also transferred to the Group. We refer to such arrangement to purchase financing receivables from financial institutions as risk assurance obligation. 100 Table of Contents The Group incurs risk assurance liabilities in connection with these risk assurance obligation. The table below sets forth the movement of risk assurance liabilities in the periods presented. Balance at the beginning of the period Fair value of risk assurance liabilities upon the inception of new loans Performed risk assurance liabilities Net loss on risk assurance liabilities Balance at the closing of the period As of / For the Year Ended December 31, 2021 RMB (in thousands) 460,829 443,832 (403,388) 197,750 699,023 2022 RMB 699,023 45,521 (642,104) 299,863 402,303 Due to the adoption of ASC 326 as of January 1, 2023, risk assurance liabilities are presented separately into deferred guarantee income which represents the non-contingent portion of risk assurance liabilities, and contingent risk assurance liabilities in which the movement during the year ended December 3l, 2023 are as follows: As of /For the Year Ended December 31, Deferred guarantee income 2023 Contingent risk assurance liabilities 2023 RMB US$ RMB US$ (in thousands) Balance at the beginning of the period Adjustment due to the adoption of ASC 326 Fair value of risk assurance liabilities upon the inception of new loans Performed risk assurance liabilities Net recovery on provision for credit losses Recognized as guarantee income Balance at the closing of the period 298,306 42,016 — 34 — — 103,997 302,407 — — 5 — (306,895) 25,632 — 14,648 42,593 — (43,225) 3,610 — 17,626 (212,121) 86,219 (29,877) 12,144 — 125,141 Risk assurance liabilities consist of a non-contingent aspect and a contingent aspect. At the inception of each financing transaction for which the Group has risk assurance obligation, it recognizes the non-contingent aspect at fair value, considering the premium required by a third-party market participant to issue the same risk assurance in a standalone transaction. The contingent aspect relates to the contingent loss arising from the Group’s risk assurance obligation. The service fees payable to the Group, net of risk assurance liabilities allocated from the consideration in connection with such financing transaction, are initially recognized as revenues. When the Group performs risk assurance obligation upon a car buyer’s default, it records a corresponding deduction to risk assurance liabilities. The Group performs risk assurance obligation by purchasing the relevant financing receivables. Upon recovery of a car, the Group derecognizes the financing receivable and records the recovered car at its estimated fair value, less cost to sell, as other non-current assets on the consolidated balance sheet. Before January 1, 2023, the non-contingent aspect of risk assurance liabilities was reduced over the term of the arrangement, which the Group recognized as gain on risk assurance liabilities, as it was released from the risk assurance obligation on a loan-by-loan basis based on car buyers’ repayments. The contingent aspect was recognized as loss on risk assurance liabilities when car buyer’s default was probable, and the amount of loss was estimable. The Group considered the underlying risk profile, including delinquency status, overdue period and historical loss experience when assessing the probability of contingent loss. Car buyers were grouped based on common risk characteristics, such as product type. The Group measured contingent loss based on the future payout estimated using the historical default rates of a portfolio of similar loans less the fair value of the recoverable collateral. From January 1, 2023, the non-contingent aspect of risk assurance liabilities is recorded as deferred guarantee income over the term of the arrangement, which the Group recognizes as guarantee income, as it is released from the deferred guarantee income on a loan-by- loan basis based on car buyers’ repayments. The contingent aspect is recognized as loss on risk assurance liabilities based on car buyer’s lifetime expected losses. The Group considers the underlying risk profile, including delinquency status, overdue period and historical loss experience as well as expected forward-looking factors when assessing the lifetime expected credit loss. Car buyers are grouped based on common risk characteristics, such as product type. The Group measures contingent loss based on the expected credit loss rates of a portfolio of similar loans less the fair value of the recoverable collateral. 101 Table of Contents Non-GAAP Measures We use adjusted net income/(loss), adjusted net income/(loss) per ADS-basic and adjusted net income/(loss) per ADS-diluted, which are non-GAAP financial measures, in evaluating the Group’s operating results and for financial and operational decision-making purposes. We believe that adjusted net income/(loss), adjusted net income/(loss) per ADS-basic and adjusted net income/(loss) per ADS- diluted help identify underlying trends in our business by excluding the impact of share-based compensation expenses relating to the Share Incentive Plan 2018, or the ESOP Expenses, which are non-cash charges. We believe that adjusted net income/(loss), adjusted net income/(loss) per ADS-basic and adjusted net income/(loss) per ADS-diluted provide useful information about the Group’s operating results, enhance the overall understanding of the Group’s past performance and future prospects and allow for greater visibility with respect to key metrics used by the Group’s management in its financial and operational decision-making. Adjusted net income/(loss), adjusted net income/(loss) per ADS-basic and adjusted net income/(loss) per ADS-diluted are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. The non-GAAP financial measures have limitations as analytical tools, and when assessing the Group’s operating performance, cash flows or its liquidity, investors should not consider them in isolation, or as a substitute for net income, cash flows provided by operating activities or other consolidated statements of operation and cash flow data prepared in accordance with U.S. GAAP. We mitigate these limitations by reconciling the non-GAAP financial measures to the most comparable U.S. GAAP performance measure, all of which should be considered when evaluating our performance. The following table reconciles the non-GAAP financial measures in the years presented to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, which is net income: Net income (loss) Add: ESOP Expenses(1) Adjusted net income (loss) Less: Net income attributable to the 2019 (Unaudited) RMB 2020 (Unaudited) RMB For the year ended December 31, 2021 (Unaudited) RMB 2022 (Unaudited) RMB 2023 (Unaudited) RMB (Unaudited) US$ (in thousands, except for share and per share data) 404,859 82,266 487,125 3,373,420 78,755 3,452,175 (8,544) 87,635 79,091 (1,111,208) 158,523 (952,685) (37,873) 38,491 618 (5,334) 5,421 87 non-controlling interest shareholders 13,945 3,902 — — — Adjusted net income (loss) attributable to Cango Inc.’s ordinary shareholders Adjusted net income (loss) per ADS- basic(2) Adjusted net income (loss) per ADS- diluted(2) Weighted average ADS outstanding— 473,180 3,448,273 79,091 (952,685) 3.13 3.12 22.95 22.69 0.55 0.54 (6.95) (6.95) 618 0.01 — — 87 — — basic 151,208,676 150,242,430 144,946,453 137,042,445 121,524,393 121,524,393 Weighted average ADS outstanding— diluted 151,641,829 151,950,322 146,867,997 137,042,445 126,940,244 126,940,244 (1) ESOP Expenses are allocated in operating cost and expenses as follows: Cost of revenue Sales and marketing General and administrative Research and development ESOP Expenses (2) Each ADS represents two ordinary shares. For the year ended December 31, 2019 2020 2021 2022 2023 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB RMB 3,373 3,075 17,523 57,093 4,278 82,266 16,003 55,591 4,085 78,755 RMB RMB (in thousands) 4,928 15,311 63,035 4,361 87,635 4,160 14,691 135,889 3,782 158,523 RMB US$ 2,187 7,716 26,833 1,755 38,491 308 1,087 3,779 247 5,421 102 Table of Contents Components of Results of Operations Revenues The Group’s revenues mainly consist of automobile trading income, loan facilitation income and other related income, guarantee income, leasing income, after-market services income and others. Automobile trading income relates to the automobile trading solutions. The Group generates loan facilitation income by providing automotive financing facilitation services to financial institutions and car buyers in connection with existing loans obtained through Cango platform. Guarantee income represents the release of non-contingent risk assurance liability pursuant to the adoption of ASC 326 on January 1, 2023. Prior to the adoption of ASC 326, the release of non- contingent risk assurance liability was recognized in earnings as a reduction of net loss on risk assurance liabilities. Please see “—Risk Assurance Liabilities” for details. Leasing income relates to financing lease payments from car buyers to Shanghai Chejia. After-market services income relates to the facilitation of sale of insurance policies and delinquent asset management services. The following table sets forth components of the Group’s revenues, both in absolute amount and as a percentage of the total revenues, for the periods presented. 2021 RMB % Year Ended December 31, 2022 RMB % (in thousands, except for percentages) RMB 2023 US$ % Revenues: Automobile trading income Loan facilitation income and other related income Guarantee income Leasing income After-market services income Others Total Operating Cost and Expenses 2,227,172 1,233,556 — 251,295 193,787 15,906 3,921,716 56.8 1,596,307 31.5 — 6.4 4.9 0.4 100.0 146,429 — 155,522 71,457 10,739 1,980,453 80.6 1,309,634 184,458 19,962 212,121 57,431 65,388 37,383 1,701,919 2,812 29,877 8,089 9,210 5,265 239,710 7.4 — 7.9 3.6 0.5 100.0 77.0 1.2 12.5 3.4 3.8 2.1 100.0 The Group’s operating cost and expenses consist of cost of revenue, sales and marketing expenses, general and administrative expenses, research and development expenses, net loss on contingent risk assurance liabilities, net loss on risk assurance liabilities, provision (net recovery on provision) for credit losses and impairment loss from goodwill. Cost of Revenue The Group’s cost of revenue consists of (i) cost of vehicle, (ii) cost for staff responsible for risk management and delinquent asset management, (iii) leasing interest expense, (iv) commission paid to car dealerships, (v) incentive fee to sales staff, (vi) outsourcing fee in connection with repayment collection and (vii) others. The following table sets forth components of the Group’s cost of revenue, both in absolute amount and as a percentage of the Group’s total revenues, for the periods presented. 2021 2022 Year Ended December 31, RMB % RMB % (in thousands, except for percentages) RMB 2023 US$ % Cost of revenue: Cost of vehicle Staff cost Leasing interest expense (1) Commission to car dealerships Staff incentive Outsourcing fee Others Total 2,210,715 105,771 119,693 375,703 61,895 254 83,979 2,958,010 56.4 2.7 3.1 9.6 1.6 * 2.1 75.4 1,580,779 105,613 61,129 26,757 79.8 5.3 3.1 1.4 — — 10,475 45,337 1,830,090 0.5 2.3 92.4 1,294,946 87,602 13,017 — — 32,241 84,057 1,511,863 182,389 12,338 1,833 — — 4,542 11,839 212,941 76.1 5.1 0.8 — — 1.9 4.9 88.8 (1) Leasing interest expense refers to interest expense on borrowings by the Group that are directly used to fund finance lease receivables. less than 0.1% * 103 Table of Contents Sales and Marketing Sales and marketing expenses consist primarily of compensation related to sales staff but exclude incentives paid to them. General and Administrative General and administrative expenses consist primarily of compensation related to accounting and finance, legal, human resources and other administrative personnel, professional service fee as well as rent for office spaces related to various administrative activities. Research and Development Research and development expenses consist primarily of compensation related to research and development personnel, depreciation and amortization of equipment and costs of data center services. Net Loss on Risk Assurance Liabilities / Net Loss on Contingent Risk Assurance Liabilities Risk assurance liabilities consist of a non-contingent aspect and a contingent aspect. At the inception of each financing transaction for which the Group has risk assurance obligation, it recognizes the non-contingent aspect at fair value. Before January 1, 2023, the non-contingent aspect of risk assurance liabilities was reduced over the term of the arrangement, which the Group recognized as gain on risk assurance liabilities, as it was released from the risk assurance obligation on a loan-by-loan basis based on car buyers’ repayments. After January 1, 2023, the non-contingent aspect of risk assurance liabilities is reduced over the term of the arrangement, which the Group recognizes as guaranteed income, as it is released from the deferred guarantee income on a loan-by-loan basis based on car buyers’ repayments. Net loss on contingent risk assurance liabilities represents the contingent aspect. Before January 1, 2023, the contingent aspect was recognized as loss on risk assurance liabilities when car buyer’s default was probable and was measured as the future payout estimated using the historical default rates of a portfolio of similar loans. After January 1, 2023, the contingent aspect is recognized as loss on contingent risk assurance liabilities based on car buyer’s lifetime expected losses using the historical default rates and expected forward- looking factors of a portfolio of similar loans. Provision (Net Recovery on Provision) for Credit Losses Under the arrangements with certain financial institutions, the Group is obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. In addition, the Group records finance lease receivables relating to the financing leases funded by Shanghai Chejia on the Group’s balance sheet. Before January 1, 2023, the allowance for financing receivables was calculated using the probability of default and loss given default model (without incorporating forward-looking factors) based on pools of financing receivables with similar risk characteristics, including product type to arrive at an estimate of incurred losses in the portfolio up to balance sheet date. After January 1, 2023, the allowance for financing receivables is calculated using the probability of default and loss given default model (incorporating forward-looking factors) based on pools of financing receivables with similar risk characteristics, including product type to arrive at an estimate of expected losses in the portfolio. The Group recognizes any increase in allowance for financing receivables as provision for credit losses for the relevant period. 104 Table of Contents Impairment Loss from Goodwill Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of an acquired business. The Group tests for impairment of goodwill annually, and between annual tests if the Group becomes aware of an event or a change in circumstances that would indicate the carrying value may be impaired. According to those impairment tests, the Group did not record any impairment loss in 2022 and recorded an impairment loss on goodwill of RMB148.7 million (US$20.9 million) in 2023 as the financial performance of the automobile trading solutions and automotive financing facilitation services continued to fall below forecasts. Please see “—Item E. Critical Accounting Policies and Estimates—Goodwill” for details. Taxation Cayman Islands We are an exempted company incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, payments of dividends and capital in respect of our ordinary shares will not be subject to taxation in the Cayman Islands and no withholding tax will be required on the payment of a dividend or capital to any holder of our ordinary shares, as the case may be, nor will gains derived from the disposal of our ordinary shares be subject to Cayman Islands income or corporation tax. Hong Kong Our subsidiary incorporated in Hong Kong is subject to Hong Kong profit tax at a rate of 16.5% and may be exempted from income tax on its foreign-derived income. Hong Kong does not impose a withholding tax on remittance of dividends. China Generally, our PRC subsidiary, consolidated VIEs and subsidiaries of the consolidated VIEs in China are subject to enterprise income tax on their taxable income in China at a rate of 25%. The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. The Group is subject to VAT at a rate of 6% on the services provided to customers, and VAT at a rate of 13% on the sales of products starting from April 1, 2019 (such rate was 16% from May 1, 2018 to April 1, 2019), less any deductible VAT the Group has already paid or borne. The Group is also subject to surcharges on VAT payments in accordance with PRC law. Dividends paid by our wholly foreign-owned subsidiary in China to our intermediary holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevant tax authority, in which case the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. 105 Table of Contents Results of Operations The following tables set forth a summary of the Group’s consolidated results of operations for the periods presented, in absolute amount and as a percentage of its total revenues. This information should be read together with the Group’s consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period. Revenues: Automobile trading income Loan facilitation income and other related income Guarantee income Leasing income After-market services income Others Total revenues Operating cost and expenses: Cost of revenue Sales and marketing General and administrative Research and development Net loss on contingent risk assurance liabilities Net loss on risk assurance liabilities Provision (net recovery on provision) for credit losses Impairment loss from goodwill Total operating cost and expenses Income (loss) from operations Interest income Net (loss) gain on equity securities Interest expense Foreign exchange gain, net Other income Other expenses Net income (loss) before income taxes Income tax expenses Net (loss) Net (loss) attributable to Cango Inc.’s ordinary shareholders * less than 0.1%. Year Ended December 31, 2021 RMB % RMB 2022 % (in thousands) 2023 RMB US$ % 2,227,172 1,233,556 — 251,295 193,787 15,907 3,921,716 2,958,010 239,333 276,179 70,279 — 197,750 203,415 — 3,944,966 (23,250) 26,373 (12,992) (14,481) 1,351 41,912 (6,606) 12,308 (20,853) (8,544) 56.8 31.5 — 6.4 4.9 0.4 100.0 75.4 6.1 7.0 1.8 — 5.1 1,596,307 146,429 — 155,522 71,457 10,739 1,980,453 1,830,090 132,779 299,545 45,959 — 299,863 80.6 7.4 — 7.9 3.6 0.5 100.0 1,309,634 19,962 212,121 57,431 65,388 37,383 1,701,919 184,458 2,812 29,877 8,089 9,210 5,265 239,710 77.0 1.2 12.5 3.4 3.8 2.1 100.0 92.4 6.7 15.1 2.3 — 15.1 1,511,863 38,922 156,966 30,114 25,632 — 212,941 5,482 22,108 4,241 3,610 — 88.8 2.3 9.2 1.8 1.5 — 5.2 — 100.6 (0.6) 0.7 (0.3) (0.4) * 1.1 (0.2) 0.3 (0.5) (0.2) 319,360 — 2,927,597 (947,143) 43,733 (9,811) (16,809) 5,918 52,067 (2,466) (874,511) (236,697) (1,111,208) 16.1 — 147.8 (47.8) 2.2 (0.5) (0.8) 0.3 2.6 (0.1) (44.2) (12.0) (56.1) (136,485) 148,658 1,775,670 (73,751) 79,165 24,093 (4,100) 1,099 30,702 (1,625) 55,583 (93,457) (37,873) (19,224) 20,938 250,098 (10,388) 11,150 3,393 (577) 155 4,324 (229) 7,829 (13,163) (5,334) (8.0) 8.7 104.3 (4.3) 4.6 1.4 (0.2) 0.1 1.8 (0.1) 3.3 (5.5) (2.2) (8,544) (0.2) (1,111,208) (56.1) (37,873) (5,334) (2.2) Comparison of Year Ended December 31, 2023 and Year Ended December 31, 2022 Revenues. The Group’s revenues decreased from RM1,980.5 million in 2022 to RMB1,701.9 million (US$239.7 million) in 2023, primarily due to (i) a decrease of automobile trading income as the Group has limited the size of its car sourcing services and (ii) the further scale-down of loan facilitation income as the Group made a business transition to focus on automobile trading solutions, partially offset by the recognition of guarantee income upon the adoption of ASC 326. Operating cost and expenses. The Group’s total operating cost and expenses decreased from RMB2,927.6 million in 2022 to RMB1,775.7 million (US$250.1 million) in 2023, primarily due to the positive impacts from the Group’s various cost saving strategies, the enhanced asset management activities which led to a net recovery of provision for credit losses and the adoption of ASC 326 which resulted in a decrease in net loss on risk assurance liabilities. Meanwhile, the decrease in cost of vehicles also contributed to the decrease in operating cost, which was in line with the decrease in automobile trading volume in 2023. 106 Table of Contents ● Cost of revenue. The Group’s cost of revenue decreased from RMB1,830.1 million in 2022 to RMB1,511.9 million (US$212.9 million) in 2023, primarily due to a decrease in cost of vehicles, which was in line with the decrease in automobile trading volume. The cost of revenue as a percentage of the Group’s total revenues decreased from 92.4% to 88.8% during the same period, primarily due to a lower share of revenue contribution from car trading transactions, which normally present a higher cost-revenue ratio. ● Sales and marketing. The Group’s sales and marketing expenses decreased from RMB132.8 million in 2022 to RMB38.9 million (US$5.5 million) in 2023, primarily due to the Group’s further scale-down of the sales team. The Group’s sales and marketing expenses as a percentage of the Group’s total revenues decreased from 6.7% in 2022 to 2.3% in 2023. ● General and administrative. The Group’s general and administrative expenses decreased from RMB299.5 million in 2022 to RMB157.0 million (US$22.1 million) in 2023, primarily because the Group continued to implement cost saving initiatives, including a decrease in the share-based compensation. The Group’s general and administrative expenses as a percentage of the Group’s total revenues decreased from 15.1% in 2022 to 9.2% in 2023. ● Research and development. The Group’s research and development expenses decreased from RMB46.0 million in 2022 to RMB30.1 million (US$4.2 million) in 2023, primarily due to budget adjustments. The Group’s research and development expenses as a percentage of the Group’s total revenues decreased from 2.3% in 2022 to 1.8% in 2023. ● Net loss on contingent risk assurance liabilities. The Group’s net loss on contingent risk assurance liabilities was nil and RMB25.6 million (US$3.6 million) in 2022 and 2023, respectively. The loss was recognized for the obligations of the contingent aspect of the risk assurance liabilities in accordance with ASC 326. ● Net loss on risk assurance liabilities. The Group’s net loss on risk assurance liabilities was RMB299.9 million and nil in 2022 and 2023, respectively. The change was mainly due to the adoption of ASC 326 which stipulated that the contingent aspect of the risk assurance liabilities be presented under net loss on contingent risk assurance liabilities while the non-contingent aspect of guarantees be presented in guarantee income. ● Provision (net recovery on provision) for credit losses. The Group’s net recovery on provision for credit losses was RMB136.5 million (US$19.2 million) in 2023 compared to a provision for credit losses of RMB 319.4 million in 2022. The recovery was primarily due to the positive impact from the collections of financing receivables. ● Impairment loss from goodwill. The Group provided impairment loss from goodwill of RMB148.7 million (US$20.9 million) in 2023 compared to nil in 2022. The provision of goodwill impairment was based on the profit forecast associated with historical trend and the prevailing current conditions of market downturn. Interest income. The Group’s interest income increased from RMB43.7 million in 2022 to RMB79.2 million (US$11.2 million) in 2023, primarily due to a higher interest rate of bank deposits in U.S. dollars. Net (loss) gain on equity securities. The Group recognized a loss of RMB9.8 million in 2022 and a gain of RMB24.1 million (US$3.4 million) in 2023, primarily due to a downward market price change of Li Auto before the disposal in 2022 and an increase in gain of wealth management products the Group invested in 2023. Interest expense. The Group’s interest expense decreased from RMB16.8 million in 2022 to RMB4.1 million (US$0.6 million) in 2023, primarily due to a decrease in outstanding borrowings. Foreign exchange gain, net. The Group recognized foreign exchange gain of RMB5.9 million and RMB1.1 million (US$0.2 million) in 2022 and 2023, respectively, primarily due to the fluctuation of the foreign exchange rate of U.S. dollars against RMB in both years. Other income. The Group’s other income decreased from RMB52.1 million in 2022 to RMB30.7 million (US$4.3 million) in 2023, primarily due to a decrease in the income from ADS depositary fee shared with the Group. 107 Table of Contents Income tax expenses. The Group’s income tax expenses decreased from RMB236.7 million in 2022 to RMB93.5 million (US$13.2 million) in 2023, primarily due to a decrease in write-off of deferred tax asset in 2023. Net loss. As a result of the foregoing, the Group recognized a net loss of RMB1,111.2 million in 2022 and of RMB37.9 million (US$5.3 million) in 2023. Comparison of Year Ended December 31, 2022 and Year Ended December 31, 2021 For a discussion of the Group’s results of operations for the year ended December 31, 2022 compared with the year ended December 31, 2021, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Year Ended December 31, 2022 Compared to Year Ended December 31, 2021” in 2022 annual report. B. Liquidity and Capital Resources The Group’s primary sources of liquidity have been issuance of equity securities, borrowings from trusts and banks and cash provided by operating activities, which have historically been sufficient to meet its working capital and substantially all of its capital expenditure requirements. In 2021, net cash used in operating activities was RMB404.4 million. In 2022, net cash used in operating activities was RMB567.4 million. In 2023, net cash provided by operating activities was RMB1,026.0 million (US$144.5 million). As of December 31, 2023, the Group had RMB3,923.4 million (US$552.6 million) in cash, cash equivalents, restricted cash – bank deposits held for short-term investments, restricted cash – others, including both current portion and non-current portion, and short-term investments and our consolidated VIEs had RMB2,585.7 million (US$364.2 million) of cash, cash equivalents, restricted cash – bank deposits held for short-term investments, restricted cash – others and short-term investments. As of December 31, 2023, the Group had cash and cash equivalents of RMB1,020.6 million (US$143.7 million), as compared to cash and cash equivalents of RMB378.9 million as of December 31, 2022. The Group’s cash and cash equivalents consist of cash, investments in interest bearing demand deposit accounts, time deposits, and highly liquid investments with original maturities within three months from the date of purchase and are stated at cost which approximates their fair value. The amounts of the cash and cash equivalent held by the consolidated VIEs were approximately RMB268.6 million and RMB293.4 million (US$41.3 million) as of December 31, 2022 and 2023, respectively. As of December 31, 2023, the Group had restricted cash – bank deposits held for short-term investments of RMB1,670.0 million (US$235.2 million). Such bank deposits were recognized as restricted cash – current as of December 31, 2023 for the purposes of renewing short-term investments and was converted to short-term investments subsequently. As of December 31, 2023, the Group had restricted cash – others of RMB597.7 million (US$84.2 million), including current portion of RMB14.3 million (US$2.0 million) and non-current portion of RMB583.4 million (US$82.2 million). The Group’s restricted cash – others consists of cash deposited with the respective financial institution customers as (i) collaboration and guarantee deposits in relation to facilitation transaction with financial institutions and (ii) collateral for notes payable for automobile trading business. For arrangements involving risk assurance liabilities, financial institutions make corresponding deductions from the Group’s deposit account when borrowers are delinquent in their installment repayments and/or when loans are required to be repurchased by the Group after a specified delinquency period. Such restricted cash is not available to fund the Group’s general liquidity needs. As of December 31, 2023, the Group had short-term investments of RMB635.1 million (US$89.4 million), primarily consisting of time deposits and structured deposits investments with original maturities of three months or more but less than one year and marketable securities with readily determinable fair value. As of December 31, 2023, the Group had short-term debts of RMB39.1 million (US$5.5 million) and long-term debts of RMB1.6 million (US$0.2 million), including current portion of long-term debts of RMB0.9 million (US$0.1 million) and non-current portion of long-term debts of RMB0.7 million (US$0.1 million). The Group’s credit agreements do not contain any material debt covenants. 108 Table of Contents We believe that the Group’s current cash, cash equivalents, restricted cash and short-term investments and anticipated cash flows from operating activities will be sufficient to meet its anticipated working capital requirements, capital expenditures and debt repayment in the ordinary course of business for at least the next 12 months. We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments, or if we find and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. The Group’s obligation to bear credit risk for certain financing transactions facilitated may also strain its operating cash flow. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Industry and Business —We may need additional capital to pursue business objectives and respond to business opportunities, challenges or unforeseen circumstances, and financing may not be available on terms acceptable to us, or at all.” The Group’s ability to manage its working capital, including receivables and other assets and accrued expenses and other liabilities, may materially affect the Group’s financial condition and results of operations. Although we consolidate the results of our consolidated VIEs and their subsidiaries, we only have access to cash balances or future earnings of our consolidated VIEs and their subsidiaries through our contractual arrangements with our consolidated VIEs. See “Item 4. Information on the Company—C. Organizational Structure.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “—Holding Company Structure.” The following table sets forth a summary of the Group’s cash flows for the periods presented: Summary Consolidated Cash Flow Data: Net cash (used in)/provided by operating activities Net cash provided by investing activities Net cash (used in) financing activities Cash, cash equivalents and restricted cash at beginning of the year Cash, cash equivalents and restricted cash at end of the year Operating Activities Year Ended December 31, 2021 RMB 2022 RMB 2023 RMB US$ (in thousands) (404,390) 2,661,223 (1,946,434) 2,314,892 2,610,281 (567,385) 1,959,529 (2,990,209) 2,610,281 1,282,483 1,026,026 2,124,698 (1,193,779) 1,282,483 3,288,326 144,513 299,257 (168,140) 180,634 463,151 Net cash provided by operating activities was RMB1,026.0 million (US$144.5 million) in 2023, primarily due to net loss of RMB37.9 million (US$5.3 million), adjusted for (i) impairment loss for goodwill of RMB148.7 million (US$20.9 million), (ii) deferred income tax expense of RMB89.5 million (US$12.6 million), (iii) share-based compensation expense of RMB38.5 million (US$5.4 million), (iv) loss on contingent risk assurance liabilities of RMB25.6 million (US$3.6 million) and (v) changes in working capital, partially offset by the adjustments for (i) guarantee income of RMB212.1 million (US$29.9 million) and (ii) net recovery of credit losses and other assets of RMB136.5 million (US$19.2 million). Adjustments for changes in working capital primarily consisted of (i) a decrease in other current and non-current assets of RMB1,164.5 million (US$164.0 million), primarily due to the decrease of advance payments to suppliers of automobile trading businesses upon the delivery of goods, (ii) a decrease in contract assets of RMB466.8 million (US$65.8 million), primarily due to the loan facilitation service fees collected in 2023, (iii) a decrease in financing receivables of RMB264.7million (US$37.3 million) due to the positive impact of the collection activities and (iv) a decrease in accounts receivables of RMB202.0 million (US$28.4 million). Such changes in working capital were partially offset by (i) a decrease of other current and non- current liabilities of RMB685.5 million (US$96.6 million), primarily due to the decrease of customer advances of automobile trading business upon the delivery of goods and (ii) a decrease in contingent risk assurance liabilities of RMB306.9 million (US$43.2 million), primarily due to the fulfillment of the Group’s risk assurance obligations. 109 Table of Contents Net cash used in operating activities was RMB567.4 million in 2022, primarily due to net loss of RMB1,111.2 million, adjusted for (i) deferred income tax expense of RMB371.3 million, (ii) provision for credit losses of RMB319.4 million, (iii) loss on risk assurance liabilities of RMB299.9 million, (iv) share-based compensation expense of RMB158.5 million, and (v) changes in working capital. Adjustments for changes in working capital primarily consisted of (i) a decrease in risk assurance liabilities of RMB596.6 million, primarily due to the fulfillment of the Group’s risk assurance obligations, (ii) an increase in financing receivables of RMB277.9 million, primarily due to an increase in amount of delinquent loan and debt securities the Group acquired in 2022 under contractual obligations, and (iii) an increase in other current and non-current assets of RMB370.3 million, primarily due to an increase in balances of advance payments and deposits to the suppliers of automobile trading businesses. Such changes in working capital were partially offset by (i) a decrease in contract assets of RMB651.6 million, primarily due to the loan facilitation service fees collected in 2022 for such services granted to customers in the years before. Net cash used in operating activities was RMB404.4 million in 2021, primarily due to net loss of RMB8.5 million, adjusted for (i) deferred income tax benefit of RMB582.9 million, (ii) provision for credit losses of RMB203.4 million, (iii) loss on risk assurance liabilities of RMB197.8 million, (iv) share-based compensation expense of RMB87.6 million, and (v) changes in working capital. Adjusted for changes in working capital primarily consisted of an increase in other current and non-current liabilities of RMB773.5 million, primarily due to an increase in balances of advance payments and deposits from customers of automobile trading businesses. Such changes in working capital were partially offset by (i) an increase in contract assets of RMB679.4 million, due to the loan facilitation services provided to customers in 2021 and the service fees due after December 31, 2021, (ii) an increase in financing receivables of RMB217.3 million primarily due to an increase in amount of delinquent loan and debt securities the Group acquired in 2021 under contractual obligations, and (iii) an increase in other current and non-current assets of RMB180.9 million, primarily due to an increase in balances of advance payments and deposits to the suppliers of automobile trading businesses. Investing Activities Net cash provided by investing activities was RMB2,124.7 million (US$299.3 million) in 2023, primarily due to (i) maturities of held-to-maturity investment of RMB5,541.6 million (US$780.5 million), (ii) repayments of finance lease receivables of RMB822.0 million (US$115.8 million) and (iii) proceeds from sale or redemption of other short-term investments, net of RMB567.2 million (US$79.9 million), which was partially offset by purchases of held-to-maturity investment of RMB4,805.0 million (US$676.8 million). Net cash provided by investing activities was RMB1,959.5 million in 2022, primarily due to (i) maturities of held-to-maturity investment of RMB4,353.8 million, (ii) repayments of finance lease receivables of RMB1,408.1 million, and (iii) proceeds from sale or redemption of other short-term investments, net of RMB212.6 million, which was partially offset by (i) purchase of held-to-maturity investment of RMB3,934.7 million, and (ii) origination of finance lease receivables of RMB75.8 million. Net cash provided by investing activities was RMB2,661.2 million in 2021, primarily due to (i) proceeds from sale or redemption of other short-term investments, net of RMB2,841.9 million, (ii) repayments of finance lease receivables of RMB2,112.0 million, and (iii) maturities of held-to-maturity investment of RMB1,158.1 million, which was partially offset by (i) purchase of held-to-maturity investment of RMB 2,342.2 million, and (ii) origination of finance lease receivables of RMB1,091.4 million. Financing Activities Net cash used in financing activities was RMB1,193.8 million (US$168.1million) in 2023, primarily due to repayment of borrowings of RMB1,177.7 million (US$165.9 million) and payment to repurchase treasury shares of RMB246.9 million (US$34.8 million), which was partially offset by proceeds from borrowings of RMB228.1 million (US$32.1 million). Net cash used in financing activities was RMB2,990.2 million in 2022, primarily due to distribution to shareholders of RMB1,871.1 million, repayment of borrowings of RMB1,705.2 million, and payment to repurchase treasury shares of RMB105.8 million, which was partially offset by proceeds from borrowings of RMB684.8 million. Net cash used in financing activities was RMB1,946.4 million in 2021, primarily due to repayment of borrowings of RMB2,101.6 million and distribution to shareholders of RMB955.4 million, which was partially offset by proceeds from borrowings of RMB1,546.7 million. 110 Table of Contents Capital Expenditures The Group made capital expenditures of RMB18.9 million, RMB4.6 million and RMB1.8 million (US$0.3 million) in 2021, 2022 and 2023, respectively. In these periods, such capital expenditures were mainly used for purchases of property and equipment and intangible assets. The Group will continue to make capital expenditures to meet the expected growth of its business. Material Cash Requirements The Group’s material cash requirements as of December 31, 2023 and any subsequent interim period primarily include its short-term loans, long-term debt obligations, capital commitment obligations, operating lease commitment obligations, as well as capital expenditures and repurchase of shares. See “—Capital Expenditures” and “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers” for further details. We intend to fund the Group’s existing and future material cash requirements with its existing cash and cash equivalents, restricted cash, short-term investments and other financing alternatives. The Group will continue to make cash commitments, including capital expenditures, to support its business initiatives. The following table set forth the Group’s indebtedness and contractual obligations as of December 31, 2023: Long-term debt obligations Operating lease commitment obligations Total Off-Balance Sheet Arrangements Total RMB US$ 806 60,040 60,846 114 8,456 8,570 Payment due by period Less than 1 Year 1 – 3 Years 3 – 5 Years RMB More than 5 Years (in thousands) 47 8,814 8,861 759 18,052 18,811 — 19,631 19,631 — 13,543 13,543 The Group has entered into several arrangements with financial institutions that provide funding directly to car buyers for financing transactions facilitated. Under the arrangements with certain financial institutions, the Group is obligated to purchase the relevant financing receivables upon certain specified events of default by car buyers. As of December 31, 2023, deferred guarantee income and contingent risk assurance liabilities related to such arrangement were RMB211.4 million (US$29.8 million). As of December 31, 2023, the maximum potential undiscounted future payment the Group would be required to make was RMB4,855.9 million (US$683.9 million). Other than the above, the Group has not entered into any other commitments to guarantee the payment obligations of any third parties. The Group has not entered into any derivative contracts that are indexed to its shares and classified as shareholder’s equity or that are not reflected in its consolidated financial statements. Furthermore, the Group does not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. The Group does not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to the Group or engages in leasing, hedging or product development services with the Group. 111 Table of Contents Holding Company Structure Cango Inc. is a holding company with no material operations of its own. The Group conducts its operations primarily through its subsidiary, consolidated VIEs and their subsidiaries in China. As a result, Cango Inc.’s ability to pay dividends depends upon dividends paid by its PRC subsidiary. If the existing PRC subsidiary or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, the PRC subsidiary is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of the Group’s subsidiary, consolidated VIEs and their subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, each of the Group’s subsidiary, consolidated VIEs and their subsidiaries in China may allocate a portion of its after-tax profits to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. The Group’s PRC subsidiary has not paid dividends and will not be able to pay dividends until it generates accumulated profits and meet the requirements for statutory reserve funds. Recent Accounting Pronouncements Please see Note 2 to the Group’s consolidated financial statements included elsewhere in this annual report. C. Research and Development The Group has focused on and will continue to invest in its technology system, which supports all key aspects of Cango platform and is designed to optimize for scalability and flexibility. The Group’s research and development expenses were RMB70.3 million, RMB46.0 million and RMB30.1 million (US$4.2 million) in 2021, 2022 and 2023, respectively. D. Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2023 that are reasonably likely to have a material effect on the Group’s total net revenues, income, profitability, liquidity or capital reserves, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions. E. Critical Accounting Policies and Estimates Revenue Recognition The Group’s revenues are derived principally from 1) automobile trading income, 2) loan facilitation services and post-origination administrative services, or “PAS”, 3) finance lease services, 4) after-market services facilitation services, 5) guarantee income and 6) other income, which mainly includes vehicle management fees and storage service fees related to automobile trading transaction. Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount that reflects the consideration that the Group expects to be entitled to in exchange for those goods or services, net of value-added tax (“VAT”). The Group determines revenue recognition through the following steps: ● Identify the contract(s) with a customer; ● Identify the performance obligations in the contract; ● Determine the transaction price; ● Allocate the transaction price to the performance obligations in the contract; and 112 Table of Contents ● Recognize revenue when (or as) the entity satisfies a performance obligation. Automobile trading transaction When providing car trading services, the Group evaluates if it is a principal or an agent in a transaction to determine whether revenues should be recorded on a gross or net basis. The Group acts as a principal in which the Group purchases vehicles from suppliers which are vehicle manufacturers or their first-tier car dealerships and sells the vehicles to customers which are other car dealerships and records revenue on a gross basis if it obtains control over the specified goods and services before they are transferred to the customers. When the Group acts as an agent, revenue is recorded on a net basis when the Group does not obtain control over the specified goods and services before they are transferred to the customers. The revenue generated from sale of vehicles is recognized at a point in time when the control of the vehicles is transferred from the Group to the customers when the vehicles are delivered and their titles are passed on to the customers. Loan facilitation services and PAS The Group entered into non-risk assured and risk assured facilitation arrangements with various financial institutions. Borrowers that pass the Group’s credit assessment are recommended to the financial institutions. Once the borrower is independently approved by the financial institutions, the financial institutions will directly fund the borrower’s automobile purchase and the Group will earn a loan facilitation fee from the financial institution and borrowers. The Group will provide PAS, such as tracking through telematics devices in the automobiles; and sending short-message-service (“SMS”) payment reminder to borrowers, throughout the terms of the loans. In addition, for certain arrangements, the Group provides risk assurance on the principal and accrued interest repayments of the defaulted loans to various financial institutions. The Group determined that it is not the legal lender or legal borrower in the loan origination and repayment process, respectively. Therefore, the Group does not record loan receivables and payable arising from the loans between borrowers and financial institutions on its consolidated balance sheet. The Group determines its customers to be both the financial institutions and borrowers. The Group considers the loan facilitation service, PAS and risk assurance services as separate services, of which the risk assurance service is accounted for in accordance ASC 460, Guarantees (“ASC 460”). The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring the promised services to the customer, net of value-added tax. The transaction price includes variable service fees which are contingent on the borrower making timely repayments. Variable consideration is estimated using the expected value method based on historical default rate, current and forecasted borrower repayment trends and is limited to the amount of variable consideration that is probable not to be reversed in future periods. As a result, the estimation of variable consideration involves significant judgement. The Group makes the assessment of whether the estimate of variable consideration is constrained. Any subsequent changes in the transaction price will be allocated to the performance obligations on the same basis as at contract inception. The Group first allocates the transaction price to the risk assurance liabilities at fair value in accordance with ASC 460. The remaining transaction price is then allocated to the loan facilitation services and PAS on a relative standalone selling price basis. The Group does not have observable price for the loan facilitation services and PAS because the services are not provided separately. As a result, the estimation of standalone selling price involves significant judgement. The Group estimates the standalone selling price of the loan facilitation and PAS using the expected cost plus a margin approach. The fee allocated to loan facilitation is recognized as revenue upon each successful loan facilitation, while the fee allocated to PAS are deferred and amortized over the period of the loan on a straight-line method as the PAS services are performed. PAS revenue recognized in the years ended December 31, 2021, 2022 and 2023 is RMB41.6 million, RMB23.4 million and RMB14.1 million (US$2.0 million), respectively. The loan facilitation services and PAS are recorded as Loan facilitation income and other related income in the consolidated statements of comprehensive (loss) income. Finance lease services The Group provides automobile finance lease services to individual borrowers. Financing lease income is recognized using the effective interest method. Initial direct cost received and direct origination costs are generally deferred and amortized over the term of the related finance lease receivables using the effective interest method and are removed from the consolidated balance sheets when the related finance lease receivables are sold, charged off or paid in full. 113 Table of Contents After-market services income The Group provides after-market services to car buyers which mainly include two types of separate contracts, 1) insurance facilitation service and 2) car recovery and disposal services. For 1) after-market insurance facilitation service, it mainly includes two types of contracts, one is facilitating personal accident insurance and automobile insurance, and the other is offering anti-theft package services. After-market insurance facilitation service income for personal accident insurance and automobile insurance is recognized at the point of time when facilitation services are completed. For anti-theft package services, the Group first allocates the fair value of indemnification service under ASC 460 and then allocates the remaining consideration to the after-market service of anti-theft telematic devises installment. For 2) after-market car recovery and disposal services income, it mainly refers to delinquent asset management income for car recovery and disposal services, which is recognized at the point of time when the Group delivers the relevant service. Income Taxes The Group recognizes income taxes under the liability method. Deferred income taxes are recognized for differences between the financial reporting and tax bases of assets and liabilities at enacted tax rates in effect for the years in which the differences are expected to reverse. The Group records a valuation allowance against the amount of deferred tax assets that it determines is not more-likely-than- not to be realized. The effect on deferred taxes of a change in tax rates is recognized in earnings in the period that includes the enactment date. The Group applies the provisions of ASC 740, Income Taxes (“ASC 740”), in accounting for uncertainty in income taxes. ASC 740 clarified the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. The Group has elected to classify interest and penalties related to an uncertain tax position (if and when required) as part of income tax expense in the consolidated statements of comprehensive income (loss). As of and for the years ended December 31, 2021, 2022 and 2023, the amounts of unrecognized tax benefits as well as interest and penalties associated with uncertainty in income taxes were insignificant. Goodwill Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of an acquired business. The Group’s goodwill on December 31, 2022 was primarily related to the acquisition of Shanghai Chejia in 2018. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), recorded goodwill amounts are not amortized, but rather are tested for impairment annually or more frequently if there are indicators of impairment present. The Group applied Accounting Standards Update (“ASU”) No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the accounting for goodwill impairment by eliminating Step two from the goodwill impairment test. Under the guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. Fair value is primarily determined by computing the future discounted cash flows expected to be generated by the reporting unit. Pursuant to ASC 350, the Group may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit of Cango Inc. is greater than its carrying value. If a qualitative assessment is not performed, or if as a result of a qualitative assessment it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, then the reporting unit’s fair value is compared to its carrying value. The Company tests for impairment annually, and between annual tests if the Company becomes aware of an event or a change in circumstances that would indicate the carrying value may be impaired. As of December 31, 2022, the Group completed its annual impairment test for goodwill under a quantitative impairment test of goodwill in which the Group performs an assessment that consists of a comparison of the carrying value of a reporting unit with its fair value. The fair values of the reporting unit are determined using income valuation approaches through the application of discounted cash flow method. Estimating fair values of the reporting unit involves significant assumptions, including future revenue growth rates, gross margin, terminal growth rates and discount rates. No impairment losses on goodwill and intangible assets were recognized during the years ended December 31, 2022. The Group’s management performs goodwill impairment tests during the year ended December 31, 2023 and recorded an impairment loss on goodwill of RMB148.7 million (US$20.9 million) during the third quarter in 2023 as the financial performance of the automobile trading and loan facilitation businesses continued to fall below original expectations, which was classified as “Impairment loss from goodwill” in the consolidated statement of comprehensive (loss) income. 114 Table of Contents For further information on the Group’s critical accounting policies, see Note 2 to its consolidated financial statements. The Group believes the following accounting policies involve the most significant judgments and estimates used in the preparation of its financial statements. Risk Assurance Liabilities The Group provides risk assurance to various financial institution customers. The risk assurance liability requires the Group to either make delinquent installment repayments or purchase the loans after a specified period on an individual loan basis. The risk assurance liability is exempted from being accounted for as a derivative in accordance with ASC 815-10-15-58. The risk assurance liability consists of two components, the Group’s obligation to stand ready to make delinquent payments over the term of the arrangement (non-contingent risk assurance liabilities) and the contingent obligation relating to the contingent loss arising from the arrangement (contingent risk assurance liabilities). Non-contingent risk assurance liabilities Non-contingent risk assurance liability is accounted for in accordance with ASC 460. At inception, the Group recognizes non- contingent risk assurance liability at fair value, which is primarily based on assumptions regarding probability of default, loss given default and margin rate, while considering the premium required by a third-party market participant to issue the same risk assurance in a standalone transaction. Subsequently, non-contingent risk assurance liability is reduced over the term of the arrangement as the Group is released from its stand ready obligation on a loan-by-loan basis based on the borrower’s repayment of the loan principal. Prior to the adoption of ASC 326 on January 1, 2023, the release of non-contingent risk assurance liability was recognized in earnings as a reduction of net loss on risk assurance liabilities. Subsequent to January 1, 2023, non-contingent risk assurance liability is subsequently recognized as guarantee income. Contingent risk assurance liabilities Prior to January 1, 2023, the contingent risk assurance liability was accounted for in accordance with ASC 450, Contingencies (“ASC 450”). The contingent loss arising from the obligation to make future payments was recognized under incurred loss methodology, when borrower default was probable, and the amount of loss was estimable. The Group measured contingent loss based on the future payout of the arrangement estimated using the historical default rates of a portfolio of similar loans less the historical recoverable amount. Subsequent to January 1, 2023, the contingent risk assurance liabilities accounted for under ASC 450 are in the scope of ASC 326 and subject to the CECL lifetime methodology, the contingent risk assurance liabilities shall be accounted for in addition to and separately from the non-contingent risk assurance liabilities accounted for under ASC 460. The contingent risk assurance liabilities are determined using CECL lifetime methodology, compared to incurred loss methodology before the adoption, and recognized in full amount at loan inception. The subsequent changes in the contingent risk assurance liability calculated under the Group’s CECL life methodology is adjusted through earnings as changes in net loss on contingent risk assurance liabilities. Allowance for Financing Receivables and Allowance for Finance Lease Receivables Before the adoption of ASC 326 on January 1, 2023 The allowance for financing receivables and allowance for finance lease receivables were calculated by multiplying the PD and LGD model based on pools of finance lease receivables or financing receivables with similar risk characteristics, including product types, i.e. new cars and used cars to arrive at an estimate of incurred losses in the portfolio. Under the incurred loss methodology, credit losses were recognized only when the losses were probable of having been incurred. The Group adjusted the allowance for finance lease receivables that was determined by the PD and LGD model for various macroeconomic factors i.e. gross-domestic product rates, per capita disposable income, interest rates and consumer price indexes and other considerations. 115 Table of Contents After the adoption of ASC 326 on January 1, 2023 The Group replaces the existing incurred loss methodology, with a forward-looking expected loss approach referred to as a CECL methodology. The CECL methodology requires that the full amount of expected credit losses for the lifetime be recorded at the time the financial asset is originated or acquired, and adjusted for changes in expected lifetime credit losses subsequently, which requires earlier recognition of credit losses. The Group’s CECL model subsequent to the adoption of ASC 326 Subsequent to the adoption of ASC 326 on January 1, 2023, the Group established its current expected credit losses model, or CECL model, calculated by multiplying the PD and LGD model based on pools of loans with similar risk characteristics. The Group selects expected forward-looking factors, which have a strong correlation, economic, and commercial significance using a regression model, and incorporates these forward-looking factors into the CECL model. These forward-looking factors mainly include producer price index, urban unemployment rate, holiday effect and scale of social financing. The expected life of each loan is determined based on the contractual term. The CECL model is applicable to estimation of credit losses of financial assets measured at amortized cost, primarily including financing receivables and finance lease receivables. The CECL model also applies to certain off-balance sheet credit exposures, such as contingent risk assurance liabilities not accounted for as derivatives. As a result, the Group recognized the cumulative effect as a decrease of approximately RMB307 million (US$43 million) after adjusting for deferred taxes to the opening balances of retained earnings on January 1, 2023. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management Directors and Executive Officers The following table sets forth information regarding our directors and executive officers as of December 31, 2023. Name Xiaojun Zhang Jiayuan Lin Yongyi Zhang Zhipeng Song Chi Ming Lee Dongsheng Zhou Rong Liu Age 52 55 51 39 71 56 75 Position/Title Co-founder and chairman Co-founder, director and chief executive officer Chief financial officer and director Director Independent director Independent director Independent director Xiaojun Zhang is our co-founder and has served as our chairman since 2014. Mr. Zhang has also served as a chairman and general manager of Shanghai Chejia since 2016. Prior to co-founding our company, Mr. Zhang served as a director and general manager of SAIC-GMAC Automotive Finance Co., Ltd. from 2004 to 2013. From 1999 to 2004, Mr. Zhang served as a deputy general manager of Shanghai Automobile Group Finance Company. From 1992 and 1998, Mr. Zhang served as a financial supervisor of People’s Bank of China, Shanghai Branch. Mr. Zhang received a bachelor’s degree in finance from Shanghai University of Finance and Economics in 1992, a master’s degree in business administration from Peking University in 2003 and completed China Senior Executive Program at Harvard Business School in 2018, thereby attaining alumni status. Jiayuan Lin is our co-founder and has served as our director and chief executive officer since 2010. Prior to co-founding our company, Mr. Lin served as an assistant general manager of Shanghai Automobile Group Finance Company from 2007 to 2010. From 2003 to 2007, Mr. Lin served as a director of the sales department of SAIC-GMAC Automotive Finance Co., Ltd. From 1997 to 2003, Mr. Lin worked in SAIC General Motors Corporation Limited as a manager of tax and insurance in the finance department and a manager of finance support in the marketing department. From 1991 to 1997, Mr. Lin worked in the Pudong branch of Bank of China as a staff member in the finance department, deputy manager of the audit division and deputy manager of the credit division. Mr. Lin received a bachelor’s degree in economics, with specialization in investment management, from Shanghai University of Finance and Economics in 1991. 116 Table of Contents Yongyi Zhang has served as our chief financial officer since 2018 and director since 2018. Prior to joining our company, Mr. Zhang served as an executive director of Zhongde Securities Co., Ltd. from 2010 to 2018. From 2001 to 2010, Mr. Zhang served as a senior manager of China Galaxy Securities Co., Ltd. From 1997 to 2001, Mr. Zhang served as a deputy manager of Shanghai Stock Exchange. From 1995 to 1997, Mr. Zhang served as an auditor of Arthur Anderson (Shanghai Office). Mr. Zhang received a bachelor’s degree in international accounting from Shanghai University of Finance and Economics in 1995. Zhipeng Song has served as a director of our company since 2018. Mr. Song has also served as a vice president of Shanghai Chejia since 2016. From 2014 to 2015, Mr. Song served as an assistant general manager of our company. From 2012 to 2014, he served a regional manager of Anji Leasing Co., Ltd. From 2010 to 2012, he served as an account manager of SAIC-GMAC Automotive Finance Co., Ltd. Mr. Song received a bachelor’s degree in finance from Shanghai University in 2007 and a master’s degree in finance and management from Loughborough University in 2008 and a master’s degree in finance from University of St. Andrews in 2009. Chi Ming Lee has served as our independent director since July 25, 2018. Mr. Lee has also served as an independent non- executive director of DIT Group Limited (formerly known as China Minsheng DIT Group Limited) since 2014 and Wanlian Securities Ltd. since 2019. Mr. Lee has been the director and managing partner of Alex KY Wong Asset Management Co. Ltd. (formerly known as Benington Capital Partners Ltd) since 2020. Mr. Lee served as an independent non-executive director of China Baoli Technologies Holding Ltd. from 2015 to 2017, Huatai Securities Co., Ltd. from 2015 to 2021, and as the director and managing partner of Nanguo International Asset Management Ltd. (formerly known as Benington Capital Limited) from 2014 to 2020. Prior to 2014, Mr. Lee served as the senior manager/director of licensing department, director of corporate planning, and director of finance and administration of the Securities and Futures Commission of Hong Kong. From 1976 to 1989, Mr. Lee served as the assistant assessor and then the assessor at Inland Revenue Department of the Government of Hong Kong. Mr. Lee obtained his higher diploma in accountancy from the Hong Kong Polytechnic (now known as the Hong Kong Polytechnic University) in 1976, a bachelor’s degree in law from the University of London in 1988, and a master’s degree in business administration from the University of Hong Kong in 1993. Mr. Lee is a fellow member of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants. Dongsheng Zhou has served as our director since July 25, 2018. Dr. Zhou is a professor of marketing and chair of the marketing department at China Europe International Business School, where he has worked since 2002. Since 2006, Dr. Zhou has served as the academic co-chair of SEPC, a joint executive training program with Harvard Business School and the School of Economics and Management at Tsinghua University. From 2007 to 2012, Dr. Zhou served as the associate dean in charge of the alumni relationships of China Europe International Business School. From 1997 to 2002, Dr. Zhou served as an assistant professor in the department of marketing and on the business faculty at the City University of Hong Kong. Dr. Zhou received a bachelor’s degree in science from the University of Science and Technology of China in 1990 and a doctor of philosophy degree from the faculty of commerce and business administration at the University of British Columbia in 1997. Rong Liu has served as our director since July 2019. Mr. Liu has decades of experience in the automotive industry. He served as a deputy chief accountant and executive director of the finance department of SAIC Group Co., Ltd. from December 2004 to May 2013. From March 2004 to December 2004, he served as a deputy chief accountant and manager of the finance department of Shanghai Automotive Industry Corporation (Group) Corp. From April 1990 to March 2004, he served as a manager assistant and deputy manager of Shanghai Automotive Industry Corporation (Group) Corp. He currently serves as an independent director at Kehua Holdings Co., Ltd., Kuangda Technology Group Co., Ltd., Shanghai Jialeng Songzhi Automobile Air Conditioning Co., Ltd. and Shanghai Jingzhi Industrial Co., Ltd. He also serves as a supervisor at Yangzhou Dongsheng Auto Parts Co., Ltd. In 1999, Mr. Liu completed a graduate program in international economy at China Eastern Normal University. The business address for all of our executive officers and directors is 8F, New Bund Oriental Plaza II, 556 West Haiyang Road, Pudong New Area, Shanghai 200124, People’s Republic of China. 117 Table of Contents B. Compensation Compensation In 2023, we and our subsidiaries and consolidated VIEs paid aggregate cash compensation of approximately RMB20.4 million (US$2.9 million) to our directors and executive officers as a group. We did not pay any other cash compensation or benefits in kind to our directors and executive officers. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers. Our PRC subsidiary and consolidated VIEs are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and housing funds. Our board of directors may determine compensation to be paid to the directors and the executive officers. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors and the executive officers. For information regarding share awards granted to our directors and executive officers, see “—Share Incentive Plan.” Employment Agreements and Indemnification Agreements We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, without advance notice, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, willful misconduct or gross negligence to our detriment, or serious breach of duty of loyalty to us. We may also terminate an executive officer’s employment without cause upon three-month advance written notice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of the jurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month advance written notice. Each executive officer has agreed to hold, both during and within two years after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our business partners, or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets. In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach financial institutions, dealers or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officer’s termination, or in the year preceding such termination, without our express consent. We have entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we may agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company. Share Incentive Plan On May 25, 2018, we adopted the Share Incentive Plan 2018, or the share incentive plan, which allows us to grant options, restricted shares, restricted share units and other share-based awards to our employees, directors and consultants. The maximum number of ordinary shares that may be subject to equity awards pursuant to the share incentive plan is 27,845,526 initially. Additional ordinary shares may be reserved for issuance of equity awards as determined by our board of directors. 118 Table of Contents Administration The share incentive plan is jointly administered by Mr. Xiaojun Zhang, our co-founder and chairman, and Mr. Jiayuan Lin, our co- founder, director and chief executive officer. The administrators will determine the provisions and terms and conditions of each equity award. Change in Control In the event of a change in control, the administrators may provide for termination of all equity awards outstanding at a specific time in the future, purchase of equity awards from holders, replacement of equity awards, payment of awards in cash or combination of the foregoing. Term Unless terminated earlier, the share incentive plan will continue in effect for a term of ten years from the date of its adoption. Award Agreements Generally, equity awards granted under the share incentive plan are evidenced by an award agreement providing for the number of ordinary shares subject to the award, and the terms and conditions of the award, which must be consistent with the share incentive plan. Vesting Schedule The vesting schedule of each equity award granted under the share incentive plan will be set forth in the award agreement for such equity award. Amendment and Termination The board of directors may at any time amend or terminate the share incentive plan, subject to certain exceptions. Granted Options As of March 31, 2024, options to purchase 23,999,068 Class A ordinary shares were outstanding under the share incentive plan. Certain options previously granted were subsequently forfeited pursuant to the terms of the share incentive plan. 119 Table of Contents The table below summarizes outstanding options held by our directors and executive officers as of March 31, 2024 under the share incentive plan. Name Xiaojun Zhang Position Chairman Jiayuan Lin Chief executive officer and director Yongyi Zhang Chief financial officer and director Zhipeng Song Director Ordinary Shares Underlying Option Exercise Option Awards Price (US$)** 1,667,000 1,670,732 1,895,130 2,506,098 28,000 1,688,000 1,670,732 1,992,630 2,506,098 * * * * * * * * 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 0.2951 Option Grant Date May 25, 2018 Expiration Date May 24, 2028 February 15, 2019 February 14, 2029 October 15, 2020 October 14, 2030 May 1, 2021 August 1, 2022 May 25, 2018 April 30, 2031 July 31, 2032 May 24, 2028 February 15, 2019 February 14, 2029 October 15, 2020 October 14, 2030 May 1, 2021 May 25, 2018 April 30, 2031 May 24, 2028 February 15, 2019 February 14, 2029 October 15, 2020 October 14, 2030 May 1, 2021 May 25, 2018 April 30, 2031 May 24, 2028 February 15, 2019 February 14, 2029 October 15, 2020 October 14, 2030 May 1, 2021 April 30, 2031 * The shares underlying the outstanding options held by each of these directors and executive officers represent less than 1% of our total outstanding shares. ** The option exercise price has been adjusted to US$0.2951 due to the payments of cash dividends to our shareholders. Special Option Grants In June 2022, we granted (i) options to purchase 6,000,000 Class A ordinary shares to Mr. Xiaojun Zhang, our co-founder and chairman, and (ii) options to purchase 6,000,000 Class A ordinary shares to Mr. Jiayuan Lin, our co-founder, director and chief executive officer. These share options were granted in consideration of Mr. Zhang and Mr. Lin’s roles in guiding our Group’s profitable investment in Li Auto. The share options vested immediately upon grant and have an exercise price of US$0.2951 per Class A ordinary share as of the date hereof. The share options were not granted under (and have no impact on the share reserve under), but is governed by, the terms and conditions of the share incentive plan, except otherwise provided under the applicable share option grant agreements. C. Board Practices Our board of directors consisted of seven directors as of December 31, 2023. A director is not required to hold any shares in our company to qualify to serve as a director. A director may vote with respect to any contract or any proposed contract or arrangement in which he is interested, and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement is considered, provided (i) such director has declared the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first considered if he knows his interest then exists, or in any other case at the first meeting of the board after he knows he is or has become so interested, either specifically or by way of a general notice and (ii) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the audit committee. The directors may exercise all the powers of the company to borrow money, to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party. None of our non-executive directors has a service contract with us that provides for benefits upon termination of service. 120 Table of Contents Duties of Directors Under Cayman Islands law, our directors have a fiduciary duty to our company, including a duty of loyalty, a duty to act honestly, and a duty to act in good faith in what they consider to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also have a duty to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our third amended and restated memorandum and articles of association. Our company has the right to seek damages against any director who breaches a duty owed to us. The functions and powers of our board of directors include, among others: ● conducting and managing the business of our company; ● representing our company in contracts and deals; ● appointing attorneys for our company; ● select senior management such as managing directors and executive directors; ● providing employee benefits and pension; ● managing our company’s finance and bank accounts; ● exercising the borrowing powers of our company and mortgaging the property of our company; and ● exercising any other powers conferred by the shareholders meetings or under our third amended and restated memorandum and articles of association. Terms of Directors and Executive Officers Our directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders, pursuant to our third amended and restated memorandum and articles of association, which became effective immediately prior to the completion of our initial public offering. Each of our directors will hold office until his or her successor takes office or until his or her earlier death, resignation or removal or the expiration of his or her term as provided in the written agreement with our company, if any. A director will cease to be a director if, among other things, the director (i) dies, or becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors; (ii) is found to be or becomes of unsound mind; (iii) resigns his office by notice in writing to the company; or (iv) without special leave of absence from our board, is absent from six consecutive board meetings and our directors resolve that his office be vacated. Our officers are elected by and serve at the discretion of the board of directors. Committees of the Board of Directors Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the committees. Each committee’s members and functions are described below. Audit Committee Our audit committee consists of Chi Ming Lee, Dongsheng Zhou and Rong Liu. Chi Ming Lee is the chairperson of our audit committee. Chi Ming Lee satisfies the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC. Each of Chi Ming Lee, Dongsheng Zhou and Rong Liu satisfies the requirements for an “independent director” within the meaning of Section 303A of the NYSE Listed Company Manual and meets the criteria for independence set forth in Rule 10A-3 of the United States Securities Exchange Act of 1934, as amended, or the Exchange Act. Our audit committee consists solely of independent directors. 121 Table of Contents The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. Our audit committee is responsible for, among other things: ● selecting the independent auditor; ● pre-approving auditing and non-auditing services permitted to be performed by the independent auditor; ● annually reviewing the independent auditor’s report describing the auditing firm’s internal quality control procedures, any material issues raised by the most recent internal quality control review, or peer review, of the independent auditors and all relationships between the independent auditor and our company; ● setting clear hiring policies for employees and former employees of the independent auditors; ● reviewing with the independent auditor any audit problems or difficulties and management’s response; ● reviewing and, if material, approving all related party transactions on an ongoing basis; ● reviewing and discussing the annual audited financial statements with management and the independent auditor; ● reviewing and discussing with management and the independent auditors major issues regarding accounting principles and financial statement presentations; ● reviewing reports prepared by management or the independent auditors relating to significant financial reporting issues and judgments; ● discussing earnings press releases with management, as well as financial information and earnings guidance provided to analysts and rating agencies; ● reviewing with management and the independent auditors the effect of regulatory and accounting initiatives, as well as off- balance sheet structures, on the Group’s financial statements; ● discussing policies with respect to risk assessment and risk management with management, internal auditors and the independent auditor; ● timely reviewing reports from the independent auditor regarding all critical accounting policies and practices to be used by our company, all alternative treatments of financial information within U.S. GAAP that have been discussed with management and all other material written communications between the independent auditor and management; ● establishing procedures for the receipt, retention and treatment of complaints received from our employees regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; ● annually reviewing and reassessing the adequacy of our audit committee charter; ● such other matters that are specifically delegated to our audit committee by our board of directors from time to time; ● meeting separately, periodically, with management, internal auditors and the independent auditor; and ● reporting regularly to the full board of directors. 122 Table of Contents Compensation Committee Our compensation committee consists of Xiaojun Zhang, Jiayuan Lin and Dongsheng Zhou. Xiaojun Zhang is the chairperson of our compensation committee. Dongsheng Zhou satisfies the requirements for an “independent director” within the meaning of Section 303A of the NYSE Listed Company Manual. Our compensation committee is responsible for, among other things: ● reviewing, evaluating and, if necessary, revising our overall compensation policies; ● reviewing and evaluating the performance of our directors and senior officers and determining the compensation of our senior officers; ● reviewing and approving our senior officers’ employment agreements with us; ● setting performance targets for our senior officers with respect to our incentive compensation plan and equity-based compensation plans; ● administering our equity-based compensation plans in accordance with the terms thereof; and ● such other matters that are specifically delegated to the remuneration committee by our board of directors from time to time. Nominating and Corporate Governance Committee Our nominating and corporate governance committee consists of Jiayuan Lin, Xiaojun Zhang and Dongsheng Zhou. Jiayuan Lin is the chairperson of our nominating and corporate governance committee. Dongsheng Zhou satisfies the requirements for an “independent director” within the meaning of Section 303A of the NYSE Listed Company Manual. The nominating and corporate governance committee will assist the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things: ● selecting and recommending to the board nominees for election by the shareholders or appointment by the board; ● reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity; ● making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and ● advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken. 123 Table of Contents D. Employees As of December 31, 2021, 2022 and 2023, the Group had a total of 2,351, 827 and 632 employees, respectively. The decrease in the Group’s employees in 2023 was primarily due to the organizational restructuring for business transitions. The following table sets forth the breakdown of the Group’s employees as of December 31, 2023 by function: Function Sales and marketing Operations Risk management General administration Research and development Total Number of Employees % of Total 11.6 27.2 34.7 14.2 12.3 100.0 73 172 219 90 78 632 As of December 31, 2023, 290 of the Group’s employees were based in Shanghai. The rest of the employees were based in other cities across China. We believe the Group offers its employees competitive compensation packages and a dynamic work environment that encourages initiative and is based on merit. As a result, the Group has generally been able to attract and retain qualified personnel and maintain a stable core management team. The Group plans to hire additional experienced and talented employees in areas such as big data analytics, marketing and operations, risk management and sales as the Group expands its business. As required by PRC regulations, the Group participates in various government statutory employee benefit plans, including social insurance, namely pension insurance, medical insurance, unemployment insurance, work-related injury insurance and maternity insurance, and housing funds. The Group is required under PRC law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of the employees, up to a maximum amount specified by the local government regulations from time to time. In addition, the Group purchased additional commercial health insurance to increase insurance coverage of employees. The Group enters into standard labor, confidentiality and non-compete agreements with its employees. The non- compete restricted period typically expires two years after the termination of employment, and the Group agrees to compensate the employee with a certain percentage of his or her pre-departure salary during the restricted period. We believe that the Group maintains a good working relationship with its employees, and the Group has not experienced any major labor disputes. E. Share Ownership The following table sets forth information as of the date of this annual report with respect to the beneficial ownership of our ordinary shares by: ● each of our directors and executive officers; and ● each person known to us to own beneficially 5.0% or more of our ordinary shares. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to, or the power to receive the economic benefit of ownership of, the securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option or other right or the conversion of any other security. 124 Table of Contents As of March 31, 2024, the total number of ordinary shares outstanding is 208,729,976, comprising 135,751,299 Class A ordinary shares and 72,978,677 Class B ordinary shares. Ordinary Shares Beneficially Owned Class A Class B Percentage of total outstanding Percentage of aggregate ordinary shares ordinary shares ordinary shares voting power** Directors and Executive Officers:* Xiaojun Zhang(1) Jiayuan Lin(2) Yongyi Zhang Zhipeng Song Chi Ming Lee Dongsheng Zhou Rong Liu Directors and Executive Officers as a Group Principal Shareholders: Lin Entities(3) Eagle Central Holding Limited(4) Tencent Mobility Limited(5) Didi Chuxing(6) Taikang Offshore Entities(7) 12,012,128 14,827,861 *** *** — — — 28,015,505 38,275,787 34,702,890 — — — — — 72,978,677 2,741,607 — 25,223,898 28,376,116 16,217,006 34,702,890 38,275,787 — — — 22.8 22.4 *** *** — — — 43.2 17.9 18.3 12.1 13.6 7.8 48.4 44.1 *** *** — — — 91.8 43.7 48.0 1.6 1.8 1.0 * The business address for our directors and executive officers is 8F, New Bund Oriental Plaza II, 556 West Haiyang Road, Pudong New Area, Shanghai 200124, People’s Republic of China. ** For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary shares as a single class. In respect of all matters subject to a shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to 20 votes, voting together as one class. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. *** Less than 1% of our total outstanding shares. (1) Represents (i) 38,275,787 Class B ordinary shares that are held by Eagle Central Holding Limited, or Eagle Central, and (ii) 12,012,128 Class A ordinary shares that Mr. Xiaojun Zhang has the right to acquire upon exercise of the options within 60 days. Eagle Central is a limited liability company established in the British Virgin Islands that is controlled by Mr. Xiaojun Zhang. Eagle Central is further described in footnote 4 below. (2) Represents (i) 1 Class A ordinary share that is held by Medway Brilliant Holding Limited, or Medway Brilliant, (ii) 34,702,890 Class B ordinary shares that are held by Traveler Enterprise Limited, or Traveler Enterprise, (iii) 2,741,606 Class A ordinary shares represented by ADSs that are beneficially owned by Traveler Enterprise, and (iv) 12,086,254 Class A ordinary shares that Mr. Jiayuan Lin has the right to acquire upon exercise of the options within 60 days. Medway Brilliant is a limited liability company established in the British Virgin Islands that is wholly owned by Mr. Jiayuan Lin. Traveler Enterprise is a limited liability company established in the British Virgin Island. Mr. Jiayuan Lin is the beneficial owner of the shares held by Medway Brilliant and Traveler Enterprise in our company. Medway Brilliant and Traveler Enterprise are further described in footnote 3 below. 125 Table of Contents (3) Represents (i) 1 Class A ordinary share that is held by Medway Brilliant, (ii) 34,702,890 Class B ordinary shares that are held by Traveler Enterprise, and (iii) 2,741,606 Class A ordinary shares represented by ADSs that are beneficially owned by Traveler Enterprise. Medway Brilliant is a limited liability company established in the British Virgin Islands that is wholly owned by Mr. Jiayuan Lin. The registered address of Medway Brilliant is the offices of Sertus Incorporations (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands. Traveler Enterprise is a limited liability company established in the British Virgin Islands. Traveler Enterprise is controlled by Traveler Trust, a trust established under the laws of Guernsey. Mr. Jiayuan Lin is the settlor of Traveler Trust, and Mr. Lin and his family members are the trust’s beneficiaries. Under the terms of this trust, Mr. Lin has the power to direct the trustee with respect to the retention or disposal of, and the exercise of any voting and other rights attached to, the shares held by Traveler Enterprise in our company. The registered address of Traveler Enterprise is Ritter House, Wickhams Cay II, Road Town, Tortola VG1110, British Virgin Islands. (4) Eagle Central is a limited liability company established in the British Virgin Islands that is controlled by Mr. Xiaojun Zhang. The registered address of Eagle Central is the offices of Sertus Incorporations (BVI) Limited, Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola VG1110, British Virgin Islands. (5) Represents 25,223,898 Class A ordinary shares in the form of ADSs that are beneficially owned by Tencent Mobility Limited. Information regarding beneficial ownership is based on the information contained in the Schedule 13G reported as of December 31, 2021 and filed by Tencent Mobility Limited with SEC on February 10, 2022. Tencent Mobility Limited is a limited liability company established in Hong Kong. Tencent Mobility Limited is wholly owned by Tencent Holdings Limited, a public company listed on the Hong Kong Stock Exchange. The registered address of Tencent Mobility Limited is 29/F, Three Pacific Place, No.1 Queen’s Road East, Wanchai, Hong Kong. (6) Represents (i) 4,740,480 Class A ordinary shares held by Links Advance Holdings Limited and (ii) 23,635,636 Class A ordinary shares held by DiDi Sunshine Investments L.P. Information regarding beneficial ownership is reported as of December 31, 2019, based on the information contained in the Schedule 13G filed by Didi Chuxing with SEC on February 13, 2020. Links Advance Holdings Limited is controlled by Didi Chuxing. DiDi Sunshine Investments L.P. is an exempted limited partnership organized in the Cayman Islands. Its general partner is a wholly-owned subsidiary of Didi Chuxing. The general partner exercises the voting rights with respect to the shares held by the limited partnership. The general partner disclaims beneficial ownership of our shares except to the extent of its pecuniary interest in the limited partnership. According to the information contained in the Schedule 13G filed by Galactic Gain Limited with SEC on February 13, 2020, Galactic Gain Limited is a limited partner of DiDi Sunshine Investments L.P. and indirectly holds the 23,635,636 Class A ordinary shares. Galactic Gain Limited is an exempted company incorporated under the laws of the Cayman Islands, which is wholly owned by Boyu Capital Fund III, L.P. Boyu Capital Fund III, L.P. is a limited partnership organized under the laws of the Cayman Islands, of which Boyu Capital General Partner III, L.P. is the general partner. Boyu Capital General Partner III, L.P. is a limited partnership organized under the laws of the Cayman Islands, of which Boyu Capital General Partner III, Ltd. is the general partner. Boyu Capital General Partner III, Ltd. is an exempted company incorporated under the laws of the Cayman Islands, which is wholly owned by Boyu Capital Group Holdings Ltd. Boyu Capital Group Holdings Ltd. is an exempted company incorporated under the laws of the Cayman Islands, of which XYXY Holdings Ltd. is the controlling shareholder. XYXY Holdings Ltd. is a company incorporated under the laws of the British Virgin Islands, which is wholly owned by Xiaomeng Tong. The registered address of Galactic Gain Limited is at the office of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. (7) Represents (i) 8,108,503 Class A ordinary shares in the form of ADSs that are beneficially owned by Magic Spark Inc., a limited liability company established in the Cayman Islands, and (ii) 8,108,503 Class A ordinary shares in the form of ADSs that are beneficially owned by TK Autolink Inc., a limited liability company established in the Cayman Islands. Information regarding beneficial ownership is reported as of December 31, 2019, based on the information contained in the Schedule 13G filed by Taikang Offshore Entities with SEC on February 12, 2020. Magic Spark Inc. is wholly owned by Taikang Life Insurance Co., Ltd., which in turn is wholly owned by Taikang Insurance Group Inc. TK Autolink Inc. is indirectly controlled by Shandong State-controlled Taikang Phase I Industrial Development Fund Partnership Enterprise (Limited Partnership) (“Shandong Fund”). Beijing Taikang Investment Co., Ltd. is one of the two general partners of Shandong Fund. Beijing Taikang Investment Co., Ltd. is indirectly controlled by Taikang Insurance Group Inc. Each of Taikang Life Insurance Co., Ltd. and Taikang Insurance Group Inc. is an insurance company established in the PRC. The registered address of Magic Spark Inc. is Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1-1002, Cayman Islands. The registered address of TK Autolink Inc. is 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1 – 1002, Cayman Islands. 126 Table of Contents In May 2018, our co-founders Mr. Xiaojun Zhang and Mr. Jiayuan Lin entered into a voting agreement, which was amended and restated in June 2019. The amended and restated voting agreement provides that they shall reach a consensus before exercising their voting rights with respect to our shares. As of March 31, 2024, the co-founders collectively exercised 91.8% of the aggregate voting power of our issued and outstanding share capital. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation On October 10, 2023, our board of directors adopted an Incentive Compensation Clawback Policy, or the Clawback Policy, providing for the recoupment of certain incentive-based compensation from current and former executive officers of our company in the event we are required to restate any of our financial statements filed with the SEC under the Exchange Act in order to correct an error that is material to the previously-issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Adoption of the Clawback Policy was mandated by new NYSE continued listing standards introduced pursuant to Exchange Act Rule 10D-1. In addition, Section 304 of the Sarbanes-Oxley Act of 2002 permits the SEC to order the disgorgement of bonuses and incentive-based compensation earned by a registrant issuer’s chief executive officer and chief financial officer in the year following the filing of any financial statement that the issuer is required to restate because of misconduct, and the reimbursement of those funds to the issuer. A copy of the Clawback Policy has been filed herewith as Exhibit 97.1. In the year ended December 31, 2023, we were not required to prepare an accounting restatement that required recovery of erroneously awarded compensation pursuant to the Clawback Policy, nor were there any outstanding balance as of December 31, 2023 of erroneously awarded compensation to be recovered. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” B. Related Party Transactions Contractual Arrangements with Our Consolidated VIEs and Their Shareholders We currently conduct our operations mainly through contractual arrangements among Can Gu Long, our wholly-owned PRC subsidiary, our consolidated VIEs, and their respective shareholders. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements among Can Gu Long, the Consolidated VIEs and Their Shareholders.” Share Incentive Plan See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.” Special Option Grants See “Item 6. Directors, Senior Management and Employees—B. Compensation—Special Option Grants.” C. Interests of Experts and Counsel Not Applicable. ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information We have appended consolidated financial statements filed as part of this annual report. 127 Table of Contents Legal and Administrative Proceedings We are currently not a party to any material legal or administrative proceedings. We may from time to time be subject to various legal or administrative claims and proceedings arising from the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention. Dividend Policy On October 11, 2022, our board of directors approved and declared a special cash dividend of US$0.5 per ordinary share (or US$1 per American depositary share) on our outstanding ordinary shares, which was paid on November 23, 2022 (Eastern Time) to shareholders of record as of the close of trading on October 24, 2022 (Eastern Time), in an aggregated amount of approximately US$134.8 million. On April 22, 2022, our board of directors approved and declared a special cash dividend of US$0.5 per ordinary share (or US$1 per American depositary share) on our outstanding ordinary shares, which was paid on June 15, 2022 (Eastern Time) to shareholders of record as of the close of trading on May 25, 2022 (Eastern Time), in an aggregated amount of approximately US$136.6 million. On March 11, 2021, our board of directors approved a special cash dividend of US$0.5 per ordinary share (or US$1 per American depositary share) based on our outstanding ordinary shares. This special cash dividend aggregated approximately US$151.4 million, of which US$147.3 million was paid on April 8, 2021 (Eastern Time) to shareholders of record as of the close of trading on March 22, 2021 (Eastern Time). Any other future determination to pay dividends will be made at the discretion of our board of directors and may be based on a number of factors, including the Group’s future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. When we pay any dividends, we will pay our ADS holders to the same extent as holders of our Class A ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Item 12. Description of Securities other than Equity Securities—American Depositary Shares.” Cash dividends on our Class A ordinary shares, if any, will be paid in U.S. dollars. We are an exempted company incorporated in the Cayman Islands. In order for us to distribute any dividends to our shareholders and ADS holders, we may rely on dividends distributed by our PRC subsidiary. Certain payments from our PRC subsidiary to us may be subject to PRC withholding income tax. In addition, regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated distributable after-tax profits as determined in accordance with its articles of association and the accounting standards and regulations in China. Our PRC subsidiary is required to set aside at least 10% of its after-tax profit based on PRC accounting standards every year to a statutory common reserve fund until the aggregate amount of such reserve fund reaches 50% of the registered capital of such subsidiary. Such statutory reserves are not distributable as loans, advances or cash dividends. B. Significant Changes We have not experienced any other significant changes since the date of the Group’s audited consolidated financial statements included in this annual report. ITEM 9. THE OFFER AND LISTING A. Offering and Listing Details Our ADSs, each representing two of our Class A ordinary shares, have been listed on the New York Stock Exchange since July 26, 2018 under the symbol “CANG.” See Exhibit 2.4 to this Form 20-F for a description of our ADSs. B. Plan of Distribution Not Applicable. 128 Table of Contents C. Markets Our ADSs, each representing two of our Class A ordinary shares, have been listed on the New York Stock Exchange since July 26, 2018 under the symbol “CANG.” D. Selling Shareholders Not Applicable. E. Dilution Not Applicable. F. Expenses of the Issue Not Applicable. ITEM 10. ADDITIONAL INFORMATION A. Share Capital Not Applicable. B. Memorandum and Articles of Association We incorporate by reference into this annual report the description of our third amended and restated memorandum of association contained in our F-1 registration statement (File No. 333-225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018. Our shareholders adopted our third amended and restated memorandum and articles of association by unanimous resolutions passed on June 22, 2018, and effective immediately prior to the completion of our initial public offering of common shares represented by our ADSs. C. Material Contracts We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report. D. Exchange Controls See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation Related to Foreign Exchange.” E. Taxation The following is a general summary of certain Cayman Islands, People’s Republic of China and United States federal income tax consequences relevant to an investment in our ADSs and Class A ordinary shares. The discussion is not intended to be, nor should it be construed as, legal or tax advice to any particular prospective purchaser. The discussion is based on laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change or different interpretations, possibly with retroactive effect. The discussion does not address U.S. state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and the United States. You should consult your own tax advisors with respect to the consequences of acquisition, ownership and disposition of our ADSs and Class A ordinary shares. 129 Table of Contents Cayman Islands Taxation The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of our ADSs and Class A ordinary shares. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of, the Cayman Islands. The Cayman Islands is a party to a double tax treaty entered with the United Kingdom in 2010 but is otherwise not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands. People’s Republic of China Taxation In March 2007, the National People’s Congress of China enacted the Enterprise Income Tax Law, which became effective on January 1, 2008 and was most recently amended on December 29, 2018. The Enterprise Income Tax Law provides that enterprises organized under the laws of jurisdictions outside China with their “de facto management bodies” located within China may be considered PRC resident enterprises and therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income. The Implementing Rules of the Enterprise Income Tax Law further define the term “de facto management body” as the management body that exercises substantial and overall management and control over the business, personnel, accounts and properties of an enterprise. While we do not consider our company or any of our overseas subsidiaries to be a PRC resident enterprise, there is a risk that the PRC tax authorities may deem our company or any of our overseas subsidiaries as a PRC resident enterprise since a substantial majority of the members of our management team as well as the management team of some of our overseas subsidiaries are located in China, in which case we or the overseas subsidiaries, as the case may be, would be subject to the PRC enterprise income tax at the rate of 25% on worldwide income. If the PRC tax authorities determine that our Cayman Islands holding company is a “resident enterprise” for PRC enterprise income tax purposes, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and a 10% tax would be imposed with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ADSs. Furthermore, dividends paid to individual investors who are non-PRC residents and any gain realized on the transfer of ADSs or Class A ordinary shares by such investors may be subject to PRC tax at a rate of 20% (which in the case of dividends may be withheld at source). Any PRC tax liability may be reduced by an applicable tax treaty. However, it is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ADSs would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. Certain United States Federal Income Tax Considerations The following discussion describes certain United States federal income tax consequences of the purchase, ownership and disposition of our ADSs and Class A ordinary shares. This discussion deals only with ADSs and Class A ordinary shares that are held as capital assets by a United States Holder (as defined below). As used herein, the term “United States Holder” means a beneficial owner of our ADSs or Class A ordinary shares that is, for United States federal income tax purposes, any of the following: ● an individual who is a citizen or resident of the United States; ● a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; ● an estate the income of which is subject to United States federal income taxation regardless of its source; or ● a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. 130 Table of Contents This discussion is based upon provisions of the Internal Revenue Code of 1986, as amended, or the Code, and regulations, rulings and judicial decisions thereunder as of the date hereof, as well as the income tax treaty between the United States and the PRC, or the Treaty. Those authorities may be changed, perhaps retroactively, so as to result in United States federal income tax consequences different from those summarized below. In addition, this discussion assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms. This discussion does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are: ● a dealer or broker in securities or currencies; ● a financial institution; ● a regulated investment company; ● a real estate investment trust; ● an insurance company; ● a tax-exempt organization; ● a person holding our ADSs or Class A ordinary shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle; ● a trader in securities that has elected the mark-to-market method of accounting for your securities; ● a person liable for alternative minimum tax; ● a person who owns or is deemed to own 10% or more of our stock by vote or value; ● a person required to accelerate the recognition of any item of gross income with respect to our ADSs or Class A ordinary shares as a result of such income being recognized on an applicable financial statement; ● a partnership or other pass-through entity for United States federal income tax purposes; or ● a person whose “functional currency” is not the U.S. dollar. If a partnership (or other entity or arrangement treated as a partnership for United States federal income tax purposes) holds our ADSs or Class A ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partnership or a partner of a partnership holding our ADSs or Class A ordinary shares, you should consult your tax advisors. This discussion does not contain a detailed description of all the United States federal income tax consequences to you in light of your particular circumstances and does not address the Medicare tax on net investment income, United States federal estate and gift taxes or the effects of any state, local or non-United States tax laws. If you are considering the purchase of our ADSs or Class A ordinary shares, you should consult your own tax advisors concerning the particular United States federal income tax consequences to you of the purchase, ownership and disposition of our ADSs or Class A ordinary shares, as well as the consequences to you arising under other United States federal tax laws and the laws of any other taxing jurisdiction. As discussed below under “— Passive Foreign Investment Company,” we believe that there is a significant risk that we were a passive foreign investment company, or a PFIC, for United States federal income tax purposes for 2023, and that we may be classified as a PFIC in the current and future taxable years. Accordingly, you are urged to review the discussion below under “—Passive Foreign Investment Company,” and to consult with your tax advisors regarding the tax consequences to you if we were or are classified as a PFIC. 131 Table of Contents ADSs If you hold ADSs, for United States federal income tax purposes, you generally will be treated as the owner of the underlying Class A ordinary shares that are represented by such ADSs. Accordingly, deposits or withdrawals of Class A ordinary shares for ADSs will not be subject to United States federal income tax. Passive Foreign Investment Company In general, we will be a PFIC for any taxable year in which: ● at least 75% of our gross income is passive income, or ● at least 50% of the value (generally determined based on a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, income equivalent to interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). Cash and other assets readily convertible into cash are generally treated as assets that produce or are held for the production of passive income. If we own at least 25% (by value) of the stock of another corporation, for purposes of determining whether we are a PFIC, we will be treated as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income. However, there is uncertainty as to the treatment of our corporate structure and ownership of our consolidated VIEs for United States federal income tax purposes. For United States federal income tax purposes, we consider ourselves to own the equity of our consolidated VIEs. If it is determined, contrary to our view, that we do not own the equity of our consolidated VIEs for United States federal income tax purposes (for instance, because the relevant PRC authorities do not respect these arrangements), we are more likely be treated as a PFIC. There are uncertainties in the application of the PFIC rules to a company with our particular business operations. However, based on the past and projected composition and classification of our income and assets, we believe that there is a significant risk that we were a PFIC for United States federal income tax purposes for 2023, and that we may be classified as a PFIC in the current and future taxable years. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that our PFIC status may change due to changes in our asset or income composition. In addition, the calculation of the value of our assets will be based, in part, on the quarterly market value of our ADSs, which is subject to change. Therefore, fluctuations in the market value of our ADSs can affect our PFIC status. If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares, you will be subject to special tax rules discussed below. If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares and you do not make a timely mark-to-market election, as described below, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition, including a pledge, of ADSs or Class A ordinary shares. Distributions received in a taxable year will be treated as excess distributions to the extent that they are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for the ADSs or Class A ordinary shares. Under these special tax rules: ● the excess distribution or gain will be allocated ratably over your holding period for the ADSs or Class A ordinary shares, ● the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and ● the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year for individuals or corporations, as applicable, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. 132 Table of Contents Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year in which you hold our ADSs or Class A ordinary shares, you will generally be subject to the special tax rules described above for that year and for each subsequent year in which you hold the ADSs or Class A ordinary shares (even if we do not qualify as a PFIC in such subsequent years). However, if we cease to be a PFIC, you can avoid the continuing impact of the PFIC rules by making a special election to recognize gain as if your ADSs or Class A ordinary shares had been sold on the last day of the last taxable year during which we were a PFIC. You are urged to consult your own tax advisor about this election. In lieu of being subject to the special tax rules discussed above, you may make a mark-to-market election with respect to your ADSs or Class A ordinary shares, provided such ADSs or Class A ordinary shares are treated as “marketable stock.” The ADSs or Class A ordinary shares generally will be treated as marketable stock if the ADSs or Class A ordinary shares are regularly traded on a “qualified exchange or other market” (within the meaning of the applicable Treasury regulations). Under current law, the mark-to-market election may be available to holders of ADSs because the ADSs are listed on the NYSE which constitutes a qualified exchange, although there can be no assurance that the ADSs will be “regularly traded” for purposes of the mark-to-market election or that the ADSs will continue to be listed on the NYSE. However, only the ADSs and not the Class A ordinary shares are listed on the NYSE. Consequently, if you are a holder of Class A ordinary shares that are not represented by ADSs, you generally will not be eligible to make a mark-to-market election. If you make an effective mark-to-market election, for each taxable year that we are a PFIC you will include as ordinary income the excess of the fair market value of your ADSs at the end of the year over your adjusted tax basis in the ADSs. You will be entitled to deduct as an ordinary loss in each such year the excess of your adjusted tax basis in the ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. Your adjusted tax basis in the ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. In addition, upon the sale or other disposition of your ADSs in a year that we are a PFIC, (i) any gain will be treated as ordinary income and (ii) any loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If you make a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ADSs are no longer regularly traded on a qualified exchange or other market, or the Internal Revenue Service, or the IRS, consents to the revocation of the election. You are urged to consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular circumstances. Alternatively, U.S. taxpayers can sometimes avoid the special tax rules described above by electing to treat a PFIC as a “qualified electing fund” under Section 1295 of the Code. However, this option would only be available to you if we comply with the requirements necessary to permit you to make this election (and no assurances can be given in this regard). If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares and any of our non-United States subsidiaries is also a PFIC, you will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of the PFIC rules. You will not be able to make the mark-to-market election described above in respect of any lower-tier PFIC. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries. You will generally be required to file IRS Form 8621 if you hold our ADSs or Class A ordinary shares in any year in which we are a PFIC. You are urged to consult your tax advisors concerning the United States federal income tax consequences of holding ADSs or Class A ordinary shares if we are a PFIC in any taxable year. Taxation of Dividends Subject to the discussion under “—Passive Foreign Investment Company” above, the gross amount of distributions on the ADSs or Class A ordinary shares (including any amounts withheld to reflect PRC withholding taxes, as discussed above under “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation”) will be taxable as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital, causing a reduction in your tax basis in the ADSs or Class A ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain recognized on a sale or exchange. We do not, however, expect to determine earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that a distribution will generally be reported as a dividend. 133 Table of Contents Any dividends that you receive (including any withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of Class A ordinary shares, or by the depositary, in the case of ADSs. Such dividends will not be eligible for the dividends received deduction generally allowed to corporations under the Code. Subject to applicable limitations (including a minimum holding period requirement), dividends received by non-corporate United States Holders from a qualified foreign corporation may be treated as “qualified dividend income” that is subject to reduced rates of taxation. A foreign corporation generally is treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that our ADSs (which are listed on the NYSE) are readily tradable on an established securities market in the United States. Since our Class A ordinary shares are not listed on an established securities market in the United States, we believe that dividends that we pay on our Class A ordinary shares that are not represented by ADSs will not meet the conditions required for these reduced tax rates. There also can be no assurance that our ADSs will be considered readily tradable on an established securities market in the United States in later years. A qualified foreign corporation also generally includes a foreign corporation that is eligible for the benefits of certain income tax treaties with the United States. In the event that we are deemed to be a PRC resident enterprise for PRC tax purposes, we may be eligible for the benefits of the Treaty, and if we are eligible for such benefits, dividends we pay on our Class A ordinary shares, regardless of whether such shares are represented by ADSs, would be potentially eligible for reduced rates of taxation. See “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation.” However, notwithstanding the foregoing, we will not be treated as a qualified foreign corporation, and non-corporate United States Holders will not be eligible for reduced rates of taxation, for any dividends that we pay if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. As discussed above under “— Passive Foreign Investment Company,” we believe that there is a significant risk that we were a PFIC for 2023, and that we may be classified as a PFIC in the current and future taxable years. Therefore, if you are a non-corporate United States Holder, you should not assume that any dividends will be taxed at a reduced rate. You should consult your own tax advisors regarding the application of these rules given your particular circumstances. Subject to certain conditions and limitations (including a minimum holding period requirement), any PRC withholding taxes on dividends may be treated as foreign taxes eligible for credit against your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ADSs or Class A ordinary shares will be treated as income from sources outside the United States and will generally constitute passive category income. However, if you are eligible for the benefits of the Treaty, any PRC withholding taxes on dividends will not be creditable against your United States federal income tax liability to the extent withheld at a rate exceeding the applicable rate under the Treaty. In addition, Treasury regulations addressing foreign tax credits, or the Foreign Tax Credit Regulations, impose additional requirements for foreign taxes to be eligible for a foreign tax credit, and unless you are eligible for and elect to claim the benefits of the Treaty, there can be no assurance that those requirements will be satisfied. The Department of the Treasury and the IRS are considering proposing amendments to the Foreign Tax Credit Regulations. In addition, recent notices from the IRS provide temporary relief by allowing taxpayers that comply with applicable requirements to apply many aspects of the foreign tax credit regulations as they previously existed (before the release of the current Foreign Tax Credit Regulations) for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). Instead of claiming a foreign tax credit, you may be able to deduct PRC withholding taxes in computing your taxable income, subject to generally applicable limitations under United States law (including that a United States Holder is not eligible for a deduction for otherwise creditable foreign income taxes paid or accrued in a taxable year if such United States Holder claims a foreign tax credit for any foreign income taxes paid or accrued in the same taxable year). The rules governing the foreign tax credit and deductions for foreign taxes are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit or a deduction under your particular circumstances. Distributions of ADSs, Class A ordinary shares or rights to subscribe for ADSs or Class A ordinary shares that are received as part of a pro rata distribution to all of our shareholders generally will not be subject to United States federal income tax. 134 Table of Contents Taxation of Capital Gains For United States federal income tax purposes, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of the ADSs or Class A ordinary shares in an amount equal to the difference between the amount realized for the ADSs or Class A ordinary shares and your tax basis in the ADSs or Class A ordinary shares, both determined in U.S. dollars. Subject to the discussion under “—Passive Foreign Investment Company” above, such gain or loss will generally be capital gain or loss and will generally be long-term capital gain or loss if you have held the ADSs or Class A ordinary shares for more than one year. Long-term capital gains of non-corporate United States Holders (including individuals) are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as United States source gain or loss. However, if we are treated as a PRC resident enterprise for PRC tax purposes and PRC tax were imposed on any gain, and if you are eligible for the benefits of the Treaty, you may elect to treat such gain as PRC source gain under the Treaty. If you are not eligible for the benefits of the Treaty or if you fail to make the election to treat any gain as PRC source, then you generally would not be able to use a foreign tax credit for any PRC tax imposed on the disposition of ADSs or Class A ordinary shares unless such credit can be applied (subject to applicable limitations) against tax due on other income derived from foreign sources. However, pursuant to the Foreign Tax Credit Regulations, if you do not claim the benefits of the Treaty, any such PRC tax would generally not be a foreign income tax eligible for a foreign tax credit (regardless of any other income that you may have that is derived from foreign sources). In such case, the non-creditable PRC tax may reduce the amount realized on the sale, exchange or other taxable disposition of the ADSs or Class A ordinary shares. As discussed above, however, recent notices from the IRS provide temporary relief by allowing taxpayers that comply with applicable requirements to apply many aspects of the foreign tax credit regulations as they previously existed (before the release of the current Foreign Tax Credit Regulations) for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). If any PRC tax is imposed upon the disposition of ADSs or Class A ordinary shares and you apply such temporary relief, such PRC tax may be eligible for a foreign tax credit or deduction, subject to the applicable conditions and limitations. You are urged to consult your tax advisors regarding the tax consequences if any PRC tax is imposed on a disposition of our ADSs or Class A ordinary shares, including the availability of the foreign tax credit or a deduction under your particular circumstances. Information Reporting and Backup Withholding In general, information reporting will apply to dividends in respect of our ADSs or Class A ordinary shares and the proceeds from the sale, exchange or other disposition of our ADSs or Class A ordinary shares that are paid to you within the United States (and in certain cases, outside the United States), unless you establish that you are an exempt recipient. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number and a certification that you are not subject to backup withholding or if you fail to report in full dividend and interest income. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability, provided the required information is timely furnished to the IRS. F. Dividends and Paying Agents Not Applicable. G. Statement by Experts Not Applicable. H. Documents on Display We have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in Item 19 of this annual report, we incorporate by reference certain information we filed with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this annual report. 135 Table of Contents You may read and copy this annual report, including the exhibits incorporated by reference in this annual report, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional offices in New York, New York and Chicago, Illinois. You also can request copies of this annual report, including the exhibits incorporated by reference in this annual report, upon payment of a duplicating fee, by writing information on the operation of the SEC’s Public Reference Room. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC. Our annual report and some of the other information submitted by us to the SEC may be accessed through this website. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In accordance with the New York Stock Exchange Listed Company Manual, we will post this annual report on our website ir.cangoonline.com. In addition, we will provide hard copies of our annual report to our shareholders and ADS holders free of charge upon request. I. Subsidiary Information Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Exchange Risk All of the Group’s revenues and substantially all of its expenses are denominated in Renminbi. The functional currency of our company and Cango Group Limited is the U.S. dollar. The functional currency of our subsidiary in the PRC, the consolidated VIEs and their subsidiaries is the Renminbi. We use Renminbi as our reporting currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange prevailing at the balance sheet date. Transactions in currencies other than the functional currency during the year are converted into functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the statements of operations. Due to foreign currency translation adjustments, the Group had foreign exchange gain of RMB1.4 million, RMB5.9 million and RMB1.1 million (US$0.2 million) in 2021, 2022 and 2023, respectively. Historically we have used, and in the future we may use, certain derivative financial instruments to hedge our exposure to foreign exchange risk. Specifically, we entered into various foreign currency forward contracts that allow us to sell U.S. dollars at a pre- determined exchange rate on the maturity date. We did not have any such foreign currency forward contracts outstanding as of December 31, 2021, 2022 and 2023. The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuations of the Renminbi against the U.S. dollar. To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amounts available to us. Interest Rate Risk We have not been exposed to material risks due to changes in market interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure. However, we cannot provide assurance that we will not be exposed to material risks due to changes in market interest rate in the future. 136 Table of Contents We may invest the net proceeds we received from our initial public offering in interest-earning instruments. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Inflation Since inception, inflation in China has not materially affected our results of operations. According to the National Bureau of Statistics of China, the year - over - year percent changes in the consumer price index for 2021, 2022 and 2023 were increases of 0.9%, 2.0% and 0.2%, respectively. Although we have not been materially affected by inflation in the past, we may be affected if China experiences higher rates of inflation in the future. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES A. Debt Securities Not Applicable B. Warrants and Rights Not Applicable C. Other Securities Not Applicable D. American Depositary Shares Citibank, N.A. acts as the depositary bank for the American Depositary Shares. Citibank’s depositary offices are located at 388 Greenwich Street, New York, New York 10013. The depositary bank typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Citibank, N.A.—Hong Kong, located at 9/F., Citi Tower, One Bay East, 83 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong. Our ADSs, each representing two of our Class A ordinary shares, have been listed on the New York Stock Exchange since July 26, 2018 under the symbol “CANG.” See Exhibit no. 2.4 to this Form 20-F for a description of the rights of holders of the ADRs. 137 Table of Contents Depositary Fees and Charges Under the terms of the deposit agreement for our ADSs, an ADS holder will be required to pay the following service fees to the depositary and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of ADSs): Service ● Issuance of ADSs (e.g., an issuance of ADS upon a deposit of Class A ordinary shares, upon a change in the ADS(s)-to Class A ordinary share(s) ratio, or for any other reason), excluding ADS issuances as a result of distributions of Class A ordinary shares) Up to U.S. 5¢ per ADS issued Fees ● Cancelation of ADSs (e.g., a cancelation of ADSs for delivery of deposited property, upon a change in the ADS(s)-to Class A ordinary share(s) ratio, or for any other reason) Up to U.S. 5¢ per ADS canceled ● Distribution of cash dividends or other cash distributions (e.g., Up to U.S. 5¢ per ADS held upon a sale of rights and other entitlements) ● Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs Up to U.S. 5¢ per ADS held ● Distribution of securities other than ADSs or rights to purchase additional ADSs (e.g., upon a spin-off) Up to U.S. 5¢ per ADS held ● ADS Services Up to U.S. 5¢ per ADS held on the applicable record date(s) established by the depositary bank As an ADS holder you will also be responsible to pay certain charges such as: ● taxes (including applicable interest and penalties) and other governmental charges; ● the registration fees as may from time to time be in effect for the registration of Class A ordinary shares on the share register and applicable to transfers of Class A ordinary shares to or from the name of the custodian, the depositary bank or any nominees upon the making of deposits and withdrawals, respectively; ● certain cable, telex and facsimile transmission and delivery expenses; ● the expenses and charges incurred by the depositary bank in the conversion of foreign currency; ● the fees and expenses incurred by the depositary bank in connection with compliance with exchange control regulations and other regulatory requirements applicable to Class A ordinary shares, ADSs and ADRs; and ● the fees and expenses incurred by the depositary bank, the custodian, or any nominee in connection with the servicing or delivery of deposited property. 138 Table of Contents ADS fees and charges for (i) the issuance of ADSs, and (ii) the cancelation of ADSs are charged to the person for whom the ADSs are issued (in the case of ADS issuances) and to the person for whom ADSs are canceled (in the case of ADS cancelations). In the case of ADSs issued by the depositary bank into DTC, the ADS issuance and cancelation fees and charges may be deducted from distributions made through DTC, and may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being canceled, as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in accordance with the procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted from distributions made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs. In the event of refusal to pay the depositary bank fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary bank fees from any distribution to be made to the ADS holder. Certain depositary fees and charges (such as the ADS services fee) may become payable shortly after the closing of the ADS offering. Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary bank. You will receive prior notice of such changes. The depositary bank may reimburse us for certain expenses incurred by us in respect of the ADR program, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time to time. Payments by Depositary Our depositary has agreed to share with us certain fees payable to the depositary by holders of ADSs. For 2023, the depositary shared with us US$1.0 million, after deduction of applicable U.S. taxes. 139 Table of Contents ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES PART II. None. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.” The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File No. 333- 225813) in relation to our initial public offering, which was declared effective by the SEC on July 25, 2018. In the second quarter of 2018, we completed our initial public offering in which we issued and sold an aggregate of 4,300,000 ADSs, representing 8,600,000 Class A ordinary shares, resulting in net proceeds to us of approximately US$39.7 million. As of December 31, 2023, we had used approximately US$21.2 million of the net proceeds received from our initial public offering to satisfy working capital needs. ITEM 15. CONTROLS AND PROCEDURES Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this annual report, an evaluation has been carried out under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rules 13a-15e and 15d-15(e) promulgated under the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective in ensuring that material information required to be disclosed in this annual report is recorded, processed, summarized and reported to them for assessment, and required disclosure is made within the time period specified in the rules and forms of the Commission. Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As required by Rule 13a-15(c) of the Exchange Act, our management conducted an evaluation of our company’s internal control over financial reporting as of December 31, 2023 based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2023. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Changes in Internal Control over Financial Reporting There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 140 Table of Contents Attestation Report of the Independent Registered Public Accounting Firm Our independent registered public accounting firm, Ernst & Young Hua Ming LLP, has audited the effectiveness of our internal control over financial reporting as of December 31, 2023, as stated in its report, which appears on page F-4 of this annual report. ITEM 16. [RESERVED] ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has determined Chi Ming Lee, who is an independent director, qualifies as an audit committee financial expert as defined in Item 16A of the instruction to Form 20-F. ITEM 16B. CODE OF ETHICS Our board of directors has adopted a code of ethics that applies to our directors, officers and employees. We have filed our code of business conduct and ethics as an exhibit to our registration statement on Form F-1 (File No. 333-225813), as amended, initially filed with the SEC on June 22, 2018. We hereby undertake to provide to any person without charge, a copy of our code of business conduct and ethics within ten working days after we receive such person’s written request. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & Young Hua Ming LLP, our independent public accountant for the periods indicated. We did not pay any other fees to our auditors during the periods indicated below. Audit Fees(1) Tax Fees All Other Fees Total For the Year Ended December 31, 2022 2023 (In thousands of US dollars) 928 — — 928 873 — — 873 (1) Audit fees include the aggregate fees billed in each of the fiscal period listed for professional services rendered by our independent public accountant for the audit of annual financial statements and agreed upon procedures on our quarterly financial statements. The policy of our audit committee is to pre-approve all audit and non-audit services provided by our independent public accountant, including audit services as described above. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES None. 141 Table of Contents ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS The following table sets forth information about our purchases of outstanding ADSs in 2023. In 2023, we did not purchase any of our ADSs or Class A ordinary shares outside of the periods presented below. Period January 2023 February 2023 March 2023 April 2023 May 2023 June 2023 July 2023 August 2023 September 2023 October 2023 November 2023 December 2023 Total Total Number of ADSs Purchased as Approximate Dollar Value of ADSs that May Part of Publicly Yet Be Purchased Announced Plans Under the Programs(3) Average Price Paid per ADS(2) or Programs(3) Total Number of ADSs Purchased(1) 59 US$ — US$ 210,699 US$ 238,282 US$ 243,368 US$ 24,556,115 US$ 258,174 US$ 111,736 US$ 179,811 US$ 234,242 US$ 148,215 US$ 336,300 US$ 26,517,001 US$ 1.35 — 1.15 1.29 1.16 1.30 1.22 1.28 1.20 1.16 1.16 1.03 1.29 59 US$44.7 million — US$44.7 million 210,699 US$44.5 million 238,282 US$50.0 million 243,368 US$49.7 million 24,556,115 US$17.8 million 258,174 US$17.5 million 111,736 US$17.4 million 179,811 US$17.1 million 234,242 US$16.9 million 148,215 US$16.7 million 336,300 US$16.4 million 26,517,001 US$16.4 million (1) All of our ADSs purchased were pursuant to publicly announced plans or programs. (2) Each of our ADSs represents two Class A ordinary shares. (3) We announced a share repurchase program in April 2022, under which we were approved to repurchase up to US$50 million worth of our outstanding ADSs and Class A ordinary shares through April 2023. We announced another share repurchase program in April 2023, under which we were approved to repurchase up to US$50 million worth of our outstanding ADSs and Class A ordinary shares through April 24, 2024. The repurchases were made through open market transactions and privately negotiated transactions in accordance with applicable rules and regulations. The Company repurchased 2.3 million Class A ordinary shares and 5.5 million Class A ordinary shares from two institutional investors respectively in privately negotiated transactions for an aggregate purchase price of approximately US$2.9 million and US$6.8 million, respectively. The Company settled the transactions in January 2024. The two institutional investors are independent third parties to the Company and not related to any director or executive officer of the Company. The two transactions enabled the Company to repurchase more shares than otherwise available from open market and increased value to all remaining shareholders of the Company. We announced a new share repurchase program in April 2024, under which we may repurchase up to US$50 million worth of our outstanding ADSs and/or Class A ordinary shares over the next 12 months starting from April 25, 2024. The repurchases may be effected, through various means, including open market transactions, privately negotiated transactions, block trades and/or through other legally permissible means, in accordance with applicable rules and regulations. The repurchases will be effected in compliance with Rule 10b5-1 and/or Rule 10b-18 under the Securities Exchange Act of 1934, as amended, as applicable. The number of ADSs and/or Class A ordinary shares repurchased and the timing of repurchases will depend on a number of factors, including, but not limited to, price, trading volume and general market conditions, along with the Group’s working capital requirements and general business conditions. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Not Applicable. 142 Table of Contents ITEM 16G. CORPORATE GOVERNANCE We are a “foreign private issuer” (as such term is defined in Rule 3b-4 under the Exchange Act), and our ADSs, each representing two Class A ordinary shares, are listed on the New York Stock Exchange. Under Section 303A of the New York Stock Exchange Listed Company Manual, New York Stock Exchange listed companies that are foreign private issuers are permitted to follow home country practice in lieu of the corporate governance provisions specified by the New York Stock Exchange with limited exceptions. The following summarizes some significant ways in which our corporate governance practices differ from those followed by domestic companies under the listing standards of the New York Stock Exchange. Under the New York Stock Exchange Listed Company Manual, or the NYSE Manual, U.S. domestic listed companies are required to have a majority of the board consisting of independent directors and a compensation committee and a nominating/corporate governance committee, each composed entirely of independent directors, which are not required under the Companies Act (As Revised) of the Cayman Islands, our home country. Currently, our board of directors is composed of seven members, only three of whom are independent directors. Our compensation committee is composed of three members, only one of whom is an independent director. Our corporate governance and nominating committee is composed of three members, only one of whom is an independent director. The NYSE Manual also requires U.S. domestic listed companies to regularly hold executive sessions for non-management directors, or an executive session that only includes independent directors at least once a year. We are not subject to this requirement under the Cayman Islands law and have decided to follow our home country practice on this matter. In addition, the NYSE Manual requires shareholder approval for certain matters, such as requiring that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions to those plans, which is not required under the Cayman Islands law. We intend to follow the home country practice in determining whether shareholder approval is required. Furthermore, we are not required by the NYSE to hold annual shareholders meetings. ITEM 16H. MINE SAFETY DISCLOSURE Not Applicable. ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not Applicable. ITEM 16J. Insider Trading Policy Not Applicable. ITEM 16K. Cybersecurity Risk Management and Strategy The Group has adopted a comprehensive risk management system to manage various risks that it faces, including financial risks, operational risks, compliance risks and cybersecurity risks. In particular, cybersecurity risk management is a core component of the Group’s overall risk management framework. The Group has engaged Ernst & Young Hua Ming LLP to conduct independent audits on the Group’s compliance with the internal control requirements under the Sarbanes-Oxley Act of 2002, and IT general controls (ITGC) is an important part of it. ITGC audits and consultancy cover cybersecurity, including information technology governance, information security (network and data security), access controls, system change management and operation maintenance management. The Group has established an array of risk management procedures to identify, assess and manage such risks, primarily consisting of (i) preventive measures such as cybersecurity management policy and personal information protection policy, among others, to prevent cybersecurity incidents and (ii) remediation measures such as personal information incidents response plan and cybersecurity incident response plan, among others, to remediate cybersecurity incidents. 143 Table of Contents As part of the Group’s preventive measures, its cybersecurity management policy protects the security of its network structure and equipment, prevents unauthorized access and sets out procedures to monitor and assess its network operation. The Group’s personal information protection policy classifies personal information, sets out managing procedures based on such classification and only grants access to employees of designated positions. The Group has different level of authorizations corresponding to the responsibilities associated with each type of position. The Group has also adopted other preventive policies to ensure the safety of its system, mailbox, cloud, IT projects and software development, among others. In addition, the Group adopted policies and procedures to remediate cybersecurity incidents. The Group’s personal information incidents response plan sets out procedures to handle personal information incidents of different materiality level and record-keeping policies to continuously enhance its personal information protection capabilities. The Group’s cybersecurity incident response plan sets out procedures to handle cyber-attack, computer virus and other impacts caused by natural disasters and accidents. The Group has also adopted other remediation policies such as malfunction handling procedures and data backup plans to minimize the loss caused by cybersecurity incidents. Engagement of Third-Party Service Providers To comply with the requirements under the Cybersecurity Law and Data Security Law and enhance the security of its information technology systems, the Group has engaged third-party agencies to perform system assessments and rectifications for hierarchical cybersecurity protection on a periodic basis. Fushun Insurance Brokerage Co., Ltd. and Shanghai Yungu have each obtained the Level 3 Certificate for Information Security Level Protection. The Group has adopted third-party security assessment procedures and data outflow control procedures to manage risks from cybersecurity threats associated with its use of third-party service providers. For example, the Group’s servers are housed at third-party data centers, and its operations depend on the service providers’ ability to protect such systems in their facilities as well as their own systems. The Group performs security assessment on such third parties by assessing their cybersecurity policies, data encryption and privacy policies and relevant certificates, establishing procedures in granting such third parties access to the Group’s database and requiring them to conduct regular inspections. Since in cooperation with third-party service providers may involve data outbound, the Group desensitizes sensitive information before transferring such data. The Group does not allow third-party service providers to directly access its database and it includes customary confidentiality clause in the agreements it enters into with them. Risks from Cybersecurity Threats The Group faces risks associated with cybersecurity threats in carrying out its business operations. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Any significant disruption in the Group’s IT systems, including events beyond control, could prevent the offering of solutions and services through Cango platform or reduce their attractiveness and result in a loss of car buyers, financial institutions and other platform participants”; “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—Technology is a critical aspect in the efficient operation of the Group’s business, and if any of the Group’s systems contain undetected errors, or if the Group fails to effectively implement technology initiatives or anticipate future technology needs or demands, the Group’s operations may be materially and adversely affected”; and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industry—If the Group is unable to safeguard the security of the confidential information of car buyers, dealers or third parties it collaborates with and adapt to the relevant regulatory framework as to protection of such information, the Group’s business and operations may be adversely affected.” Cybersecurity Governance Board of Directors Our board of directors is responsible for and engaged in the oversight of our continuous efforts in monitoring, assessing and managing the risks associated with cybersecurity threats or incidents. When material cybersecurity risks and incidents occur or in other cases where management deems necessary, the board reviews reports from management and discusses remediation plans with them. In addition, our audit committee is responsible for risk assessment and risk management, including risks relating to cybersecurity threats or incidents. The responsibilities of our audit committee include discussing policies with respect to risk assessment and risk management with management, internal auditors and the independent auditor. 144 Table of Contents Management The Group’s management is informed about and monitors the prevention, detection, mitigation and remediation of cybersecurity risks and incidents primarily through (i) Cybersecurity Leadership Group, (ii) Implementation Group and (iii) Supervision Group. The Cybersecurity Leadership Group, which is led by our chief executive officer and chief technology officer, is in charge of establishing and overseeing cybersecurity policies and strategies. The Implementation Group, comprising maintenance and securities department and other relevant departments, is in charge of executing technical controls and solutions to safeguard the Group’s system, network and IT infrastructure, among others. The Supervision Group, comprising the Group’s internal auditors and internal control department, is in charge of ongoing assessment of its cybersecurity work and compliance, including the internal control assessment in accordance with the Sarbanes-Oxley Act. Our chief technology officer, Mr. Xu Meng, has been in charge of designing and technologically upgrading our cybersecurity compliance framework under the Personal Information Protection Law since 2021. Prior to joining our Company, he was in charge of assessing and strengthening the cybersecurity management of a major automotive company under the General Data Protection Regulation in support of its expansion into Europe. Before that, he served in another renowned automotive company and was responsible for designing cybersecurity compliance framework, delivering internal trainings and implementing cybersecurity management policies and procedures. Based on information obtained through Cybersecurity Leadership Group, Implementation Group and Supervision Group, the Group’s management makes assessments of cybersecurity risks and incidents and regularly reports information about such risks and incidents as well as their assessment to the board of directors, to foster the board’s understanding on such risks and enable them to make decisions timely. In 2023, the Group was not subject to material fines or penalties in connection with cybersecurity, and there were no material cybersecurity incidents arising from cybersecurity or personal data protection. 145 Table of Contents ITEM 17. FINANCIAL STATEMENTS PART III. We have elected to provide financial statements pursuant to Item 18. ITEM 18. FINANCIAL STATEMENTS The consolidated financial statements of Cango Inc., its subsidiaries and its variable interest entities are included at the end of this annual report. ITEM 19. EXHIBITS Exhibit Number 1.1 2.1 2.2 2.3 2.4 4.1 4.2 4.3 Description of Document Third Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated herein by reference to Exhibit 3.2 to the registration statement on Form F-1 (File No. 333-225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018) Form of American Depositary Receipt evidencing American Depositary Shares (incorporated herein by reference to Exhibit (a) to the registration statement on Form F-6 (File No. 333-226083), as amended, filed with the Securities and Exchange Commission on July 6, 2018) Specimen of Ordinary Share Certificate (incorporated herein by reference to Exhibit 4.1 to the registration statement on Form F-1 (File No. 333-225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018) Form of Deposit Agreement between the Registrant and Citibank, N.A., as depositary (incorporated herein by reference to Exhibit (a) to the registration statement on Form F-6 (File No. 333-226083), as amended, filed with the Securities and Exchange Commission on July 6, 2018) Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchanges Act of 1934 (incorporated herein by reference to Exhibit 2.4 to the annual report on Form 20-F (File No. 001- 38590), filed with the Securities and Exchange Commission on April 27, 2020) Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated herein by reference to Exhibit 10.1 to the registration statement on Form F-1 (File No. 333- 225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018) Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to Exhibit 10.2 to the registration statement on Form F-1 (File No. 333-225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018) Form of Equity Interest Pledge Agreement by and among Can Gu Long (Shanghai) Information Technology Consultation Service Co., Ltd. (“Can Gu Long”), Shanghai Cango Investment and Management Consultation Service Co., Ltd. (“Shanghai Cango”) and each shareholder of Shanghai Cango (incorporated herein by reference to Exhibit 10.3 to the registration statement on Form F-1 (File No. 333-225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018) 146 Table of Contents Exhibit Number 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 Description of Document Form of Power of Attorney by each shareholder of Shanghai Cango (incorporated herein by reference to Exhibit 10.4 to the registration statement on Form F-1 (File No. 333-225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018) Exclusive Business Cooperation Agreement by and between Can Gu Long and Shanghai Cango (incorporated herein by reference to Exhibit 10.5 to the registration statement on Form F-1 (File No. 333-225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018) Form of Exclusive Option Agreement by and between Can Gu Long, Shanghai Cango and each shareholder of Shanghai Cango (incorporated herein by reference to Exhibit 10.6 to the registration statement on Form F- 1 (File No. 333-225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018) English translation of the form of Equity Interest Pledge Agreement by and among Can Gu Long (Shanghai) Information Technology Consultation Service Co., Ltd. (“Can Gu Long”), Shanghai Yungu Haoche Electronic Technology Co., Ltd (“Shanghai Yungu”) and each shareholder of Shanghai Yungu (incorporated herein by reference to Exhibit 4.7 to the annual report on Form 20-F (File No. 001-38590), filed with the Securities and Exchange Commission on April 26, 2023) English translation of the form of Power of Attorney by each shareholder of Shanghai Yungu (incorporated herein by reference to Exhibit 4.8 to the annual report on Form 20-F (File No. 001-38590), filed with the Securities and Exchange Commission on April 26, 2023) English translation of the Exclusive Business Cooperation Agreement by and between Can Gu Long and Shanghai Yungu (incorporated herein by reference to Exhibit 4.9 to the annual report on Form 20-F (File No. 001-38590), filed with the Securities and Exchange Commission on April 26, 2023) English translation of the form of Exclusive Option Agreement by and between Can Gu Long, Shanghai Yungu and each shareholder of Shanghai Yungu (incorporated herein by reference to Exhibit 4.10 to the annual report on Form 20-F (File No. 001-38590), filed with the Securities and Exchange Commission on April 26, 2023) Financial Support Undertaking Letter issued by the Registrant to Shanghai Cango (incorporated herein by reference to Exhibit 10.7 to the registration statement on Form F-1 (File No. 333-225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018) Cango Inc. Share Incentive Plan 2018 (incorporated herein by reference to Exhibit 10.16 to the registration statement on Form F-1 (File No. 333-225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018) Cooperation Agreement on Automobile Finance Business, dated April 30, 2020, between WeBank and Shanghai Cango (incorporated herein by reference to Exhibit 4.17 to the annual report on Form 20- F (File No. 001-38590), filed with the Securities and Exchange Commission on April 27, 2021) Automobile Finance Guarantee Contract, dated January 25, 2021, among WeBank, Shanghai Cango and Cango Financing Guarantee Co., Ltd. (incorporated herein by reference to Exhibit 4.18 to the annual report on Form 20-F (File No. 001-38590), filed with the Securities and Exchange Commission on April 27, 2021) 147 Table of Contents Exhibit Number Description of Document 4.15 4.16 4.17 4.18 8.1* 11.1 Automobile Finance Project Cooperation Agreement, dated March 24, 2020, among Shanghai Cango, Chongqing Wantang Information Technology Co., Ltd. and MYbank (incorporated herein by reference to Exhibit 4.19 to the annual report on Form 20-F (File No. 001-38590), filed with the Securities and Exchange Commission on April 27, 2021) Automobile Finance Project Counter-guarantee Agreement, dated March 24, 2020, between Cango Financing Guarantee Co., Ltd. and MYbank (incorporated herein by reference to Exhibit 4.20 to the annual report on Form 20-F (File No. 001-38590), filed with the Securities and Exchange Commission on April 27, 2021) Personal Consumer Loan Business Cooperation Agreement, dated July 31, 2018, among Puxi Branch of Bank of Shanghai Co., Ltd., Shanghai Chejia and Shanghai Cango (incorporated herein by reference to Exhibit 4.21 to the annual report on Form 20-F (File No. 001-38590), filed with the Securities and Exchange Commission on April 27, 2021) Financial Support Undertaking Letter issued by the Registrant to Shanghai Yungu (incorporated herein by reference to Exhibit 4.18 to the annual report on Form 20-F (File No. 001-38590), filed with the Securities and Exchange Commission on April 26, 2023) List of Subsidiaries Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the registration statement on Form F-1 (File No. 333-225813), as amended, initially filed with the Securities and Exchange Commission on June 22, 2018) 12.1* Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 12.2* Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 13.1** Certification by Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 13.2** Certification by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15.1* Consent of Fangda Partners 15.2* Consent of Independent Registered Public Accounting Firm 97.1* Incentive Compensation Clawback Policy 101.INS* Inline XBRL Instance Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) * Filed herewith ** Furnished herewith 148 Table of Contents The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. SIGNATURES CANGO INC. /s/ Yongyi Zhang By Name: Yongyi Zhang Title: Chief Financial Officer Date: April 26, 2024 149 Table of Contents CANGO INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 1408) CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2022 AND 2023 CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 PAGE(S) F-2 F-5 F-8 F-10 F-12 F-14 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Cango Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Cango Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive (loss) income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated April 26, 2024 expressed an unqualified opinion thereon. Adoption of New Accounting Standards As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for credit losses on certain financial instruments in 2023 and changed its method for accounting for leases in 2022 and 2023. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to the accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates. F-2 Table of Contents Measurement of expected credit loss on contingent risk assurance liabilities, financing receivables and finance lease receivables Description of the Matter As explained in Note 2 to the consolidated financial statements, the Company has contingent risk assurance liabilities provided for off-balance sheet loans, financing receivables and finance lease receivables that are subject to current expected credit losses (“CECL”) methodology. At December 31, 2023, the Company’s contingent risk assurance liabilities, allowance for financing receivables and allowance for finance lease receivables were RMB 125 million, RMB 58 million and RMB13 million, respectively. The Company selects expected forward-looking factors, which have a strong correlation, economic, and commercial significance using a regression model, and incorporates these forward- looking factors into the CECL model. These forward-looking factors mainly include producer price index, urban unemployment rate, holiday effect and scale of social financing. Auditing management’s measurement of contingent loss of risk assurance liabilities, allowance for financing receivables and allowance for finance lease receivables was complex and subjective because the selection of the expected forward-looking factors used in the CECL model requires significant management judgment. Changes in the expected-looking factors would significantly affect the amount of contingent risk assurance liabilities, allowance for financing receivables and allowance for finance lease receivables. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s measurement of expected credit loss on contingent risk assurance liabilities, financing receivables and finance lease receivables. For example, we tested controls over management’s review of the selection of expected forward-looking factors used in the CECL model. We performed audit procedures that included, among others, evaluating the methodology used in management’s selection of expected forward-looking factors. We compared the selected expected forward-looking factors to industry, business and market information available from third-party sources. We also tested the completeness, and accuracy of the underlying data used in the CECL model. In addition, valuation professionals were used to assist in evaluating the appropriateness of the regression model used to select the expected forward-looking factors. /s/ Ernst & Young Hua Ming LLP We have served as the Company’s auditor since 2018. Shanghai, the People’s Republic of China April 26, 2024 F-3 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Cango Inc. Opinion on Internal Control Over Financial Reporting We have audited Cango Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Cango Inc. (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of comprehensive (loss) income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated April 26, 2024 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young Hua Ming LLP We have served as the Company’s auditor since 2018. Shanghai, the People’s Republic of China April 26, 2024 F-4 Table of Contents CANGO INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2022 AND 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) Notes 2022 RMB As of December 31, 2023 RMB US$ ASSETS Current assets (including current assets of the consolidated VIEs pledged or collateralized for the VIEs’ obligations of RMB372,874,938 and RMB nil (US$ nil) as of December 31, 2022 and 2023, respectively): Cash and cash equivalents Restricted cash - current - bank deposits held for short-term investments Restricted cash - current – others (including restricted cash – current of the consolidated VIEs pledged or collateralized for the VIEs’ obligations of RMB136,671,970 and RMB nil (US$ nil) as of December 31, 2022 and 2023, respectively) Short-term investments Accounts receivable, net Finance lease receivables - current, net of allowance of RMB15,461,529 and RMB9,970,622 (US$ 1,404,333) as of December 31, 2022 and 2023, respectively (including finance lease receivables – current of the consolidated VIEs pledged or collateralized for the VIEs’ obligations of RMB236,202,968 and RMB nil (US$ nil) as of December 31, 2022 and 2023, respectively) Financing receivables, net of allowance of RMB60,673,961 and RMB57,971,477 (US$8,165,112) as of December 31, 2022 and 2023, respectively Short-term contract asset, net Prepayments and other current assets, net of allowance of RMB nil and RMB114,122,430 (US$16,073,808) as of December 31, 2022 and 2023, respectively Total current assets Non-current assets (including non-current assets of the consolidated VIEs pledged or collateralized for the VIEs’ obligations of RMB124,522,680 and RMB nil (US$ nil) as of December 31, 2022 and 2023, respectively): Restricted cash - non-current Goodwill Property and equipment, net Intangible assets Long-term contract asset Deferred tax assets Finance lease receivables - non-current, net of allowance of RMB6,709,737 and RMB2,730,769 (US$384,621) as of December 31, 2022 and 2023, respectively (including finance lease receivables – non-current of the consolidated VIEs pledged or collateralized for the VIEs’ obligations of RMB124,522,680 and RMB nil (US$ nil) as of December 31, 2022 and 2023, respectively) Operating lease right-of-use assets Other non-current assets Total non-current assets TOTAL ASSETS 3 4 6 7 8 5 9 10 18 6 378,917,318 — 1,020,604,191 1,670,006,785 143,749,094 235,215,536 152,688,510 1,941,432,848 266,836,951 14,334,937 635,070,394 64,791,709 2,019,034 89,447,794 9,125,721 799,438,656 200,459,435 28,234,121 73,818,025 500,389,654 29,522,035 170,623,200 4,158,092 24,031,775 1,356,822,028 5,470,343,990 78,606,808 3,884,019,494 11,071,537 547,052,704 750,877,306 148,657,971 14,689,988 48,317,878 173,457,178 62,497,781 583,380,417 — 8,239,037 48,373,192 36,310,769 — 82,167,413 — 1,160,444 6,813,222 5,114,265 — 260,049,967 80,726,757 6,633,517 1,545,908,343 7,016,252,333 36,426,617 47,154,944 4,705,544 764,590,520 4,648,610,014 5,130,582 6,641,635 662,762 107,690,323 654,743,027 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents CANGO INC. CONSOLIDATED BALANCE SHEETS - continued AS OF DECEMBER 31, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) Notes 2022 RMB As of December 31, 2023 RMB US$ LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities (including current liabilities of the consolidated VIEs without recourse to the Company of RMB2,211,107,583 and RMB454,773,564 (US$64,053,517) as of December 31, 2022 and 2023, respectively): Short-term debts (including short-term debts of the consolidated VIEs without recourse to the Company of RMB349,299,134 and RMB39,071,500 (US$5,503,106) as of December 31, 2022 and 2023, respectively) Long-term debts – current (including long-term debts – current of the consolidated VIEs without recourse to the Company of RMB565,143,340 and RMB926,237 (US$130,458) as of December 31, 2022 and 2023, respectively) Short-term lease liabilities (including short-term lease liabilities of the consolidated VIEs without recourse to the Company of RMB9,913,073 and RMB6,932,332 (US$976,399) as of December 31, 2022 and 2023, respectively) Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIEs without recourse to the Company of RMB881,977,535 and RMB196,282,964 (US$27,645,877) as of December 31, 2022 and 2023, respectively) Deferred guarantee income (including deferred guarantee income of the consolidated VIEs without recourse to the Company of RMB nil and RMB86,218,888 (US$12,143,676) as of December 31, 2022 and 2023, respectively) Contingent risk assurance liabilities (including contingent risk assurance liabilities of the consolidated VIEs without recourse to the Company of RMB nil and RMB125,140,991 (US$17,625,740) as of December 31, 2022 and 2023, respectively) Risk assurance liabilities (including risk assurance liabilities of the consolidated VIEs without recourse to the Company of RMB402,303,421 and RMB nil (US$ nil) as of December 31, 2022 and 2023, respectively) Income tax payable (including income tax payable of the consolidated VIEs without recourse to the Company of RMB2,471,080 and RMB200,652 (US$28,261) as of December 31, 2022 and 2023, respectively) Total current liabilities Non-current liabilities (including non-current liabilities of the consolidated VIEs without recourse to the Company of RMB162,007,505 and RMB53,849,261 (US$7,584,509) as of December 31, 2022 and 2023, respectively): Long-term debts (including long-term debts of the consolidated VIEs without recourse to the Company of RMB75,869,353 and RMB712,023 (US$100,286) as of December 31, 2022 and 2023, respectively) Deferred tax liability (including deferred tax liability of the consolidated VIEs without recourse to the Company of RMB10,724,126 and RMB10,724,126 (US$1,510,462) as of December 31, 2022 and 2023, respectively) Long-term lease liabilities (including long-term lease liabilities of the consolidated VIEs without recourse to the Company of RMB75,099,739 and RMB42,187,077 (US$5,941,925) as of December 31, 2022 and 2023, respectively) Other non-current liabilities (including other non-current liabilities of the consolidated VIEs without recourse to the Company of RMB314,287 and RMB226,035 (US$31,836) as of December 31, 2022 and 2023, respectively) Total non-current liabilities Total liabilities Commitments and contingencies 11 11 14 12 13 13 13 11 18 14 22 349,299,134 39,071,500 5,503,106 565,143,340 926,237 130,458 9,913,073 7,603,380 1,070,914 890,836,699 206,877,626 29,138,104 — — 86,218,888 12,143,676 125,140,991 17,625,740 402,303,421 — — 313,406,680 2,530,902,347 311,904,279 777,742,901 43,930,799 109,542,797 75,869,353 712,023 100,286 10,724,133 10,724,133 1,510,463 76,533,208 42,228,435 5,947,751 314,287 163,440,981 2,694,343,328 226,035 53,890,626 831,633,527 31,836 7,590,336 117,133,133 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents CANGO INC. CONSOLIDATED BALANCE SHEETS - continued AS OF DECEMBER 31, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) Notes 2022 RMB As of December 31, 2023 RMB US$ LIABILITIES AND SHAREHOLDERS’ EQUITY Shareholders’ equity Class A Ordinary shares (par value of US$0.0001 per share; 420,647,280 shares authorized as of December 31, 2022 and 2023, respectively; 229,831,213 shares issued and 196,605,493 shares outstanding as of December 31, 2022; 229,831,213 shares issued and 144,857,131 shares outstanding as of December 31, 2023) Class B Ordinary shares (par value of US$0.0001 per share; 79,325,720 shares authorized as of December 31, 2022 and 2023, respectively; 72,978,677 shares issued and outstanding as of December 31, 2022; 72,978,677 shares issued and outstanding as of December 31, 2023) Treasury shares Additional paid-in capital Accumulated other comprehensive income Retained earnings (accumulated deficit) Total Cango Inc.’s equity Total shareholders’ equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 23 154,483 154,483 21,758 23 24 49,777 (559,005,216) 4,805,240,472 66,359,902 9,109,587 4,321,909,005 4,321,909,005 7,016,252,333 49,777 (773,130,748) 4,813,679,585 111,849,166 (335,625,776) 3,816,976,487 3,816,976,487 4,648,610,014 7,011 (108,893,188) 677,992,589 15,753,626 (47,271,902) 537,609,894 537,609,894 654,743,027 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents CANGO INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) Revenues Automobile trading income Loan facilitation income and other related income Guarantee income Leasing income After-market services income Others Total Revenues Operating cost and expenses Cost of revenue Sales and marketing General and administrative Research and development Net loss on contingent risk assurance liabilities Net loss on risk assurance liabilities Provision (net recovery on provision) for credit losses Impairment loss from goodwill Total operating cost and expense Loss from operations Interest income Net (loss) gain on equity securities Interest expense Foreign exchange gain, net Other income Other expenses Net income (loss) before income taxes Income tax expenses Net loss Net loss attributable to Cango Inc.’s shareholders Notes 2021 RMB 2022 RMB 2023 RMB US$ For the years ended December 31, 13 2,227,171,554 1,233,556,212 1,596,306,698 146,428,758 1,309,633,693 19,962,063 — 251,295,105 193,786,856 15,906,679 3,921,716,406 — 212,121,156 155,522,046 71,456,769 10,739,190 1,980,453,461 57,430,571 65,388,466 37,382,792 1,701,918,741 15 13 13 2,958,009,872 239,333,085 276,179,441 70,278,081 — 197,750,449 1,830,089,773 132,779,488 299,545,363 45,958,842 — 299,863,403 1,511,863,115 38,921,589 156,966,463 30,114,175 25,631,610 — 203,415,094 — 3,944,966,022 (23,249,616) 26,373,471 (12,991,522) (14,481,195) 1,351,400 41,911,589 (6,605,833) 12,308,294 (20,852,646) (8,544,352) (8,544,352) 319,359,716 — 2,927,596,585 (947,143,124) 43,732,652 (9,810,585) (16,809,263) 5,918,231 52,066,718 (2,465,972) (874,511,343) (236,696,540) (1,111,207,883) (1,111,207,883) (136,485,155) 148,657,971 1,775,669,768 (73,751,027) 79,164,929 24,093,019 (4,099,783) 1,099,229 30,701,851 (1,624,789) 55,583,429 (93,456,703) (37,873,274) (37,873,274) 16 17 18 184,458,048 2,811,598 29,876,640 8,088,927 9,209,773 5,265,255 239,710,241 212,941,466 5,481,991 22,108,264 4,241,493 3,610,137 — (19,223,532) 20,938,037 250,097,856 (10,387,615) 11,150,147 3,393,431 (577,442) 154,823 4,324,265 (228,847) 7,828,762 (13,163,101) (5,334,339) (5,334,339) The accompanying notes are an integral part of these consolidated financial statements. F-8 Table of Contents CANGO INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) Losses per Class A and Class B ordinary share: Basic Diluted Losses per ADS (2 ordinary shares equal 1 ADS): Basic Diluted Weighted average shares used to compute losses per Class A and Class B share: Notes 19 19 19 19 2021 RMB For the years ended December 31, 2022 RMB 2023 RMB US$ (0.03) (0.03) (0.06) (0.06) (4.05) (4.05) (8.11) (8.11) (0.16) (0.16) (0.31) (0.31) (0.02) (0.02) (0.04) (0.04) Basic Diluted 19 19 289,892,905 289,892,905 274,084,890 274,084,890 243,048,785 243,048,785 243,048,785 243,048,785 Other comprehensive (loss) income, net of tax Foreign currency translation adjustment Total comprehensive (loss) income, net of tax Total comprehensive (loss) income attributable to Cango Inc.’s shareholders (72,130,683) (80,675,035) 253,877,012 (857,330,871) 45,489,264 7,615,990 6,407,029 1,072,690 (80,675,035) (857,330,871) 7,615,990 1,072,690 The accompanying notes are an integral part of these consolidated financial statements. F-9 Table of Contents CANGO INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) Attributable to Cango Inc. Balance at January 1, 2021 Repurchase of ordinary shares Exercise of share options Share-based compensation (note 21) Net loss Other comprehensive loss Dividends to shareholders Balance at December 31, 2021 Class A and Class B Ordinary Shares Number of Shares Amount 299,749,760 204,260 (21,001,856) 737,228 — — — — 279,485,132 — — — — — — 204,260 Treasury shares Additional paid-in capital (56,419,225) 4,591,455,557 (444,401,172) 15,557,184 — — — — (485,263,213) — (7,320,571) 87,634,835 — — — 4,671,769,821 Total Cango Inc.’s equity Total shareholders’ equity Retained earnings (Accumulated deficit) Accumulated other comprehensive (loss) income (115,386,427) 3,955,354,972 8,375,209,137 8,375,209,137 (444,401,172) 8,236,613 87,634,835 (8,544,352) (72,130,683) (955,437,557) 6,990,566,821 — — — (8,544,352) — (955,437,557) 2,991,373,063 (444,401,172) 8,236,613 87,634,835 (8,544,352) (72,130,683) (955,437,557) 6,990,566,821 — — — — (72,130,683) — (187,517,110) The accompanying notes are an integral part of these consolidated financial statements. F-10 Table of Contents CANGO INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) Attributable to Cango Inc. Balance at December 31, 2021 Repurchase of ordinary shares Exercise of share options Share-based compensation (note 21) Net loss Other comprehensive income Dividends to shareholders Balance at December 31, 2022 Adjustments due to the adoption of ASC 326 Repurchase of ordinary shares Exercise of share options Share-based compensation (note 21) Net loss Other comprehensive income Balance at December 31, 2023 Balance as of December 31, 2023, in US$ Class A and Class B Ordinary Shares Number of Shares Amount Treasury shares Additional paid-in capital 279,485,132 204,260 (485,263,213) 4,671,769,821 — (11,718,250) — 1,817,288 — — — — — — — — 269,584,170 204,260 — — — (53,034,002) — 1,285,640 — — — — — — 217,835,808 204,260 (105,835,309) 32,093,306 — — — — (559,005,216) — (246,882,138) 32,756,606 — — — (773,130,748) — (25,051,869) 158,522,520 — — — 4,805,240,472 — — (30,051,400) 38,490,513 — — 4,813,679,585 Total Cango Inc.’s equity Total shareholders’ equity Retained earnings (Accumulated deficit) Accumulated other comprehensive (loss) income (187,517,110) 2,991,373,063 6,990,566,821 6,990,566,821 (105,835,309) 7,041,437 158,522,520 (1,111,207,883) 253,877,012 (1,871,055,593) 4,321,909,005 (105,835,309) 7,041,437 158,522,520 (1,111,207,883) 253,877,012 (1,871,055,593) 4,321,909,005 — — — (1,111,207,883) — (1,871,055,593) 9,109,587 — — — — 253,877,012 — 66,359,902 — — — — — 45,489,264 111,849,166 (306,862,089) — — — (37,873,274) — (335,625,776) (306,862,089) (246,882,138) 2,705,206 38,490,513 (37,873,274) 45,489,264 3,816,976,487 (306,862,089) (246,882,138) 2,705,206 38,490,513 (37,873,274) 45,489,264 3,816,976,487 28,769 (108,893,188) 677,992,589 15,753,626 (47,271,902) 537,609,894 537,609,894 The accompanying notes are an integral part of these consolidated financial statements. F-11 Table of Contents CANGO INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) Cash flows from operating activities: Net loss Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of lease right-of-use assets Share-based compensation expense Loss on risk assurance liabilities Loss on contingent risk assurance liabilities Provision (net recovery on provision) for credit losses Impairment loss from goodwill Impairment loss from inventory Guarantee income Net loss on derivative instruments Net loss on equity securities Loss (gain) on disposal of property and equipment Unrealized foreign exchange gain, net Deferred income tax (benefit) expense Changes in operating assets and liabilities: Accounts receivable Financing receivables Contract assets Operating lease right-of-use assets Other current and non-current assets Risk assurance liabilities Deferred guarantee income Contingent risk assurance liabilities Short-term and long-term operating lease liabilities Other current and non-current liabilities Net cash (used in) provided by operating activities Cash flows from investing activities: For the years ended December 31, 2021 RMB 2022 RMB 2023 RMB US$ (8,544,352) (1,111,207,883) (37,873,274) (5,334,339) 8,514,969 — 87,634,835 197,750,449 — 6,740,027 10,750,177 158,522,520 299,863,403 — 203,415,094 319,359,716 — — — 5,346,389 27,278,116 78,221 (1,351,400) (582,913,268) (78,030,840) (217,252,025) (679,404,752) — (180,898,244) 40,443,166 — — — 773,542,811 (404,390,831) — — — 1,162,556 15,331,464 228,463 (5,918,231) 371,325,673 (43,292,555) (277,894,354) 651,550,665 (91,476,934) (370,316,107) (596,582,896) — — 86,446,281 8,022,963 (567,385,052) 7,860,269 10,784,256 38,490,513 — 25,631,610 (136,485,155) 148,657,971 1,112,890 (212,121,156) — 49,125 (372,889) (1,099,229) 89,534,883 201,988,722 264,739,425 466,848,191 22,787,557 1,164,481,183 — 34,006 (306,894,746) (36,614,466) (685,513,226) 1,026,026,460 1,107,096 1,518,931 5,421,275 — 3,610,137 (19,223,532) 20,938,037 156,747 (29,876,640) — 6,919 (52,520) (154,823) 12,610,725 28,449,516 37,287,768 65,754,192 3,209,560 164,013,744 — 4,790 (43,225,221) (5,157,040) (96,552,518) 144,512,804 Repayments of finance lease receivables Origination of finance lease receivables Purchase of held-to-maturity investment Maturities of held-to-maturity investment Proceeds from redemption of other short-term investments, net Disposal of property and equipment Purchases of property and equipment and intangible assets Payment for acquiring subsidiary, net of cash acquired Net cash provided by investing activities 2,112,046,802 (1,091,415,329) (2,342,226,408) 1,158,122,796 2,841,860,867 51,241 (18,922,066) 1,705,083 2,661,222,986 1,408,147,460 (75,819,047) (3,934,700,190) 4,353,760,611 212,638,848 123,354 (4,622,233) — 1,959,528,803 822,008,245 — (4,805,030,501) 5,541,620,387 567,191,889 692,889 (1,784,632) — 2,124,698,277 115,777,440 — (676,774,391) 780,520,907 79,887,307 97,591 (251,360) — 299,257,494 The accompanying notes are an integral part of these consolidated financial statements. F-12 Table of Contents CANGO INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) Cash flows from financing activities: Payment to repurchase treasury shares Proceeds from borrowings Proceeds from exercise of share options Repayment of borrowings Distribution to shareholders Net cash used in financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at beginning of the year Cash, cash equivalents and restricted cash at the end of the year Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets Cash and cash equivalents Restricted cash – current - bank deposits held for short- term investments Restricted cash – current - others Restricted cash – non-current Total cash, cash equivalents and restricted cash shown in the statements of cash flows Supplemental disclosures of cash flow information: For the years ended December 31, 2021 RMB 2022 RMB 2023 RMB US$ (444,401,172) 1,546,736,325 8,236,613 (2,101,568,517) (955,437,557) (1,946,434,308) (105,835,309) 684,819,308 7,041,437 (1,705,178,591) (1,871,055,593) (2,990,208,748) (246,882,138) 228,081,410 2,705,206 (1,177,683,477) — (1,193,778,999) (34,772,622) 32,124,595 381,020 (165,873,248) — (168,140,255) (15,008,806) 270,267,366 48,897,458 6,887,063 295,389,041 (1,327,797,631) 2,005,843,196 282,517,106 2,314,891,724 2,610,280,765 1,282,483,134 180,633,971 2,610,280,765 1,282,483,134 3,288,326,330 463,151,077 1,434,806,922 378,917,318 1,020,604,191 143,749,094 — 61,293,114 1,114,180,729 — 152,688,510 750,877,306 1,670,006,785 14,334,937 583,380,417 235,215,536 2,019,034 82,167,413 2,610,280,765 1,282,483,134 3,288,326,330 463,151,077 Cash paid for income taxes Cash paid for interest 209,044,264 134,173,921 33,818,292 83,133,433 7,844,174 17,116,510 1,104,829 2,410,810 The accompanying notes are an integral part of these consolidated financial statements. F-13 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 1. ORGANIZATION Cango Inc. (the “Company”, and where appropriate, the term “Company” also refers to its subsidiaries, variable interest entities, and subsidiaries of the variable interest entities as a whole) is an exempt company incorporated in the Cayman Islands with limited liability under the laws of the Cayman Islands on October 9, 2017. The Company, through its subsidiaries, variable interest entities (“VIEs”), and subsidiaries of the VIEs, are principally engaged in the provision of automobile trading transaction, automotive financing facilitation, and aftermarket service facilitation in the People’s Republic of China (the “PRC”). The Company conducts its primary business operations through its VIEs and the subsidiaries of the VIEs. As of December 31, 2023, the Company effectively controls a number of VIEs through the Primary Beneficiaries, as defined below. Entity Subsidiaries Cango Group Limited (“Cango HK”) October 31, 2017 Date of incorporation Express Group Development Limited June 30, 2016 Place of incorporation Percentage of legal ownership by the Company Principal activities Hong Kong (“HK”) HK 100% Investment holding 100% Investment holding January 25, 2018 PRC 100% Investment holding (“Express Limited”) Can Gu Long (Shanghai) Information Technology Consultation Service Co., Ltd. (“Cangulong” or Wholly Foreign Owned Enterprise “WFOE”) VIEs Shanghai Cango Investment and Management Consultation Service Co., Ltd. (“Shanghai Cango”) August 30, 2010 PRC Shanghai Yunguhaoche Electronic Technology Co., Ltd. (“Shanghai Yungu”) March 15, 2022 PRC Nil Nil Provision of automotive financing facilitation, automobile trading transaction and aftermarket service facilitation. Provision of automobile trading transaction. On October 31, 2017, the Company incorporated a wholly-owned subsidiary, Cango HK, in Hong Kong. On January 25, 2018, the Company incorporated another wholly-owned subsidiary, Cangulong, in the PRC. On March 23, 2018, Shanghai Cango signed a series of contractual agreements with Cangulong and its nominee shareholders (the “VIE Agreements”). On September 30, 2022, Shanghai Yungu signed a series of contractual agreements with Cangulong and its nominee shareholders. As of December 31, 2023 and during the year of 2023, business operation performed through Shanghai Yungu was not material. The summary of VIE agreements related to Shanghai Cango (the “VIE”) is listed below. F-14 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 1. ORGANIZATION - CONTINUED The Company operates its business primarily through the VIE and the subsidiaries of the VIE. The Company, through the WFOE, entered into power of attorney and an exclusive option agreement with the nominee shareholders of the VIE, that gave the WFOE the power to direct the activities that most significantly affect the economic performance of the VIE and to acquire the equity interests in the VIE when permitted by the PRC laws, respectively. Certain exclusive agreements have been entered into with the VIE through the Company or its wholly-owned subsidiaries in mainland China, which obligate the Company to absorb a majority of the risk of loss from the VIE’s activities and entitles the Company to receive a majority of their residual returns. In addition, the Company entered into a share pledge agreement for equity interests in the VIE held by the nominee shareholders of the VIE. On March 22, 2018, Cango Inc. agreed to provide unlimited financial support to the VIE for its operations. Therefore, Cango Inc. is determined to be most closely associated with the VIE within the group of related parties and was considered to be the Primary Beneficiary of the VIE. The shareholders of the VIEs effectively assigned all of their voting rights underlying their equity interest in the VIEs to the primary beneficiary. In addition, through the other exclusive agreements, which consist of exclusive option agreements, exclusive business operation agreements and financial support undertaking letter, the primary beneficiary, by itself or its wholly-owned subsidiaries in mainland China, demonstrate its ability and intention to continue to exercise the ability to absorb losses or receive economic benefits that could potentially be significant to the VIEs. The VIEs are subject to operating risks, which determine the variability of the Company’s interest in those entities. Based on these contractual arrangements, the Company consolidates the VIEs as required by Accounting Standards Codification (“ASC”) Topic 810, Consolidation. The following is a summary of the VIE Agreements: (1) Power of Attorney Agreements: Pursuant to the power of attorney signed between Shanghai Cango’s nominee shareholders and the WFOE, each nominee shareholder irrevocably appointed the WFOE as its attorney-in-fact to exercise on each nominee shareholder’s behalf any and all rights that each nominee shareholder has in respect of its equity interest in Shanghai Cango (including but not limited to executing the exclusive right to purchase agreements, the voting rights and the right to appoint directors and executive officers of Shanghai Cango). This agreement is effective and irrevocable as long as the nominee shareholder remains a shareholder of Shanghai Cango. (2) Exclusive Option Agreement: Pursuant to the exclusive option agreement entered into between Shanghai Cango’s nominee shareholders and the WFOE, the nominee shareholders irrevocably granted the WFOE a call option to request the nominee shareholders to transfer or sell any part or all of its equity interests in the VIE, or any or all of the assets of the VIE, to the WFOE, or their designees. The purchase price of the equity interests in the VIE is equal to the minimum price required by PRC law. Without the WFOE’s prior written consent, the VIE and its nominee shareholders cannot amend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial interest, create or allow any encumbrance on its assets or other beneficial interests and provide any loans or guarantees. The nominee shareholders cannot request any dividends or other form of assets. If dividends or other form of assets were distributed, the nominee shareholders are required to transfer all received distribution to the WFOE or their designees. This agreement is not terminated until all of the equity interest of the VIE is transferred to the WFOE or the person(s) designated by the WFOE. None of the nominee shareholders have the right to terminate or revoke the agreement under any circumstance unless otherwise regulated by law. F-15 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 1. ORGANIZATION - CONTINUED (3) Exclusive Business Cooperation Agreement: Pursuant to the exclusive business cooperation agreement entered into by the WFOE and Shanghai Cango and its subsidiaries, the WFOE provides exclusive technical support and consulting services in return for fees based on 100% of Shanghai Cango’s profit before tax, which is adjustable at the sole discretion of the WFOE. Without the WFOE’s consent, the VIE and its subsidiaries cannot procure services from any third-party or enter into similar service arrangements with any other third-party, other than the WFOE. In addition, the consolidated VIE granted the WFOE an exclusive right to purchase any or all of the business or assets of each of the profitable consolidated VIE and its subsidiaries at the lowest price permitted under PRC law. This agreement is irrevocable or can only be unilaterally revoked/amended by the WFOE. (4) Equity Interest Pledge Agreement Pursuant to the equity interest pledge agreement, the nominee shareholders representing over 90% of the VIE’s equity interest have pledged all of their respective equity interests in the VIE to the WFOE as continuing first priority security interest to guarantee the nominee shareholders’ and the VIE’s obligations under the power of attorney agreement, the exclusive option agreement and the exclusive business cooperation agreement. The WFOE is entitled to collect dividends during the effective period of the share pledge unless it agrees otherwise in writing. If Shanghai Cango or any of the nominee shareholder breaches its contractual obligations, the WFOE will be entitled to certain rights regarding the pledged equity interests, including receiving proceeds from the auction or sale of all or part of the pledged equity interests of Shanghai Cango in accordance with PRC law. None of the nominee shareholders may assign or transfer to any third-party, distribute dividends and create or cause any security interest and any liability in whatsoever form to be created on, all or any part of the equity interests it holds in the VIE without the written consent of the WFOE. This agreement is not terminated until all of the technical support and consulting and service fees are fully paid under the exclusive business cooperation agreement and all of Shanghai Cango’s obligations have been terminated under the other controlling agreements. In addition, the following supplementary agreements were entered into: 1) Financial support undertaking letter Pursuant to the financial support undertaking letter, the Company is obligated to provide unlimited financial support to the VIE, to the extent permissible under the applicable PRC laws and regulations. The Company will not request repayment of the loans or borrowings if the VIE Entity or its shareholders do not have sufficient funds or are unable to repay. 2) Resolutions of the sole director of Cango Inc. (the “Resolutions”) The sole director resolved that each of Mr. Xiaojun Zhang, Mr. Jiayuan Lin and Mr. Yongyi Zhang (each, an “Authorized Officer”) shall cause the WFOE to exercise its rights under the power of attorney agreements and the exclusive option agreement when the Authorized Officer determines that such exercise is in the best interests of the Company and the WFOE to do so. F-16 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 1. ORGANIZATION - CONTINUED In addition, the following supplementary agreements were entered into: (continued) 2) Resolutions of the sole director of Cango Inc. (the “Resolutions”) (continued) In the opinion of the Company’s legal counsel, (i) the ownership structure of the PRC subsidiaries and the VIE, does not violate applicable PRC laws and regulations; (ii) each of the VIE Agreements is valid, binding and enforceable in accordance with its terms and applicable PRC laws or regulations and will not violate applicable PRC laws or regulations; (iii) the financial support letter issued by the Company to the VIE and the resolutions contained in the Resolutions are valid in accordance with the articles of association of the Company and Cayman Islands Law. However, uncertainties in the PRC legal system could cause the Company’s current ownership structure to be found in violation of existing and/or future PRC laws or regulations and could limit the Company’s ability to enforce its rights under these contractual arrangements. Furthermore, the nominee shareholders of the VIE may have interests that are different than those of the Company, which could potentially increase the risk that they would seek to act contrary to the terms of the contractual agreements with the VIE. On January 1, 2020, the Foreign Investment Law came into effect and became the principal laws and regulations governing foreign investment in mainland China. The Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, but it contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. There are uncertainties regarding the interpretation of the Foreign Investment Law with respect to the contractual arrangements as a form of foreign investment. Since the VIE’s value-added telecommunication-based services in mainland China are subject to restrictions of the negative list or subject to the restrictions on foreign investment, if any of the VIEs would be deemed as a foreign invested enterprise, the Company’s current organizational structure could be in violation of existing and/or future laws or regulations of mainland China and could limit the Company’s ability, through the primary beneficiary, to enforce its rights under these contractual arrangements with the VIEs and the Company’s ability to conduct business through the VIEs could be severely limited. In addition, if the current structure or any of the contractual arrangements is found to be in violation of any existing or future PRC laws or regulations, the Company could be subject to penalties, which could include, but not be limited to, revocation of business and operating licenses, discontinuing or restricting business operations, restricting the Company’s right to collect revenues, temporary or permanent blocking of the Company’s internet platforms, restructuring of the Company’s operations, imposition of additional conditions or requirements with which the Company may not be able to comply, or other regulatory or enforcement actions against the Company that could be harmful to its business. The imposition of any of these or other penalties could have a material adverse effect on the Company’s ability to conduct its business. F-17 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 1. ORGANIZATION – CONTINUED As of December 31, 2022 and 2023, RMB136,671,970 and RMB nil (US$nil) of restricted cash, and RMB360,725,648 and RMB nil (US$nil) of finance lease receivables, respectively, were pledged or collateralized for the VIEs’ obligations. Creditors of the VIEs have no recourse to the general credit of the Company, who is the primary beneficiary of the VIEs, through their 100% controlled subsidiary Cangulong. The Company has not provided any financial or other support that it was not previously contractually required to provide to the VIEs during the periods presented. The table sets forth the assets and liabilities of the VIEs’ included in the Company’s consolidated balance sheets: As of December 31, 2022 RMB 2023 RMB US$ Cash and cash equivalents Other current assets Total current assets Finance lease receivables—non-current Other non-current assets Total non-current assets Total assets Short-term debts Other current liabilities Total current liabilities Long-term debts Other non-current liabilities Total non-current liabilities Total liabilities 36,426,617 268,621,701 293,424,298 41,327,948 3,717,898,668 2,252,537,952 317,263,335 3,986,520,369 2,545,962,250 358,591,283 5,130,582 260,049,967 727,442,480 102,458,130 1,246,816,149 1,506,866,116 763,869,097 107,588,712 5,493,386,485 3,309,831,347 466,179,995 5,503,106 58,550,411 64,053,517 100,286 7,484,223 7,584,509 71,638,026 349,299,134 1,861,808,449 2,211,107,583 75,869,353 86,138,152 162,007,505 2,373,115,088 39,071,500 415,702,064 454,773,564 712,023 53,137,238 53,849,261 508,622,825 The VIEs’ net asset balance was RMB3,120,271,397 and RMB2,801,208,522 (US$394,541,968) as of December 31, 2022 and 2023. The table sets forth the results of operations of the VIEs included in the Company’s consolidated statements of comprehensive (loss) income: For the years ended December 31, Revenues Net income (loss) 2021 RMB 3,921,688,104 37,717,411 2022 RMB RMB 1,980,415,725 1,701,876,288 239,704,262 (12,328,395) (1,131,232,450) (87,530,375) US$ 2023 The table sets forth the cash flows of the VIEs included in the Company’s consolidated statements of cash flows: Net cash (used in) provided by operating activities Net cash provided by investing activities Net cash used in financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash 2021 RMB (374,886,851) 744,832,757 (554,832,190) For the years ended December 31, 2022 RMB RMB 2023 (599,053,407) 1,084,633,210 (1,020,359,284) 969,040,392 1,369,020,741 (949,602,067) US$ 136,486,485 192,822,539 (133,748,654) (55,087) 175,763 — — F-18 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The consolidated financial statements of the Company have been prepared in accordance with the generally accepted accounting principles of the United States (“U.S. GAAP”). Principles of consolidation The consolidated financial statements include the financial statements of the Company, its subsidiaries, VIEs, and the subsidiaries of the VIEs. All inter-company transactions and balances have been eliminated. Use of estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Company’s consolidated financial statements include, but are not limited to allowance for financing receivables, allowance for finance lease receivables, fair value of guarantee income, expected credit loss on contingent risk assurance liabilities, intangible assets with indefinite lives, valuation allowance for deferred tax assets and goodwill impairment. Management bases these estimates on its historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates. Revenue recognition The Company’s revenues are derived principally from 1) automobile trading income, 2) loan facilitation services and post- origination administrative services, 3) finance lease services, 4) after-market services facilitation services, 5) guarantee income and 6) other income, which mainly includes vehicle management fees and storage service fees related to automobile trading transaction. Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration that the Company expects to be entitled to in exchange for those goods or services, net of value-added tax (“VAT”). The Company determines revenue recognition through the following steps: ● Identify the contract(s) with a customer; ● Identify the performance obligations in the contract; ● Determine the transaction price; ● Allocate the transaction price to the performance obligations in the contract; and ● Recognize revenue when (or as) the entity satisfies a performance obligation. F-19 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Automobile trading transaction When providing car trading services, the Company evaluates if it is a principal or an agent in a transaction to determine whether revenues should be recorded on a gross or net basis. The Company acts as a principal in which the Company purchases vehicles from suppliers which are vehicle manufacturers or their first-tier car dealerships and sells the vehicles to customers which are other car dealerships and records revenue on a gross basis if it obtains control over the specified goods and services before they are transferred to the customers. When the Company acts as an agent, revenue is recorded on a net basis when the Company does not obtain control over the specified goods and services before they are transferred to the customers. The revenue generated from sale of vehicles is recognized at a point in time when the control of the vehicles is transferred from the Company to the customers when the vehicles are delivered and their titles are passed on to the customers. Loan facilitation services and post - origination administrative services (“PAS”) The Company entered into non-risk assured and risk assured facilitation arrangements with various financial institutions. Borrowers that pass the Company’s credit assessment are recommended to the financial institutions. Once the borrower is independently approved by the financial institutions, the financial institutions will directly fund the borrower’s automobile purchase and the Company will earn a loan facilitation fee from the financial institution and borrowers. The Company will provide PAS, such as tracking through telematics devices in the automobiles; and sending short-message-service (“SMS”) payment reminder to borrowers, throughout the terms of the loans. In addition, for certain arrangements, the Company provides risk assurance on the principal and accrued interest repayments of the defaulted loans to various financial institutions. The Company determined that it is not the legal lender or legal borrower in the loan origination and repayment process, respectively. Therefore, the Company does not record loan receivables and payable arising from the loans between borrowers and financial institutions on its consolidated balance sheet. The Company determines its customers to be both the financial institutions and borrowers. The Company considers the loan facilitation service, PAS and risk assurance services as separate services, of which the risk assurance service is accounted for in accordance ASC 460, Guarantees (“ASC 460”). The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised services to the customer, net of value-added tax. The transaction price includes variable service fees which are contingent on the borrower making timely repayments. Variable consideration is estimated using the expected value method based on historical default rate, current and forecasted borrower repayment trends and is limited to the amount of variable consideration that is probable not to be reversed in future periods. As a result, the estimation of variable consideration involves significant judgement. The Company makes the assessment of whether the estimate of variable consideration is constrained. Any subsequent changes in the transaction price will be allocated to the performance obligations on the same basis as at contract inception. The Company first allocates the transaction price to the risk assurance liabilities at fair value in accordance with ASC 460. The remaining transaction price is then allocated to the loan facilitation services and PAS on a relative standalone selling price basis. The Company does not have observable price for the loan facilitation services and PAS because the services are not provided separately. As a result, the estimation of standalone selling price involves significant judgement. The Company estimates the standalone selling price of the loan facilitation and PAS using the expected cost plus a margin approach. The fee allocated to loan facilitation is recognized as revenue upon each successful loan facilitation, while the fee allocated to PAS are deferred and amortized over the period of the loan on a straight-line method as the PAS services are performed. PAS revenue recognized in the years ended December 31, 2021, 2022 and 2023 was RMB41,561,564, RMB23,411,975 and RMB14,093,321 (US$1,985,003), respectively. F-20 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Loan facilitation services and post - origination administrative services ("PAS") (continued) The loan facilitation services and PAS are recorded as Loan facilitation income and other related income in the consolidated statements of comprehensive (loss) income. Finance lease services The Company provides automobile finance lease services to individual borrowers. Financing lease income is recognized using the effective interest method. Initial direct cost received and direct origination costs are generally deferred and amortized over the term of the related finance lease receivables using the effective interest method and are removed from the consolidated balance sheets when the related finance lease receivables are sold, charged off or paid in full. After-market services income The Company provides after-market services to car buyers which mainly include two types of separate contracts, 1) insurance facilitation service and 2) car recovery and disposal services. For 1) after-market insurance facilitation service, it mainly includes two types of contracts, one is facilitating personal accident insurance and automobile insurance, and the other is offering anti-theft package services. After-market insurance facilitation service income for personal accident insurance and automobile insurance is recognized at the point of time when facilitation services are completed. For anti-theft package services, the Company first allocates the fair value of indemnification service under ASC 460 and then allocates the remaining consideration to the after-market service of anti-theft telematic devises installment. For 2) after-market car recovery and disposal services income, it mainly refers to delinquent asset management income for car recovery and disposal services, which is recognized at the point of time when the company delivers the relevant service. Business combinations The Company accounts for its business combinations using the purchase method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). The purchase method of accounting requires that the consideration transferred to be allocated to the assets, including separately identifiable assets and liabilities the Company acquired, based on their estimated fair values. The consideration transferred in an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total of cost of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in earnings. The determination and allocation of fair values to the identifiable assets acquired, liabilities assumed and non-controlling interests is based on various assumptions and valuation methodologies requiring considerable judgment from management. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Company determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of assets, forecasted life cycle and forecasted cash flows over that period. F-21 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Leases Operating Leases – Lessee under ASC 842 The Company has operating leases for certain office rentals as a lessee. At inception of a contract, the Company determines whether that contract is, or contains a lease. For each lease arrangement identified, the Company determines its classification as an operating or finance lease. As of January 1, 2022, the Company records a lease liability and corresponding operating lease right-of-use (“ROU”) asset at lease commencement. Lease liabilities represent the present value of the lease payments not yet paid, discounted using the discount rate for the lease at lease commencement. The Company’s lease agreements include lease payments that are largely fixed, do not contain material residual value guarantees or variable lease payments. The discount rate is determined using the Company’s incremental borrowing rate at lease commencement since the rate implicit in the lease is not readily determinable. The Company uses its unsecured borrowing rate over the lease term and adjusts the rate based on its credit risk and the effects of collateral to approximate a collateralized rate, which will be updated on an annual basis for measurement of new lease liabilities. ROU asset represents the right to use an underlying asset for the lease term and are recognized in an amount equal to the lease liability adjusted for any lease payments made prior to commencement date, less any lease incentives received, and any initial direct costs incurred by the Company. Lease terms are based on the non-cancellable term of the lease and may contain options to extend the lease when it is reasonably certain that the Company will exercise the option. However, none of these have been recognized in the Company’s right- of-use assets or lease liabilities since those options were not reasonably certain to be exercised. If there is a lease modification, the Company considers whether the lease modification results in a separate contract. If so, the Company accounts for the separate contract the same manner as any other new lease, in addition to the original unmodified contract. Otherwise, the Company remeasures and reallocates the remaining consideration in the contract, reassesses the classification of the lease at the effective date of the modification and accounts for any initial direct costs, lease incentives and other payments made to or by the lessee. If the modification fully or partially terminates the existing lease, the Company remeasures the lease liability and decreases the carrying amount of the right-of-use asset in proportion to the full or partial termination of the existing lease and recognize in profit or loss any difference between the reduction in the lease liability and the reduction in the right-of-use asset. Besides, operating lease expense is recognized as a single lease cost on a straight-line basis over the lease term and is included in general and administrative expenses, on the consolidated statements of comprehensive (loss) income. Lease liabilities that become due within one year of the balance sheet date are classified as current liabilities. Operating leases under ASC 840 Before January 1, 2022, leases where the Company is the lessee, and substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals applicable to such operating leases are recognized on a straight- line basis over the lease term. Certain of the operating lease agreements contain rent holidays. Rent holidays are considered in determining the straight-line rent expense to be recorded over the lease term. F-22 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Goodwill Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of an acquired business. The Company’s goodwill on December 31, 2022 was primarily related to the acquisition of Shanghai Chejia in 2018. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), recorded goodwill amounts are not amortized, but rather are tested for impairment annually or more frequently if there are indicators of impairment present. The Company applied Accounting Standards Update (“ASU”) No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the accounting for goodwill impairment by eliminating Step two from the goodwill impairment test. Under the guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. Fair value is primarily determined by computing the future discounted cash flows expected to be generated by the reporting unit. Pursuant to ASC 350, the Company may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit of Cango Inc. is greater than its carrying value. If a qualitative assessment is not performed, or if as a result of a qualitative assessment it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, then the reporting unit’s fair value is compared to its carrying value. The Company tests for impairment annually, and between annual tests if the Company becomes aware of an event or a change in circumstances that would indicate the carrying value may be impaired. As of December 31, 2022, the Company completed its annual impairment test for goodwill under a quantitative impairment test of goodwill in which the Company performs an assessment that consists of a comparison of the carrying value of a reporting unit with its fair value. The fair values of the reporting unit are determined using income valuation approaches through the application of discounted cash flow method. Estimating fair values of the reporting unit involves significant assumptions, including future revenue growth rates, gross margin, terminal growth rates and discount rates. No impairment losses on goodwill and intangible assets were recognized during the year ended December 31, 2022. Management performs goodwill impairment tests during the year ended December 31, 2023 and recorded an impairment loss on goodwill of RMB148,657,971 (US$ 20,938,037) during the third quarter in 2023 as the financial performance of the automobile trading and loan facilitation businesses continued to fall below original expectations, which was classified as “Impairment loss from goodwill” in the consolidated statement of comprehensive (loss) income. Cost of revenues Cost of revenues consist primarily of cost of vehicles, commissions paid to car dealers who refer borrowers to the Company, employee compensation costs, leasing interest expense, cost of telematics devices installed in automobiles and third-party outsourcing fees for vehicle repossession services. Cost of revenues are expensed as incurred when the corresponding services have been provided. F-23 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Foreign currency translation and transactions The functional currency of the Company, Cango HK and Express Limited is the US$. The Company’s subsidiaries, VIEs, and subsidiaries of the VIEs with operations in the PRC adopted RMB as their functional currencies. The determination of the respective functional currency is based on the criteria stated in ASC 830, Foreign Currency Matters (“ASC 830”). The Company uses RMB as its reporting currency. The financial statements of the Company, Cango HK and Express Limited are translated into RMB using the exchange rate as of the balance sheet date for assets and liabilities and average exchange rate for the year for income and expense items. Translation gains and losses are recorded in accumulated other comprehensive retained earnings, as a component of shareholders’ equity. Transactions in currencies other than the functional currency are measured and recorded in the functional currency at the exchange rate prevailing on the transaction date. Monetary assets and liabilities denominated in currencies other than the functional currency are re-measured into the functional currency at the rates of exchange prevailing at the balance sheet dates. Transaction gains and losses are recognized in the consolidated statements of comprehensive (loss) income during the period or year in which they occur. Cash and cash equivalents Cash and cash equivalents primarily consist of cash, investments in interest bearing demand deposit accounts, time deposits, and highly liquid investments with original maturities within three months from the date of purchase and are stated at cost which approximates their fair value. All cash and cash equivalents are unrestricted as to withdrawal and use. As of December 31, 2023, majority of the Company’s cash and cash equivalents, restricted cash and short-term investments were held by financial institutions located in mainland China and Hong Kong. Deposits held in mainland China are subject to restrictions on foreign exchange and the ability to transfer cash outside of mainland China. In May 2015, a new Deposit Insurance System (“DIS”) managed by the People’s Bank of China (‘‘PBOC’’) was implemented by the Chinese government. Deposits in the licensed banks in mainland China are protected by DIS, up to a limit of RMB500 thousands. Hong Kong has an official Deposit Protection Scheme (“DPS”). Deposits in the licensed banks in Hong Kong are protected by DPS, up to a limit of HK$500 thousands. The Company selected reputable financial institutions to place its cash and cash equivalents, restricted cash and short-term investments. The Company regularly monitors the rating of the financial institutions to avoid any potential defaults. There has been no recent history of default in relation to these financial institutions. Restricted cash Restricted cash represents cash deposited with the respective financial institution customers as (i) collaboration and guarantee deposits in relation to facilitation transaction with financial institutions, (ii) collateral for notes payable for automobile trading business and (iii) bank deposits held for short-term investments. Financial institutions make corresponding deductions from the collaboration and guarantee deposits in relation to facilitation transaction with financial institutions, when borrowers are delinquent in their installment repayments and/or when loans are required to be purchased by the Company after a specified delinquency period. Such restricted cash is not available to fund the general liquidity needs of the Company. The classification of restricted cash (iii) was mainly due to the redemption of certain short-term investments and reclassification of such redemption proceeds to restricted cash, current - bank deposits held for short-term investment during the subscription process for new investments as of the balance sheet date. F-24 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Restricted cash (continued) The balance of restricted cash deposited as collaboration and guarantee deposits in relation to facilitation transaction with financial institutions was RMB766,893,846 and RMB597,715,354 (US$84,186,447) as of December 31, 2022 and 2023, respectively. The balance of restricted cash deposited as collateral for notes payable for automobile trading business was RMB136,671,970 and RMB nil (US$ nil) as of December 31, 2022 and 2023, respectively. The balance of restricted cash deposited as bank deposits held for short-term investments was RMB nil and RMB1,670,006,785 (US$235,215,536) as of December 31, 2022 and 2023, respectively. Accounts receivable, net Accounts receivable are recognized and carried at the original contract amount which will be invoiced, net of allowances for accounts receivable. The Company maintains an allowance for accounts receivable in accordance with Accounting Standards Update (“ASU”) No. 2016 - 13, Financial instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 326”) and records the allowance as an offset to accounts receivable, and the expected credit losses charged to the allowance is classified as “Provision (net recovery on provision) for credit losses” in the consolidated statements of comprehensive (loss) income. Bad debts are written off after all collection efforts have been exhausted. Contract assets and liabilities Contract assets represents the Company’s right to consideration in exchange for loan facilitation services that the Company has transferred to the customer before payment is due. The Company maintains an allowance for contract assets in accordance with ASC 326 and records the allowance as an offset to contract assets, and the expected credit losses charged to the allowance is classified as “Provision (net recovery on provision) for credit losses” in the consolidated statements of comprehensive (loss) income. Contract assets as of December 31, 2022 and 2023 were RMB673,846,832 and RMB206,933,969 (US$29,146,040), respectively. The remaining unsatisfied performance obligations as of December 31, 2022 and 2023, pertaining to post-origination services amounted to RMB1,001,890 and RMB331,460 (US$46,685), respectively. Contract liabilities represents the Company’s obligation to transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due) from the customer and mainly consist of cash payment received in advance from customers of automobile trading transactions and PAS, which is included in “Accrued expenses and other current liabilities” and “Other non-current liabilities” on consolidated balance sheets. The amount of revenue recognized that was included in the contract liabilities balance at the beginning of the years were RMB267,339,943 and RMB402,188,821 (US$56,647,111) for the years ended December 31, 2022 and 2023, respectively. Short-term investments All highly liquid investments such as time deposits and structured deposits with original maturities of three months or more but less than one year, are classified as short-term investments. Investments such as wealth management products expected to be realized in cash during the next twelve months are also included in short-term investments. The Company accounts for short-term debt investments in accordance with ASC 320, Investments – Debt Securities (“ASC 320”), and short-term equity investments in accordance with ASC 321, Investments – Equity Securities (“ASC 321”). The Company classifies the short-term debt investments as “held-to-maturity”, “trading” or “available-for-sale”, whose classification determines the respective accounting methods stipulated by ASC 320. Debt securities that the Company has the positive intent and the ability to hold to maturity are classified as held-to-maturity securities and stated at amortized cost. Such debt securities include time deposits, and structured deposits in financial institutions. F-25 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Short-term investments (continued) Debt securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Unrealized holding gains and losses for trading debt securities are included in earnings. Debt investments not classified as trading or as held-to-maturity are classified as available-for-sale securities. Available-for-sale investments are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive (loss) income. Realized gains or losses are included in earnings during the period in which the gain or loss is realized. Equity investments measured at fair value with changes in fair value are recorded in earnings. The Company does not assess whether those securities are impaired. Such equity securities include wealth management products in financial institutions. Any realized gains or losses on the sale of the short-term investments are determined on a specific identification method and are reflected in earnings during the period in which gains or losses are realized. Interest income, realized and unrealized gains and losses from the short-term investments are recorded in “Interest income” and “Net gain (loss) on equity securities” respectively in the consolidated statements of comprehensive (loss) income. Derivative instruments In 2021, the Company entered into a cross-currency interest rate swap contract that allow the Company to buy HKD at a pre- determined exchange rate and repay HKD borrowing with fixed interest rate on maturity date. The cross-currency interest rate swap contract matured in March 2022. According to such swap contract, the unrealized losses recognized in the comprehensive (loss) income were RMB5.3 million during the year ended December 31, 2021 and the realized losses recognized in the comprehensive (loss) income were RMB1.2 million during the year ended December 31, 2022. The total notional amount of the outstanding cross- currency interest rate swap contracts was RMB nil and RMB nil (US$ nil) as of December 31, 2022 and 2023, respectively. The Company accounts for the cross-currency interest rate swap contracts in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). The cross-currency interest rate swap contracts were measured at fair value and classified as accrued expenses and other current liabilities within the consolidated balance sheets. The Company estimates the fair value of the cross-currency interest rate swap contracts at each reporting period using a discounted cashflow model by using future net expected cashflow discounted at foreign exchange forward adjusted market yield. Any change in the fair value of the cross-currency interest rate swap contracts are recorded as other income in the consolidated statement of comprehensive (loss) income for each period until the contract matures, is terminated, or sold. The cross-currency interest rate swap contracts may expose the Company to credit risk to the extent that the counterparty may be unable to meet the terms of the arrangement. The Company mitigates this credit risk by transacting with major financial institutions with high credit ratings. Since the Company has no cross-currency interest rate swap contract as of December 31, 2022 and 2023, respectively, there were no additional unrealized losses and realized losses recognized in the comprehensive (loss) income and no cash collateral during the years ended December 31, 2022 and 2023. F-26 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Risk assurance liabilities The Company provides risk assurance to various financial institution customers. The risk assurance liability requires the Company to either make delinquent installment repayments or purchase the loans after a specified period on an individual loan basis. The risk assurance liability is exempted from being accounted for as a derivative in accordance with ASC 815-10-15-58. The risk assurance liability consists of two components, the Company’s obligation to stand ready to make delinquent payments over the term of the arrangement (non-contingent risk assurance liabilities) and the contingent obligation relating to the contingent loss arising from the arrangement (contingent risk assurance liabilities). Non-contingent risk assurance liabilities Non-contingent risk assurance liability is accounted for in accordance with ASC 460. At inception, the Company recognizes non- contingent risk assurance liability at fair value, which is primarily based on assumptions regarding probability of default, loss given default and margin rate, while considering the premium required by a third-party market participant to issue the same risk assurance in a standalone transaction. Subsequently, non-contingent risk assurance liability is reduced over the term of the arrangement as the Company is released from its stand ready obligation on a loan-by-loan basis based on the borrower’s repayment of the loan principal. Prior to the adoption of ASC 326 on January 1, 2023, the release of non-contingent risk assurance liability is recognized in earnings as a reduction of net loss on risk assurance liabilities. Subsequent to January 1, 2023, non-contingent risk assurance liability is subsequently recognized as guarantee income. Contingent risk assurance liabilities Prior to January 1, 2023, the contingent risk assurance liability is accounted for in accordance with ASC 450, Contingencies (“ASC 450”). The contingent loss arising from the obligation to make future payments is recognized under incurred loss methodology, when borrower default is probable, and the amount of loss is estimable. The Company measured contingent loss based on the future payout of the arrangement estimated using the historical default rates of a portfolio of similar loans less the historical recoverable amount. Subsequent to January 1, 2023, the contingent risk assurance liabilities accounted for under ASC 450 are in the scope of ASC 326 and subject to the CECL lifetime methodology, the contingent risk assurance liabilities shall be accounted for in addition to and separately from the non-contingent risk assurance liabilities accounted for under ASC 460. The contingent risk assurance liabilities are determined using CECL lifetime methodology, compared to incurred loss methodology before the adoption, and recognized in full amount at loan inception. The subsequent changes in the contingent risk assurance liability calculated under the Company’s CECL life methodology is adjusted through earnings as changes in net loss on contingent risk assurance liabilities. F-27 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Financing receivables The Company records financing receivables in accordance with ASC 310-30, Loan and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”) when it exercises its obligation to purchase a delinquent loan under the risk assurance obligation and obtains legal title to any subsequent payments made by the borrower and the repossessed asset. Financing receivables are recorded at their fair value, which is the purchased price minus corresponding risk assurance liability. The total purchase price, as well as par value, of the financing receivables was RMB1,190 million and RMB513 million (US$72 million) for the year ended December 31, 2022 and December 31, 2023, respectively. The allowance for financing receivables at the acquisition date based on the acquirer’s assessment was RMB307 million (US$43 million) for the year ended December 31, 2023. Financing receivables are divided among pools based on common risk characteristics, such as product (i.e. new cars and used cars) and delinquency status. The financing receivables balances of new cars and used cars were RMB55,693,049 and RMB18,124,976 as of December 31, 2022, respectively and RMB24,200,609 (US$3,408,585) and RMB5,321,426 (US$749,507) as of December 31, 2023, respectively. These pools are collectively evaluated for impairment based on roll rate analysis and the resulting allowance is aggregated for each of the pools. Finance lease receivables Finance lease receivables are carried at amortized cost comprising of original financing lease and direct costs, net of unearned income and allowance for finance lease receivables. An account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Finance lease receivables are collateralized by vehicle titles and, subject to local laws, the Company generally has the right to repossess the vehicle in the event the borrower defaults on the payment terms of the contract. Finance lease receivables are divided among pools based on common risk characteristics, such as products (i.e. new cars and used cars) and delinquent status. The finance lease receivables balances of new cars and used cars were RMB895,319,860 and RMB164,168,763 as of December 31, 2022, respectively and RMB179,326,594 (US$25,257,623) and RMB57,559,458 (US$8,107,080) as of December 31, 2023, respectively. These pools are collectively evaluated for impairment by management judgment. The allowance is aggregated for each of the pools. Nonaccrual policy The Company does not accrue lease income or interest income on finance lease principals and financing receivables that are considered impaired or are more than 65 to 85 days past due depending on different funding partners. A corresponding allowance is determined under ASC 326 and allocated accordingly. Accrual of financing lease income and interest income are suspended on accounts that are delinquent, accounts in bankruptcy and accounts in repossession. Payments received on non-accrual finance lease receivables, loans and financing receivables are first applied to any fees due, then to any interest due and, finally, any remaining amounts received are recorded to principal. Interest accrual resumes once an account has received payments bringing the delinquency status to non-delinquent. F-28 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Allowance for financing receivables and allowance for finance lease receivables Before the adoption of ASC 326 on January 1, 2023 The allowance for financing receivables and allowance for finance lease receivables are calculated by multiplying the PD and LGD model based on pools of finance lease receivables or financing receivables with similar risk characteristics, including product types, i.e. new cars and used cars to arrive at an estimate of incurred losses in the portfolio. Under the incurred loss methodology, credit losses are recognized only when the losses are probable of having been incurred. The Company adjusts the allowance for finance lease receivables that is determined by the PD and LGD model for various macroeconomic factors i.e. gross-domestic product rates, per capita disposable income, interest rates and consumer price indexes and other considerations. After the adoption of ASC 326 on January 1, 2023 The Company replaces the existing incurred loss methodology, with a forward - looking expected loss approach referred to as a CECL methodology. The CECL methodology requires that the full amount of expected credit losses for the lifetime be recorded at the time the financial asset is originated or acquired, and adjusted for changes in expected lifetime credit losses subsequently, which requires earlier recognition of credit losses. The Company’s CECL model subsequent to the adoption of ASC 326 Subsequent to the adoption of ASC 326 on January 1, 2023, the Company established its CECL model, calculated by multiplying the PD and LGD model based on pools of loans with similar risk characteristics. The Company selects expected forward - looking factors, which have a strong correlation, economic, and commercial significance using a regression model, and incorporates these forward - looking factors into the CECL model. These forward-looking factors mainly include producer price index, urban unemployment rate, holiday effect and scale of social financing. The expected life of each loan is determined based on the contractual term. The CECL model is applicable to estimation of credit losses of financial assets measured at amortized cost, primarily including financing receivables and finance lease receivables. The CECL model also applies to certain off - balance sheet credit exposures, such as contingent risk assurance liabilities not accounted for as derivatives. As a result, the Company recognized the cumulative effect as a decrease of approximately RMB307 million (US$43 million) after adjusting for deferred taxes to the opening balances of retained earnings on January 1, 2023. Treasury shares The Company accounts for treasury shares using the cost method. Under this method, the cost incurred to purchase the shares is recorded in the treasury shares account on the consolidated balance sheets. F-29 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Property and equipment, net Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method with the residual value based on the estimated useful lives of the class of asset, which range as follows: Category Office and electronic equipment Motor vehicles Leasehold improvements Estimated Useful Life Estimated Residual Value 3-5 years 4 years Over the shorter of the expected life of leasehold improvements or the lease term 5% 5% Nil Costs associated with the repair and maintenance of property and equipment are expensed as incurred. Depreciation is recorded starting at the time when assets are ready for the intended use. Intangible assets Intangible assets that have definite useful life primarily include purchased computer software. These intangible assets are amortized on a straight-line basis over their estimated useful lives of the respective assets, which vary from 6-10 years. The weighted average amortization period for the computer software was 8.39 years and 8.51 years as of December 31, 2022 and 2023, respectively. As of December 31, 2023, intangible assets that have indefinite useful life primarily include an insurance brokerage license purchased in February 2019. The Company evaluates indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, the asset is tested for impairment immediately prior to the change in classification. Research and development Research and development expenses are primarily incurred in the development of new services and new features of the Company’s technology infrastructure to support its business operations. Research and development costs are expensed as incurred unless such costs qualify for capitalization as software development costs. In order to qualify for capitalization, (i) the preliminary project should be completed, (ii) management has committed to funding the project and it is probable that the project will be completed and the software will be used to perform the function intended, and (iii) it will result in significant additional functionality in the Company’s services. No research and development costs were capitalized during any year presented as the Company has not met all of the necessary capitalization requirements. F-30 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Impairment of long-lived assets and intangible assets Long-lived assets including intangible assets with definite lives, are assessed for impairment, whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with ASC 360, Property, Plant and Equipment (“ASC 360”). The Company measures the carrying amount of long-lived assets against the estimated undiscounted future cash flows associated with it. Impairment exists when the estimated undiscounted future cash flows are less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset exceeds its fair value. No impairment loss was recognized for the years ended December 31, 2021, 2022 and 2023, respectively. Intangible assets with indefinite lives, are assessed annually for impairment and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired in accordance with ASC 350. Impairment exists when the fair value is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset exceeds its fair value. No impairment loss was recognized for the years ended December 31, 2021, 2022 and 2023, respectively. Employee defined contribution plan Full time employees of the Company in the PRC participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund, and other welfare benefits are provided to employees. Chinese labor regulations require that the Company make contributions to the government for these benefits based on a certain percentage of the employee’s salaries. The Company has no legal obligation for the benefits beyond the contributions. The total amount that was expensed as incurred was RMB87,227,402, RMB60,124,007 and RMB40,585,827 (US$5,716,394) for the years ended December 31, 2021, 2022 and 2023, respectively. Value added taxes (“VAT”) Since its inception, Shanghai Cango was certified as a general VAT taxpayer whose applicable tax rate was 6%. The subsidiaries of the VIEs are all general VAT taxpayers which are subject to tax rate of 6% or 13%, except for Shanghai Wangtian Investment Co., Ltd., which is certified as small-scale VAT taxpayers with an applicable tax rate of 3%. VAT is reported as a deduction to revenue when incurred and amounted to RMB478,981,515, RMB262,656,515 and RMB167,484,014 (US$23,589,630) for the years ended December 31, 2021, 2022 and 2023, respectively. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in accrued expenses and other current liabilities on the consolidated balance sheets. Income taxes The Company recognizes income taxes under the liability method. Deferred income taxes are recognized for differences between the financial reporting and tax bases of assets and liabilities at enacted tax rates in effect for the years in which the differences are expected to reverse. The Company records a valuation allowance against the amount of deferred tax assets that it determines is not more-likely-than-not to be realized. The effect on deferred taxes of a change in tax rates is recognized in earnings in the period that includes the enactment date. The Company applies the provisions of ASC 740, Income Taxes (“ASC 740”), in accounting for uncertainty in income taxes. ASC 740 clarified the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. The Company has elected to classify interest and penalties related to an uncertain tax position (if and when required) as part of income tax expense in the consolidated statements of comprehensive (loss) income. As of and for the years ended December 31, 2021, 2022 and 2023, the amounts of unrecognized tax benefits as well as interest and penalties associated with uncertainty in income taxes were insignificant. F-31 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Segment information In accordance with ASC 280-10, Segment Reporting: Overall (“ASC 280-10”), the Company’s chief operating decision maker (“CODM”) has been identified as the Chief Executive Officer, who makes resource allocation decisions and assesses performance based on the consolidated financial results as a whole. As a result, the Company has only one reportable segment. As the Company’s long-lived assets and revenue are substantially located in and derived from the PRC, no geographical segment is presented. Comprehensive (loss) income Comprehensive (loss) income is defined as the changes in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. For each of the periods presented, the Company’s comprehensive (loss) income includes net income, foreign currency translation adjustments and unrealized (losses) gain on available-for-sale securities and is presented in the consolidated statements of comprehensive (loss) income. Fair value measurements Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value: Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 Include other inputs that are directly or indirectly observable in the marketplace. Level 3 Unobservable inputs which are supported by little or no market activity. Accounting guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. Financial assets and liabilities of the Company primarily consist of cash and cash equivalents, restricted cash, short-term investment, finance lease receivables, financing receivables, other current assets, short-term and long-term debts, accrued expenses and other liabilities. The net carrying amounts of these financial instruments, except for short-term equity securities, financing receivables, non-current portion of restricted cash, non-current finance lease receivables and long-term debts, approximate their fair values because of their generally short maturities. The short-term equity security was valued based on broker quotes. The net carrying amount of non-current portion of restricted cash, financing receivables, non-current finance lease receivables and long-term debts approximates their fair values due to the fact that the related interest rates approximate rates currently offered by financial institutions for similar debt instruments of comparable maturities. F-32 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Share-based compensation The Company accounts for share-based compensation in accordance with ASC 718, Compensation – Stock Compensation (“ASC 718”). The Company recognizes the compensation costs net of estimated forfeitures using the straight-line method, over the applicable vesting period for each separately vesting portion of the award. In addition, the Company recognizes one-off compensation costs for the award which could be vested immediately upon grant on the grant date. The estimate of forfeitures is adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures is recognized through a cumulative catch-up adjustment in the period of change and also impact the amount of share- based compensation expense to be recognized in future periods. The Company, with the assistance of an independent third-party valuation firm, determined the fair value of share-based options granted to employees. Earnings (losses) per share The Company computes earnings (losses) per Class A and Class B ordinary shares in accordance with ASC 260, Earnings Per Share (“ASC 260”), using the two-class method. Under the provisions of ASC 260, basic earnings (losses) per share is computed using the weighted average number of ordinary shares outstanding during the period except that it does not include unvested ordinary shares subject to repurchase or cancellation. Diluted earnings (losses) per share is computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstanding during the period. Potentially dilutive securities have been excluded from the computation of diluted net income per share if their inclusion is anti-dilutive. Potential ordinary shares consist of the incremental ordinary shares issuable upon the exercise of stock options and restricted shares subject to forfeiture. The dilutive effect of outstanding stock options and restricted shares is reflected in diluted earnings (losses) per share by application of the treasury stock method. The computation of the diluted earnings (losses) per Class A ordinary share assumes the conversion of Class B ordinary shares to Class A ordinary shares, while diluted earnings (losses) per Class B ordinary share does not assume the conversion of such shares. The liquidation and dividend rights of the holders of the Company’s Class A and Class B ordinary shares are identical, except with respect to voting rights. As a result, and in accordance with ASC 260, the undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B ordinary shares as if the earnings for the year had been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, as the conversion of Class B ordinary shares is assumed in the computation of the diluted earnings (losses) per Class A ordinary share, the undistributed earnings are equal to net income for that computation. For the purposes of calculating the Company’s basic and diluted earnings (losses) per Class A and Class B ordinary shares, the ordinary shares relating to the options that were exercised are assumed to have been outstanding from the date of exercise of such options. F-33 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Government grants Government subsidies generally consist of financial subsidies received from provincial and local governments for operating a business in their jurisdictions and compliance with specific policies promoted by the local governments. The eligibility to receive such benefits and amount of financial subsidy to be granted are determined at the discretion of the relevant government authorities. Such grants have no condition attached and allow the Company full discretion in utilizing the funds and are used by the Company for general corporate purposes. The Company recognize government grants as other income when cash is received from the government. For the amount recognized in other income, please refer to note 17. Convenience translation for financial statements presentation Translations of amounts from RMB into US$ for the convenience of the reader have been calculated at the exchange rate of RMB7.0999 per US$1.00 on December 29, 2023, as published on the website of the United States Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at such rate. Significant risks and uncertainties Currency convertibility risk Substantially all of the Company’s businesses are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China (“PBOC”) or other authorized financial institution at exchange rates quoted by PBOC. Approval of foreign currency payments by the PBOC or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. Concentration of credit risk Financial assets that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, short-term investments, financing receivables, finance lease receivables and accounts receivable. The Company places its cash and cash equivalents, and restricted cash and short-term investments, with reputable financial institutions which have high-credit ratings. There has been no recent history of default related to these financial institutions. The Company manages credit risk of accounts receivable, financing receivables and finance lease receivables through ongoing monitoring of the outstanding balances. As of December 31, 2022 and 2023, the Company had no single customer with a balance exceeding 10% of the total accounts receivable, financing receivables, and finance lease receivables. Concentration of customers Approximately provision of services to only one financial institution contributed to over 10% derives 16.8% of revenue for the year ended December 31, 2021, to two automobile trading customers contributed to over 10% derives 27.2% in total (14.2% and 13.0%, respectively) of revenue for the year ended December 31, 2022 and to two automobile trading customers contributed to over 10% derives 31.6% in total (16.1% and 15.5%, respectively) of revenue for the year ended December 31, 2023, respectively. F-34 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Interest rate risk The Company is exposed to interest rate risk on its interest-bearing assets and liabilities. As part of its asset and liability risk management, the Company reviews and takes appropriate steps, including using derivative financial instruments to economically manage its interest rate exposures on its interest-bearing assets and liabilities. The Company has not been exposed to material risks due to changes in market interest rates. Borrower default risk The Company entered into certain risk assured facilitation arrangements whereby it is obligated to purchase delinquent loans from financial institutions. The Company’s operating results could be adversely affected by a significant increase in the overall borrower default rate for loans facilitated under such arrangements. The Company manages its borrowers’ default risk by performing credit checks on each prospective borrower and ongoing monitoring of the Company overall loan portfolio facilitated through the risk assured facilitation arrangement. Business and economic risk The Company believes that changes in any of the following areas could have a material adverse effect on the Company’s future financial position, results of operations or cash flows; changes in the overall demand for services; competitive pressures due to new entrants; advances and new trends in new technologies and industry standards; changes in certain strategic relationships; regulatory considerations and risks associated with asset quality and credit assessment; the Company’s ability to expand or maintain or effectively manage relationships with existing network of dealers and online automotive advertising platforms and to attract prospective car buyers and risks related to the COVID-19 pandemic. The Company’s operations could also be adversely affected by significant political, regulatory, economic and social uncertainties in the PRC. Comparative Information Certain items in the consolidated financial statements have been adjusted to conform with the current year’s presentation to facilitate comparison. F-35 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Recent Accounting Pronouncements New accounting standards which have been adopted On January 1, 2023, the Company adopted ASC 326, using the modified retrospective transition method. Upon adoption, the Company changed its impairment model to utilize a CECL model in place of the incurred loss methodology for financial instruments measured at amortized cost. The adoption of ASC 326 had a material impact on contingent risk assurance liabilities, the allowance for financing lease receivable, the allowance for financing receivables and the allowance of other current and non-current assets. The Company recorded RMB302 million (US$43 million) increase in contingent risk assurance liabilities, RMB15 million (US$2 million) increase in the allowance for finance lease receivables, RMB14 million (US$2 million) increase in the allowance for financing receivables and RMB3 million (US$0.4 million) increase in the allowance of other current and non-current assets. After adjusting for deferred taxes, RMB307 million (US$43 million) decrease was recorded in beginning retained earnings on January 1, 2023 through a cumulative-effect adjustment. In September 2022, the FASB issued ASC 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50) Disclosure of Supplier Finance Program Obligations (“ASC 2022-04”). The amendment in this update requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. To achieve that objective, the buyer should disclose qualitative and quantitative information about its supplier finance programs. ASC 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted this guidance on January 1, 2023 with no material impact on its consolidated financial statements and related disclosure. New accounting standards which have not yet been adopted In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 enhances the transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments are effective for public business entities for annual periods beginning after 15 December 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after 15 December 2025. The Company is evaluating the effects, if any, of the adoption of these guidance on its consolidated financial statements and related disclosure. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures (“ASU 2023-07”). This ASU requires that a public entity provide additional segment disclosures on an interim and annual basis. The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements, unless impracticable. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The ASU is effective for fiscal years beginning after 15 December 2023 and interim periods within fiscal years beginning after 15 December 2024. The Company is evaluating the effects, if any, of the adoption of these guidance on its consolidated financial statements and related disclosure. F-36 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 3. SHORT-TERM INVESTMENTS, NET As of December 31, 2023, short-term investments include as follows: (a) marketable equity securities; (b) time deposit mainly placed in Bank of Shanghai (Hong Kong) Limited and Citibank, N.A., Hong Kong Branch ranging from three months to one year. Debt securities: Held-to-maturity time deposit Equity securities: Marketable wealth management products Marketable equity securities Less: allowance for short-term investments Total short-term investments As of December 31, 2022 RMB 2023 RMB US$ 1,373,910,523 635,039,118 89,443,389 567,522,325 — 35,756 (31,351) 1,941,432,848 635,070,394 89,447,794 253,865 (222,589) — — — For the years ended December 31, 2021, 2022 and 2023, interest income related to debt securities was RMB26,373,471, RMB43,732,652 and RMB79,164,929 (US$11,150,147), respectively. Changes in fair value due to the fluctuation of the share price are recognized in net loss (gain) on equity securities while changes in fair value due to the fluctuation of the foreign exchange rate are recognized in other comprehensive loss (income). The movements in the allowance for short-term investments were as follows: Balance as of January 1 Adjustment due to the adoption of ASC 326 Reversal Balance as of December 31 4. ACCOUNTS RECEIVABLE, NET Accounts receivable and the related allowance are summarized as follows: As of December 31, 2023 RMB — 747,264 (524,675) 222,589 US$ — 105,250 (73,899) 31,351 Accounts receivable Less: allowance for accounts receivable Accounts receivable, net 2022 RMB As of December 31, 2023 RMB 266,836,951 64,851,728 (60,019) 266,836,951 64,791,709 — US$ 9,134,174 (8,453) 9,125,721 No amounts have been written off during the years ended December 31, 2022 and 2023, respectively. F-37 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 4. ACCOUNTS RECEIVABLE, NET - CONTINUED The movements in the allowance for accounts receivables were as follows: Balance as of January 1 Adjustment due to the adoption of ASC 326 Reversal Balance as of December 31 5. GOODWILL As of December 31, 2023 RMB — 148,344 (88,325) 60,019 US$ — 20,894 (12,441) 8,453 The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2023 were as follows: Balance at December 31, 2022 Goodwill impaired Balance at December 31, 2023 6. FINANCE LEASE RECEIVABLES, NET 6.1 Finance lease receivables consists of the following: Finance lease receivables Add: unamortized initial direct costs Less: unearned income Less: allowance for finance lease receivables—collective Total finance lease receivables, net Finance lease receivables—current Finance lease receivables—non-current As of December 31, RMB 148,657,971 (148,657,971) — US$ 20,938,037 (20,938,037) — 2022 RMB As of December 31, 2023 RMB 380,815 (80,532,057) (22,171,266) 1,161,811,131 263,769,086 339,984 (14,521,627) (12,701,391) 1,059,488,623 236,886,052 799,438,656 200,459,435 36,426,617 260,049,967 US$ 37,151,099 47,886 (2,045,328) (1,788,954) 33,364,703 28,234,121 5,130,582 6.2 The following table presents the future minimum lease payments to be received: Finance lease receivables Finance lease receivables 2024 RMB 2026 RMB 219,443,661 25,908,586 18,167,477 249,362 — 263,769,086 2028 RMB Total RMB 2027 RMB 2025 RMB US$ 30,907,993 US$ 3,649,148 US$ 2,558,836 US$ US$ 35,122 — US$ 37,151,099 F-38 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 6. FINANCE LEASE RECEIVABLES, NET - CONTINUED 6.3 The following table presents the aging of finance lease receivables principal as of December 31, 2022 and 2023: As of December 31, 2022 RMB 2023 RMB US$ Aging of finance lease receivables principal: Current 1‑30 days past due 31‑60 days past due 61‑90 days past due 91‑120 days past due 121‑150 days past due 151‑180 days past due 6.4 Movement of allowance for finance lease receivables was as follows: Balance at the beginning of the year Adjustment due to the adoption of ASC 326 Additions/(Reversal) Charge-offs Balance at the end of the year 7. FINANCING RECEIVABLES, NET 7.1 Financing receivables consists of the following: Financing receivables Less: allowance for financing receivables Total financing receivables, net F-39 1,018,749,298 225,327,296 31,736,687 1,846,782 756,672 271,291 225,550 197,250 119,425 1,081,659,889 249,587,443 35,153,657 38,193,025 9,008,588 4,917,323 3,545,621 2,951,294 4,294,740 13,111,970 5,372,294 1,926,137 1,601,385 1,400,452 847,909 As of December 31, 2022 RMB 32,216,759 — 51,609,763 (61,655,256) 22,171,266 2023 RMB 22,171,266 14,540,172 (13,945,846) (10,064,201) 12,701,391 US$ 3,122,758 2,047,940 (1,964,231) (1,417,513) 1,788,954 As of December 31, 2022 RMB 134,491,986 (60,673,961) 73,818,025 2023 RMB US$ 87,493,512 12,323,204 (8,165,112) (57,971,477) 4,158,092 29,522,035 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 7. FINANCING RECEIVABLES, NET - CONTINUED 7.2 The following table presents the aging of financing receivables principal as of December 31, 2022 and 2023: Aging of financing receivables principal: Current 1-30 days past due 31-60 days past due 61-90 days past due 91-120 days past due 121-150 days past due 151-180 days past due 7.3 Movement of allowance for financing receivables was as follows: Balance at the beginning of the year Additions Write off Balance at the end of the year Balance at the beginning of the year Adjustment due to the adoption of ASC 326 Reversal Recovery Balance at the end of the year – net basis Adjustment to gross basis due to the adoption of ASC 326 Balance at the end of the year – gross basis F-40 As of December 31, 2022 RMB 2023 RMB US$ — — 725,481 738,081 6,976,959 4,855,149 19,338,704 12,799,478 34,273,898 22,550,528 35,648,683 23,294,975 37,515,661 23,267,901 — 102,182 683,833 1,802,769 3,176,175 3,281,029 3,277,216 134,491,986 87,493,512 12,323,204 As of December 31, 2022 RMB 50,492,700 266,372,590 (256,191,329) 60,673,961 As of December 31, 2023 RMB 60,673,961 13,774,216 US$ 8,545,749 1,940,058 (234,217,651) (32,988,866) 162,845,410 22,936,296 433,237 7,731,875 8,165,112 3,075,936 54,895,541 57,971,477 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 8. PREPAYMENTS AND OTHER CURRENT ASSETS Prepayments and other current assets consist of the following: Prepayments for vehicles Other receivables from third parties Deposits held by third parties Vehicles Accrued input VAT/ deductible VAT input Prepaid expenses Interest receivables Others Prepayments and other current assets Less: allowance for prepayments and other current assets Prepayments and other current assets, net Notes As of December 31, i ii iii 2022 RMB 962,460,729 204,582,786 77,096,144 53,570,863 23,456,305 8,638,899 4,960,332 22,055,970 1,356,822,028 iv — 1,356,822,028 2023 RMB 89,454,574 59,479,262 17,652,693 4,720,633 5,425,338 2,518,770 1,380,950 12,097,018 192,729,238 (114,122,430) 78,606,808 US$ 12,599,413 8,377,479 2,486,330 664,887 764,143 354,761 194,503 1,703,829 27,145,345 (16,073,808) 11,071,537 (i) Prepayments for vehicles represents the prepayments to the automobile suppliers when the Company acts as a principal. (ii) Other receivables from third parties mainly represents the prepayments on behalf of the car dealer buyers when the Company acts as an agent in the automobile trading business. (iii) Inventory of the vehicles is stated at the lower of cost or net realizable value. Inventory cost is determined by specific identification. Net realizable value is the estimated selling price less costs to complete, dispose and transport the vehicles. For the years ended December 31, 2022 and 2023, the Company accrued impairment of RMB nil and RMB1,112,890 (US$156,747), respectively for inventory. (iv) Allowance for prepayments and other current assets mainly relates to note i and ii. As some automobile suppliers either had cash flow constraints due to poor operations or ceased operation, the Company provided an impairment of RMB114,122,430 (US$16,073,808) for amounts not expected to be recovered in the future after evaluating their operating and financial conditions. The movements in the allowance for prepayments and other current assets were as follows: Balance as of January 1 Adjustment due to the adoption of ASC 326 Additions Balance as of December 31 F-41 As of December 31, 2023 RMB — 1,218,411 112,904,019 114,122,430 US$ — 171,610 15,902,198 16,073,808 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 9. PROPERTY AND EQUIPMENT, NET Property and equipment consist of the following: Office and electronic equipment Leasehold improvements Motor vehicles Property and equipment, gross Less accumulated depreciation Property and equipment, net As of December 31, 2022 RMB 2023 RMB US$ 1,885,725 26,218,343 21,073,385 2,968,124 14,104,497 14,254,811 2,007,748 226,414 42,208,565 36,935,713 5,202,286 27,518,577 28,696,676 4,041,842 8,239,037 1,160,444 14,689,988 1,607,517 Depreciation expense, for the years ended December 31, 2021, 2022 and 2023, was RMB7,926,513, RMB5,483,032 and RMB6,670,588 (US$939,533), respectively. Costs associated with the repair and maintenance of property and equipment are expensed as incurred. 10. INTANGIBLE ASSETS Intangible assets consist of the following: Finite-lived intangible asset: Software Less: Accumulated amortization Total finite-lived intangible asset Indefinite-lived intangible asset: License* Total infinite-lived intangible asset Total intangible asset As of December 31, 2022 RMB 2023 RMB US$ 9,440,222 10,685,216 (5,403,527) (4,213,847) 5,281,689 5,226,375 1,504,981 (761,071) 743,910 43,091,503 43,091,503 43,091,503 43,091,503 48,317,878 48,373,192 6,069,312 6,069,312 6,813,222 Amortization expenses of finite-lived intangible asset for the years ended December 31, 2021, 2022 and 2023 were RMB588,456, RMB1,256,995 and RMB1,189,681 (US$167,563), respectively. The estimated useful life of the intangible assets are 6-10 years. The estimated aggregate amortization expenses for each of the five succeeding fiscal years are as follows: Software Software 2024 RMB 699,819 2025 RMB 689,347 As of December 31, 2026 RMB 685,737 2027 RMB 626,926 2028 RMB 575,533 US$ 98,567 US$ 97,092 US$ 96,584 US$ 88,301 US$ 81,062 F-42 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) * The Company acquired Fushun Insurance Brokerage Co., Ltd in 2019. The acquisition met the “substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets” criteria and is not considered a business combination in accordance with ASC 805. 11. SHORT-TERM AND LONG-TERM DEBTS Short-term debts consist of the following: Name Short-term borrowings Name Short-term borrowings Long-term debts consist of the following: Fixed annual rate (%) Term As of December 31, 2022 1.45%-5.25 % 1‑12 months RMB 349,299,134 Fixed annual rate (%) Term As of December 31, 2023 1.50%-3.44 % 1‑12 months 39,071,500 5,503,106 RMB US$ Name Fixed annual rate (%) Term As of December 31, 2022 Co-financing debt payables (i) Long-term borrowings Name Co-financing debt payables (i) 5.50%-6.60 %24-36 months 4.45%-6.50 %20-36 months RMB 361,120,106 279,892,587 641,012,693 Fixed annual rate (%) Term As of December 31, 2023 5.50%-6.60 %24-36 months 1,638,260 230,744 RMB US$ (i) The Company provides consumer loans to borrowers through commercial banks. The Company is required to make scheduled payments to the commercial banks regardless of borrower repayments. Financing lease receivables amounting to RMB360,725,648 were collateralized for a majority of short-term borrowings and long- term borrowings as of December 31, 2022, and RMB nil (US$ nil) were collateralized for a majority of short-term borrowings and long-term borrowings as of December 31, 2023. The weighted average interest rate for the outstanding debts was approximately 4.47% and 2.98% as of December 31, 2022 and 2023. The aggregate amounts of unused lines of credit for short-term borrowings were RMB620 million and RMB nil (US$ nil), and for long-term borrowings were RMB1,244 million and RMB nil (US$ nil) as of December 31, 2022 and 2023, respectively. The following table sets forth the contractual obligations of long-term debts—non-current portion and interest payable which has not included impact of discount of time value as of December 31, 2022 and 2023: As of December 31, 2022 (RMB) Long-term debts – non-current portion As of December 31, 2023 (RMB) Long-term debts – non-current portion As of December 31, 2023 (US$) Long-term debts – non-current portion Less than 1 year Payment due by period 1 - 2 years 2 -3 years Total 4,086,053 76,963,214 681,629 81,730,896 46,994 759,016 — 806,010 6,619 106,905 — 113,524 F-43 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following: As of December 31, Notes Payable to financial institutions Short-term contract liability (net of tax) Payable to dealers and suppliers Deposit due to third-parties Customer advances Payable to employees Other tax payables Accrued professional service fees Accrued output value-added tax Notes payable Interest payable Others i ii 2023 2022 RMB US$ 38,523,830 7,050,249 422,429,761 4,986,149 25,044,619 3,351,476 45,333,662 3,197,731 142,673,140 2,352,668 9,627,567 1,507,845 9,575,306 1,052,127 5,198,272 603,530 35,757,905 253,553 123,436,000 — 1,040,927 — 32,195,710 4,782,776 890,836,699 206,877,626 29,138,104 RMB 50,056,062 35,401,160 23,795,146 22,703,569 16,703,709 10,705,546 7,469,996 4,285,000 1,800,204 — — 33,957,234 (i) Customer advances relate to automobile customer’s deposit balances that are paid to secure the automobiles before a purchase contract is executed. (ii) In the ordinary course of business, the Company uses non-interest bearing bank acceptance drafts to settle payment with the automobile suppliers. The balance of restricted cash deposited as collateral for such notes payable was RMB136,671,970 and RMB nil (US$ nil) as of December 31, 2022 and 2023, respectively. The aggregate amounts of unused lines of credit for notes payable were RMB597 million and RMB nil (US$ nil) as of December 31, 2022 and 2023, respectively. F-44 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 13. RISK ASSURANCE LIABILITIES The movement of risk assurance liabilities during the year ended December 31, 2022 was as follows: Balance at the beginning of the year Fair value of risk assurance liabilities upon the inception of new loans Performed risk assurance liabilities Net loss on risk assurance liabilities Balance at the end of the year As of December 31, 2022 RMB 699,022,914 45,521,150 (642,104,046) 299,863,403 402,303,421 Due to the adoption of ASC 326 as of January 1, 2023, risk assurance liabilities are presented separately into deferred guarantee income, which represents the non-contingent portion of risk assurance liabilities, and contingent risk assurance liabilities in which the movement during the year ended December 31, 2023 was as follows: Balance at the beginning of the year Adjustment due to the adoption of ASC 326 Fair value of risk assurance liabilities upon the inception of new loans Performed risk assurance liabilities Net loss on contingent risk assurance liabilities Recognized as guarantee income Balance at the end of the year As of December 31, 2023 Deferred guarantee income US$ RMB Contingent risk assurance liabilities RMB US$ 298,306,038 42,015,526 103,997,383 14,647,725 — 302,406,744 42,593,099 — 4,790 34,006 — — — (43,225,221) 3,610,137 — 86,218,888 12,143,676 125,140,991 17,625,740 — (306,894,746) — 25,631,610 — (29,876,640) — (212,121,156) The maximum potential undiscounted future payment which the Company would be required to make under its risk assurance obligation was RMB16,506,729,778 and RMB4,855,945,998 (US$683,945,689) as of December 31, 2022 and 2023, respectively. The term of the risk assurance obligation ranges from 12 months to 60 months, as of December 31, 2022 and 2023. 14. LEASE Operating lease arrangements The Company leases facilities in the PRC under non-cancelable operating leases expiring on different dates. Payments under operating leases are expensed on a straight-line basis over the periods of the respective leases. The Company’s lease agreements are entered into with third parties and usually have a renewal option with an advance notice period of one to twelve months, and no restrictions or contingent rents. Operating lease costs were RMB15,945,782 and RMB15,494,118 (US$2,182,301) for the year ended December 31, 2022 and 2023, respectively, which excluded short-term lease costs. Short-term lease costs were RMB3,686,856 and RMB2,242,409 (US$315,837) for the year ended December 31, 2022 and 2023, respectively. For the years ended December 31, 2022 and 2023, no lease costs for operating leases were capitalized. F-45 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 14. LEASE - CONTINUED The weighted average remaining lease term as of December 31, 2022 and 2023 was 6.3 years and 5.5 years, respectively. The weighted average discount rate as of December 31, 2022 and 2023 was 6.15% and 6.05%, respectively. Supplemental cash flow information related to operating leases is as follows: Cash payments for operating leases Operating ROU assets obtained in exchange for new operating lease liabilities Operating ROU assets released in exchange for operating lease liabilities 2022 RMB 15,480,126 5,068,377 2,023,201 2023 RMB 16,620,421 512,608 23,300,165 US$ 2,340,937 72,199 3,281,760 Future minimum lease payments under non-cancelable operating lease agreements consist of the following as of December 31, 2023: 1 year (Including 1 year) 1 year to 2 years (Including 2 years) 2 years to 3 years (Including 3 years) 3 years to 4 years (Including 4 years) 4 years to 5 years (Including 5 years) Over 5 years Total lease payments Less: imputed interest Present value of lease liabilities F-46 As of December 31, 2023 RMB 8,814,068 9,079,002 8,973,055 9,722,110 9,909,374 13,542,624 60,040,233 10,208,418 49,831,815 US$ 1,241,436 1,278,751 1,263,828 1,369,331 1,395,706 1,907,439 8,456,491 1,437,826 7,018,665 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 15. COST OF REVENUE Cost of revenue consists of the following: Cost of vehicle Staff cost Outsourcing fee Leasing interest expense* Commission to car dealerships Staff incentive Others For the years ended December 31, 2023 2021 RMB 2,210,715,054 105,771,335 253,845 119,692,726 375,702,902 61,894,967 83,979,043 US$ 182,389,346 12,338,486 4,541,083 1,833,368 — — 84,057,025 11,839,183 2,958,009,872 1,830,089,773 1,511,863,115 212,941,466 RMB 1,294,946,115 87,602,016 32,241,232 13,016,727 — — 2022 RMB 1,580,778,797 105,613,337 10,475,145 61,128,565 26,756,550 — 45,337,379 * Leasing interest expense refers to interest expense on borrowings by the Company that are directly used to fund finance lease receivables. 16. NET (LOSS) GAIN ON EQUITY SECURITIES Net (loss) gain on equity securities consists of the following: Unrealized gain on equity securities still held at the reporting date Net realized (loss) gain on equity securities during the period Net (loss) gains on equity securities 17. OTHER INCOME Other income consists of the following: For the years ended December 31, 2022 RMB 2021 RMB — — 45,804,034 (58,795,556) 3,393,431 (9,810,585) 24,093,019 (12,991,522) (9,810,585) 24,093,019 3,393,431 RMB 2023 US$ — Government subsidy Others For the years ended December 31, 2021 RMB 2022 RMB 2023 RMB US$ 35,384,908 15,321,092 22,113,917 3,114,680 8,587,934 1,209,585 41,911,589 52,066,718 30,701,851 4,324,265 6,526,681 36,745,626 F-47 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 18. INCOME TAXES Cayman Islands Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains. Additionally, upon payment of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed. Hong Kong Under the Hong Kong tax laws, subsidiaries in Hong Kong are subject to the Hong Kong profits tax rate at 16.5% and they may be exempted from income tax on their foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends. China The Enterprise Income Tax Law (the “EIT Law”) of the PRC includes a provision specifying that legal entities organized outside PRC will be considered residents for Chinese income tax purposes if their place of effective management or control is within PRC. If legal entities organized outside PRC were considered residents for Chinese income tax purpose, they would become subject to the EIT Law on their worldwide income. This would cause any income from legal entities organized outside PRC earned to be subject to PRC’s 25% EIT. The Implementation Rules to the EIT Law provides that non-resident legal entities will be considered as PRC residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting, and properties, etc. reside within PRC. The VIEs’ subsidiaries domiciled in the PRC are subject to 25% statutory income tax rate in the periods presented. Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, the Company does not believe that the legal entities organized outside PRC should be characterized as PRC residents for EIT Law purposes. Under the current EIT Law, capital gains derived from PRC are subject to a 10% PRC withholding tax. Under the current EIT Law, dividends for earnings paid by PRC entities to any of their foreign non-resident enterprise investors are subject to a 10% withholding tax. A lower tax rate will be applied if tax treaty or arrangement benefits are available. Capital gains derived from PRC are also subject to a 10% PRC withholding tax. The Company’s net income (loss) before income taxes consists of: For the years ended December 31, Cayman Islands Hong Kong China Net income (loss) before income taxes F-48 2023 2022 RMB 28,219,345 (16,096,157) 2021 US$ RMB 7,755,742 (37,599,025) (14,883,394) (1,075,778) 64,790,713 (886,634,531) 8,156,352 1,148,798 12,308,294 (874,511,343) 55,583,429 7,828,762 RMB 55,064,996 (7,637,919) Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 18. INCOME TAXES – CONTINUED The current and deferred component of income tax expenses which were substantially attributable to the Company’s PRC subsidiaries, VIEs and subsidiaries of the VIEs, are as follows: For the years ended December 31, Current income tax expense (benefit) Deferred income tax (benefit) expense Total income tax expense 2021 RMB 603,765,914 (582,913,268) 2022 RMB (134,629,133) 371,325,673 US$ 552,376 12,610,725 20,852,646 236,696,540 93,456,703 13,163,101 RMB 3,921,820 89,534,883 2023 The principal components of the deferred tax assets and liabilities are as follows: Non-current deferred tax assets Risk assurance liabilities Provision for credit losses Short-term and long-term lease liabilities Customer advances Net operating loss carry-forward Less: valuation allowance Non-current deferred tax assets, net Non-current deferred tax liabilities Acquisition of insurance brokerage license Unrealized gain on long-term investment Contract assets Operating lease right-of-use assets Others Non-current deferred tax liabilities For the years ended December 31, 2022 RMB 2023 RMB US$ 361,992,619 255,231,296 20,181,689 5,136,587 67,815,707 (447,965,176) 262,392,722 375,019,011 202,046,834 11,788,736 5,191,296 19,790,529 (539,109,605) 74,726,801 52,820,323 28,457,701 1,660,409 731,180 2,787,438 (75,932,000) 10,525,051 (10,724,126) (11,009,130) (168,704,122) (20,181,689) (7) (210,619,074) (10,724,126) (11,009,130) (51,928,935) (11,788,736) (7) (85,450,934) (1,510,462) (1,550,604) (7,314,038) (1,660,409) (1) (12,035,514) The Company had deferred tax assets related to net operating loss carry forwards of RMB79,162,116 (US$11,149,751) from its subsidiaries in China, which can be carried forward to offset taxable income. The net operating loss of these subsidiaries will expire in years 2024 to 2033 if not utilized, respectively. The Company operates through its WFOE and VIEs and evaluates the potential realization of deferred tax assets on an entity basis. The Company recorded valuation allowance against deferred tax assets of those entities that were in cumulative financial loss and are not forecasting profits in the near future as of December 31, 2022 and 2023. In making such determination, the Company also evaluated a variety of factors including the Company’s operating history, accumulated deficit, existence of taxable temporary differences and reversal periods. F-49 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 18. INCOME TAXES - CONTINUED Reconciliation between the income tax expense computed by applying the PRC tax rate to income before the provision of income taxes and the actual provision for income taxes is as follows: Income (loss) before provision of income tax PRC statutory income tax rate Income tax at statutory tax rate Tax rate differential Over-accrued EIT for previous years Impact of tax rate change Non-deductible expenses Research and development super-deduction Impairment loss for goodwill not deductible for tax purposes Non-taxable income Change in valuation allowance Withholding tax Income tax expenses For the years ended December 31, 2021 RMB 12,308,294 2022 RMB (874,511,343) 2023 RMB 55,583,429 25 % 25 % 25 % US$ 7,828,762 25 % 3,077,074 5,070,813 — — 19,443,641 (10,177,551) (218,627,836) (6,593,155) (2,025,370) (878,656) 41,193,294 (7,943,499) 13,895,857 (16,505,297) (2,401,420) — 20,493,185 — — — 9,894,006 (6,455,337) 20,852,646 — (382,978) 433,465,580 (1,510,840) 236,696,540 37,164,493 (1,550,421) 42,360,306 — 93,456,703 1,957,191 (2,324,722) (338,233) — 2,886,405 — 5,234,509 (218,372) 5,966,323 — 13,163,101 The Company did not record any outside basis tax differences related to its investments in the subsidiaries in the PRC because management asserted to indefinitely reinvest the undistributed earnings of the subsidiaries in the PRC. As of December 31, 2022 and 2023, the cumulative amount of the temporary differences in respect of investments in foreign subsidiaries was RMB1,848 million and RMB1,584 million (US$223 million), respectively. Upon repatriation of the foreign subsidiaries and the VIEs’ earnings, in the form of dividends or otherwise, the Company would be subject to withholding income tax. Unrecognized Tax Benefit As of December 31, 2022 and 2023, the Company concluded that there was no significant impacts from tax uncertainty in its consolidated financial results. The Company does not expect the amount of unrecognized tax benefits would increase significantly in the next 12 months. In general, the PRC tax authorities have up to five years to conduct examinations of the tax filings of the Company’s PRC subsidiaries. Accordingly, the PRC subsidiaries’ tax years of 2018 through 2023 remain open to examination by the respective tax authorities. The Company may also be subject to the examinations of the tax filings in other jurisdictions, which are not material to the consolidated financial statements. F-50 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 19. LOSSES PER SHARE (“EPS”) Basic losses per share is computed using the weighted average number of the ordinary shares outstanding during the period. Diluted losses per share is computed using the weighted average number of ordinary shares and potential ordinary shares outstanding during the period under the treasury stock method. Basic and diluted EPS are the same for each class of ordinary share because they are entitled to the same liquidation and dividend rights. The following table sets forth the computation of basic and diluted net income per share for the years ended December 31, 2021, 2022 and 2023: Basic EPS: Numerator: Net loss attributable to Cango Inc’s shareholders Denominator: Number of shares used for Basic EPS computation (millions of shares) Basic EPS Diluted EPS: Numerator: Net loss attributable to ordinary shareholders Reallocation of net income as a result of conversion of Class B to Class A shares Net loss attributable to ordinary shareholders for diluted EPS Denominator: (millions of shares) Number of shares used for basic EPS computation Weighted average effect of dilutive securities: Conversion of Class B to Class A ordinary shares Number of shares used for diluted EPS computation Diluted EPS Earnings (losses) per share – ADS: Denominator used for earnings per ADS – basic Denominator used for earnings per ADS – diluted Losses per ADS – basic Losses per ADS – diluted 2021 2022 Class A Class B Class A Class B 2023 Ordinary Shares Ordinary Shares Ordinary Shares Ordinary Shares Class A Ordinary Shares Class B Ordinary Shares RMB RMB RMB RMB RMB US$ RMB US$ For the years ended December 31, (6,374,737) (2,169,615) (815,323,647) (295,884,236) (26,501,163) (3,732,611) (11,372,111) (1,601,728) 216.28 (0.03) 73.61 (0.03) 201.10 (4.05) 72.98 (4.05) 170.07 (0.16) 170.07 (0.02) 72.98 (0.16) 72.98 (0.02) 2021 2022 Class A Class B Class A Class B 2023 Ordinary Shares Ordinary Shares Ordinary Shares Ordinary Shares Class A Ordinary Shares Class B Ordinary Shares RMB RMB RMB RMB RMB US$ RMB US$ For the years ended December 31, (6,374,737) (2,169,615) (815,323,647) (295,884,236) (26,501,163) (3,732,611) (11,372,111) (1,601,728) (2,169,615) — (295,884,236) — (11,372,111) (1,601,728) — — (8,544,352) (2,169,615) (1,111,207,883) (295,884,236) (37,873,274) (5,334,339) (11,372,111) (1,601,728) 216.28 73.61 201.10 72.98 170.07 170.07 72.98 72.98 — 73.61 (0.03) 73.61 289.89 (0.03) 108.14 144.95 (0.06) (0.06) 72.98 274.08 (4.05) 100.55 137.04 (8.11) (8.11) F-51 — 72.98 72.98 — — 72.98 (4.05) 243.05 (0.16) 243.05 (0.02) 72.98 (0.16) 72.98 (0.02) 85.04 85.04 121.53 (0.31) (0.31) 121.53 (0.04) (0.04) Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 20. FAIR VALUE MEASUREMENTS ASC 820, Fair Value Measurement (“ASC 820”) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 – Include observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 – Unobservable inputs which are supported by little or no market activity. ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. Assets and Liabilities Measured or Disclosed at Fair Value on a recurring basis In accordance with ASC 820, the Company measures held-to-maturity time deposit and wealth management products as of December 31, 2022 and held-to-maturity time deposit and equity investments with readily determinable fair value as of December 31, 2023 on a recurring basis. The fair value of time deposits is determined based on the prevailing interest rates in the market. The fair value of wealth management products is measured based on observable market prices, when available. If observable market prices are not available, the Company determines fair value based using a market-based discount rate and considers recent market transactions, experience with similar securities, and current business conditions. The Company did not transfer any assets in or out of level 3 during the years ended December 31, 2022 and 2023. The following table summarizes the Company’s financial assets and financial liabilities measured and recorded at fair value on recurring basis as of December 31, 2022: Asset: Short-term investment Active market (Level 1) RMB As of December 31, 2022 Observable input (Level 2) RMB Non-observable input (Level 3) RMB Total RMB — 1,941,432,848 — 1,941,432,848 F-52 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 20. FAIR VALUE MEASUREMENTS - CONTINUED The following table summarizes the Company’s financial assets and financial liabilities measured and recorded at fair value on recurring basis as of December 31, 2023: Asset: Short-term investment Assets: Short-term investment 21. SHARE-BASED COMPENSATION Active market (Level 1) RMB As of December 31, 2023 Observable input (Level 2) RMB Non-observable input (Level 3) RMB Total RMB 253,865 635,039,118 — 635,292,983 Active market (Level 1) US$ As of December 31, 2023 Observable input (Level 2) US$ Non-observable input (Level 3) US$ Total US$ 35,756 89,443,389 — 89,479,145 On May 25, 2018, the Board of Directors of Cango Inc. approved the Employee Stock Ownership Plan (the “ESOP”) for the purpose of providing incentives and rewards to employees and executives who contribute to the success of the Company’s operations and approved 27,845,526 options under the ESOP. The exercise price for such options is US$1.7951 per share. Options under the Company’s plan vest over a total period of 4 years from the grant date, pursuant which 50% of the options will vest upon the second anniversary of the grant date and 25% of the options will vest upon the third anniversary and fourth anniversary of the grant date, respectively. Any unvested options will be forfeited upon termination of a grantee’s employment with the Company, unless otherwise determined by the plan’s administrator. In May 2018, the Company granted 5,569,105 options (Batch 1) to certain eligible employees. In February 2019, the Company granted another 5,569,105 options (Batch 2). In October 2020, the Company granted another 8,353,658 options (Batch 3). In May 2021, the Company granted another 8,454,422 options (Batch 4). On August 1, 2022, the Company granted another 28,000 options (Batch 5-1) and 1,585,000 options (Batch 5-2). Part of the options granted in Batch 5-1, Batch 5-2 and Batch 4 are redistribution of previously forfeited options to different eligible employees. On April 22, 2022, the Company’s Board of Directors authorized the grant of an option to purchase 6,000,000 Class A Ordinary Shares to Mr. Xiaojun Zhang and an option to purchase 6,000,000 Class A Ordinary Shares to Mr. Jiayuan Lin. Such Share Options are granted in consideration of Mr. Zhang and Mr. Lin’s roles in guiding the Company’s profitable investment in Li Auto Inc., and shall vest immediately upon grant, and have an exercise price of US $1.2951 per Class A Ordinary Share. The option was granted on June 16, 2022. According to the terms of the ESOP, in the event of the Company distributing cash dividend other than normal cash dividends to its shareholders which affects the price of ordinary shares, an adjustment is required for all outstanding options under the ESOP to reflect such change with respect to exercise price per share. F-53 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 21. SHARE-BASED COMPENSATION - CONTINUED On March 11, 2021, the Company’s Board of Directors approved a special cash dividend of US$0.50 per ordinary share based on the Company’s outstanding ordinary shares. This special cash dividend, aggregating approximately RMB955.4 million (US$147.1 million) was paid to shareholders of record as of the close of trading on March 22, 2021 (Eastern Time). The exercise price of all unexercised options of the ESOP was adjusted from US$1.7951 per share to US$1.2951 per share from March 22, 2021. On April 22, 2022, the Company’s Board of Directors approved a special cash dividend of US$0.50 per ordinary share based on the Company’s outstanding ordinary shares. This special cash dividend, aggregating approximately RMB913.3 million (US$136.6 million) was paid to shareholders (netted with dividend received related with treasury shares) of record as of the close of trading on May 25, 2022 (Eastern Time). The exercise price of all unexercised options of the ESOP was adjusted from US$1.2951 per share to US$0.7951 per share from June 16, 2022. On October 11, 2022, the Company’s Board of Directors approved a special cash dividend of US$0.50 per ordinary share based on the Company’s outstanding ordinary shares. This special cash dividend, aggregating approximately RMB957.7 million (US$134.8 million) was paid to shareholders of record as of the close of trading on October 24, 2022 (Eastern Time). The exercise price of all unexercised options of the ESOP was adjusted from US$0.7951 per share to US$0.2951 per share from November 24, 2022. Prior to the Company’s IPO, the estimated fair value of the Company’s ordinary shares at their respective grant dates, was determined with the assistance of an independent third-party valuation firm. Upon the completion of IPO, the estimated fair value of the Company’s ordinary shares was based on the Company’s share price. The risk-free interest rate for periods within the contractual life of the options is based on the U.S. treasury yield curve in effect at the time of grant for a term consistent with the contractual term of the awards. Expected volatility is estimated based on the historical volatility ordinary shares of several comparable companies in the same industry. The dividend yield is estimated based on the Company’s expected dividend policy over the expected term of the options. The expected exercise multiple is estimated by management based on changes in intrinsic value of the option and likelihood of early exercises by employees, which the Company believes is representative of the future. The Company uses the binomial tree option pricing model to estimate the fair value of share options with the assistance of an independent third-party valuation firm. The assumptions used to value the share options granted to employees were as follows: As of May 25, 2018, (date of inception) Batch 1 As of As of As of February 15, 2019, October 15, 2020, May 1, 2021, (date of inception) Batch 2 (date of inception) Batch 3 (date of inception) Batch 4 As of As of June 16, 2022, August 1, 2022, August 1, 2022, (date of inception) Batch 5‑1 (date of inception) Batch 5‑2 (date of inception) As of Risk-free interest rate (%) Volatility (%) Expected exercise multiple Dividend yield Expected life (in years) Exercise price (US$) Fair value of ordinary shares (RMB) 2.93 38.70 2.80 Nil 10.00 1.7951 37.82 2.66 38.70 2.30 Nil 10.00 1.7951 26.80 0.74 38.00 2.30 Nil 10.00 1.2951 21.72 3.20 47.80 2.80 Nil 10.00 0.7951 10.52 2.59 48.10 2.80 Nil 10.00 0.7951 8.66 2.59 48.10 2.20 Nil 10.00 0.7951 8.66 0.74 37.60 2.30 Nil 10.00 1.7951 19.03 F-54 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 21. SHARE-BASED COMPENSATION-CONTINUED The Company recognized compensation cost for the share options on a graded vesting basis. The total share-based compensation expenses recognized by the Company for the share option granted were RMB87,634,835, RMB158,522,520 and RMB38,490,513 (US$5,421,275) for the years ended December 31, 2021, 2022 and 2023, respectively. The total fair value of options vested during the years ended December 31, 2021, 2022 and 2023 was RMB80,710,465, RMB95,854,700 and RMB94,080,394 (US$13,250,946), respectively. A summary of option activity under the ESOP is as follows: Balance, December 31, 2020 Granted Exercised Forfeited Balance, December 31, 2021 Granted Exercised Forfeited Balance, December 31, 2022 Granted Exercised Forfeited Balance, December 31, 2023 Vested or expected to vest at December 31, 2023 Exercisable at December 31, 2023 Number of options Weighted average exercise price RMB Grant date fair value RMB Intrinsic Value RMB Weighted average Aggregate 18,510,727 8,454,422 (737,228) (281,151) 25,946,770 13,613,000 (1,817,288) (1,687,224) 36,055,258 — (1,285,640) (856,922) 33,912,696 33,354,223 26,599,071 12 8 11 9 8 5 4 6 2 — 2 2 2 2 2 13,715,140 26 22 30 22 25 10 25 5,086,872 20 20 — 22 2,708,085 9 20 50,890,823 40,584,025 As of December 31, 2023, RMB18,076,716 (US$2,546,052) of unrecognized share-based compensation cost related to share options is expected to be recognized over a weighted-average vesting period of 1.08 years and a weighted-average remaining contractual term of 7.36 years. Cash received from option exercise under all share-based payment for the years ended December 31, 2023, 2022 and 2021, was RMB2,705,206 (US$381,020), RMB7,041,437 and RMB8,236,613, respectively. For the years ended December 31, 2021, 2022 and 2023, the Company allocated share-based compensation expense as follows: For the years ended December 31, Cost of revenue Sales and marketing General and administrative Research and development F-55 2023 2021 RMB 4,927,484 15,311,101 2022 RMB 4,160,056 14,691,410 US$ 308,080 1,086,774 63,035,444 135,888,877 26,831,755 3,779,174 3,782,177 1,755,431 247,247 87,634,835 158,522,520 38,490,513 5,421,275 RMB 2,187,338 7,715,989 4,360,806 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 22. COMMITMENTS AND CONTINGENCIES Capital commitments The Company had no capital commitments contracted but not yet reflected in the financial statements as of December 31, 2023. Legal contingencies The Company is not currently involved in any legal proceedings which could result in material loss contingencies. Risk assurance contingencies The Company estimated and accrued for the contingent loss related to the risk assurance liability as disclosed in Note 13. 23. ORDINARY SHARES Upon completion of the Company’s IPO on July 26, 2018, 169,239,905 Class A ordinary shares were issued upon conversion of all redeemable convertible preferred shares. The rights of the holders of Class A and Class B ordinary shares are identical, except with respect to voting and conversion rights. Each share of Class A ordinary shares is entitled to one vote per share and is not convertible into Class B ordinary shares under any circumstances. Each share of Class B ordinary shares is entitled to twenty votes per share and is convertible into one Class A ordinary share at any time by the holder thereof. Upon any transfer of Class B ordinary shares by the holder thereof to any person or entity that is not an affiliate of such holder, such Class B ordinary shares would be automatically converted into an equal number of Class A ordinary shares. Upon completion of the Company’s IPO, 8,000,000 Class A ordinary shares (4,000,000 ADS equivalent) were issued on July 30, 2018, and 600,000 Class A ordinary shares (300,000 ADS equivalent) were issued on August 6, 2018 pursuant to the underwriters’ partial exercise of their option to purchase additional ADSs. On June 17, 2019, one Class A ordinary share was cancelled. On June 26, 2019, 609,805 shares Class B ordinary shares were converted to equivalent number of Class A ordinary shares. On August 14, 2019, 1,737,238 shares Class B ordinary shares were converted to equivalent number of Class A ordinary shares. On May 27, 2020, one Class A ordinary share was cancelled. On September 14, 2020, 2,000,000 shares Class B ordinary shares were converted to equivalent number of Class A ordinary shares. On April 27, 2021, 2,000,000 shares Class B ordinary shares were converted to equivalent number of Class A ordinary shares. As of December 31, 2023, there were 229,831,213 and 72,978,677 Class A and Class B ordinary shares issued, 144,857,131 and 72,978,677 Class A and Class B ordinary shares outstanding respectively. F-56 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 24. TREASURY SHARES On June 5, 2019, the Board of Directors of the Company authorized a share repurchase program (“Share Repurchase Program 2019”), pursuant to which the Company was authorized to repurchase its own issued and outstanding American depositary shares (“ADSs”) up to an aggregate value of US$10 million from the open market, in negotiated transactions off the market, or through other legally permissible means in accordance with applicable securities laws from time to time. On March 2, 2021 and August 19, 2021, the Board of Directors of the Company authorized two share repurchase program (“Share Repurchase Programs 2021”), respectively, pursuant to which the Company may repurchase up to total US$100 million worth of its outstanding (i) American depositary shares (“ADSs”), each representing two Class A ordinary shares, and/or (ii) Class A ordinary shares over the next 12 months starting from the effective date (the “Effective Date”) of the Share Repurchase Programs 2021. On March 15, 2021, the Company entered ADS Repurchase Agreements with Xiehuai L.P. which repurchased an aggregate of 3,000,000 ADSs, under Share Repurchases Programs 2021, representing 6,000,000 Class A ordinary shares, at an average price of $9.45 per ADS, for US$28,350,000 (RMB184,728,600). On April 22, 2022, the Board of Directors of the Company authorized a new share repurchase program (“Share Repurchase Program 2022”) under which the Company may repurchase up to US$50 million worth of its outstanding (i) American depositary shares (“ADSs”), each representing two Class A ordinary shares, and/or (ii) Class A ordinary shares over the next 12 months starting from April 25, 2022. On September 28, 2022, the Company entered ADS Repurchase Agreements with Xiehuai L P. which repurchased an aggregate of 1,735,027 ADSs under the Share Repurchase Program 2022, representing 3,470,054 Class A ordinary shares, at an average price of $2.30 per ADS, for US$3,991,729 (RMB28,791,942). On April 21, 2023, the Board of Directors of the Company authorized a new share repurchase program (the “New Share Repurchase Program”) under which the Company may repurchase up to US$50 million worth of its outstanding (i) American depositary shares (“ADSs”), each representing two Class A ordinary shares, and/or (ii) Class A ordinary shares over the next 12 months starting from April 25, 2023. On June 1, 2023, the Company entered ADS Repurchase Agreements with an institutional investor, which repurchased an aggregate of 24,300,562 ADSs, under the New Share Repurchase Program, representing 48,601,124 Class A ordinary shares, at an average price of $1.30 per ADS, for US$31,590,731 (RMB 228,603,163). Under Share Repurchase Program 2022 and New Share Repurchase Program, the Company may repurchase its ADSs from time to time through open market transactions at prevailing market prices, privately negotiated transactions, block trades or any combination thereof. In 2023, the Company repurchased another aggregate of 2,216,439 ADSs, representing 4,432,878 Class A ordinary shares under the Share Repurchase Program 2022 and New Share Repurchase Program. As of December 31, 2023, the Company repurchased an aggregate of 44,707,126 ADSs, representing 89,414,252 Class A ordinary shares under the Share Repurchase Program 2019, Share Repurchase Programs 2021, Share Repurchase Program 2022 and New Share Repurchase Program, at an average price of $2.86 per ADS, for US$127,945,203 (RMB866,976,818). As of December 31, 2023, 4,440,170 Class A ordinary shares were transferred to employees when they exercise their ESOP. The remaining balance of treasury shares represents 84,974,082 Class A ordinary shares, at an average price of $2.69 per ADS, for US$114,271,929 (RMB773,130,748). These shares were recorded at their purchase cost on the consolidated balance sheets and have not been cancelled as of December 31, 2023. F-57 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 25. RESTRICTED NET ASSETS The Company is a holding company with no material operations of its own and conducts the operations primarily through its PRC subsidiaries and the VIEs. As an offshore holding company, the Company is permitted under PRC laws and regulations to provide funding from the proceeds of its offshore fundraising activities to its PRC subsidiaries only through loans or capital contributions, and to its VIEs only through loans, in each case subject to the satisfaction of the applicable government registration and approval requirements. The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by the VIEs and subsidiaries of the VIEs incorporated in PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The consolidated results of operations reflected in the consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries. Under PRC law, the Company’s subsidiaries, VIEs and the subsidiaries of the VIEs located in the PRC (collectively referred as the “PRC entities”) are required to provide for certain statutory reserves, namely a general reserve, an enterprise expansion fund and a staff welfare and bonus fund. The PRC entities are required to allocate at least 10% of their after tax profits on an individual company basis as determined under PRC accounting standards to the statutory reserve and has the right to discontinue allocations to the statutory reserve if such reserve has reached 50% of registered capital on an individual company basis. In addition, the registered capital of the PRC entities is also restricted. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the Board of Directors of the subsidiary. The PRC entities are also subject to similar statutory reserve requirements. These reserves can only be used for specific purposes and are not transferable to the Company in the form of loans, advances or cash dividends. For the years ended December 31, 2021, 2022 and 2023, there were no other material assets transferred, and there were no dividends or distributions between the Company, the Company’s subsidiaries and the VIEs for the periods presented. In addition, the Company’s subsidiaries do not intend to pay dividends or fully settle amounts due to the Company. Amounts restricted that include paid in capital and statutory reserve funds, as determined pursuant to PRC GAAP, were RMB5,621 million and RMB4,806million (US$677 million) as of December 31, 2022 and 2023, respectively. 26. SUBSEQUENT EVENTS Pursuant to the New Share Repurchase Program authorized on April 21, 2023, the Company had repurchased 831,463 ADSs from the open market with cash in the aggregate amount of approximately US$1,153,492 during the period from January 1, 2024 to April 16, 2024. In addition to open market transactions, the Company repurchased 2,322,796 Class A ordinary shares and 5,453,090 Class A ordinary shares respectively from two institutional investors in privately negotiated transactions for an aggregate purchase price of US$2,903,495 and US$6,816,363, respectively. The Company settled the transactions in January 2024. On April 23, 2024, the Company announced that its board of directors has authorized a new share repurchase program under which the Company may repurchase up to US$50 million worth of its outstanding (i) American depositary shares (“ADSs”), each representing two Class A ordinary shares, and/or (ii) Class A ordinary shares over the next 12 months starting from April 25, 2024. F-58 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 27. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY The following is the condensed financial information of the Company on a parent company only basis. Condensed balance sheets As of December 31, 2022 RMB 2023 RMB US$ ASSETS Current assets Cash and cash equivalents Short-term investments Short-term amounts due from subsidiaries (other than WFOE) Other current assets Total Current assets Non-current assets Investments in subsidiaries Contractual interest in the VIEs and VIEs’ subsidiaries* Total non-current assets Total assets LIABILITIES Current liabilities Short-term amounts due to subsidiaries (other than WFOE) Other current liabilities Total current liabilities Other non-current liabilities Total non-current liabilities Total liabilities Shareholders’ equity Class A Ordinary shares (par value of US$0.0001 per share; 420,674,280 shares authorized as of December 31, 2022 and 2023, respectively; 229,831,213 shares issued and 196,605,493 shares outstanding as of December 31, 2022; 229,831,213 shares issued and 144,857,131 shares outstanding as of December 31, 2023) Class B Ordinary shares (par value of US$0.0001 per share; 79,325,720 shares authorized as of December 31, 2022 and 2023, respectively; 72,978,677 shares issued and outstanding as of December 31, 2022; 72,978,677 shares issued and outstanding as of December 31, 2023) Treasury shares Additional paid-in capital Accumulated other comprehensive income Retained earnings (accumulated deficit) Total shareholders’ equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY F-59 85,823,048 1,149,961,626 402,663,708 4,395,552 95,970,807 51,589,452 59,702,904 53,378 1,642,843,934 1,471,926,705 207,316,541 681,383,135 366,279,947 423,884,645 378,978 50,291,278 54,820,009 7,083,378 2,978,731,315 2,616,728,505 368,558,501 3,033,551,324 2,667,019,783 375,641,879 4,676,395,258 4,138,946,488 582,958,420 — 34,502,715 — 319,983,531 321,969,994 45,348,525 354,486,246 321,969,994 45,348,525 1 1 354,486,253 321,970,001 45,348,526 7 7 7 7 154,483 154,483 21,758 49,777 49,777 7,011 (559,005,216) (773,130,748) (108,893,188) 4,805,240,472 4,813,679,585 677,992,589 66,359,902 111,849,166 15,753,626 9,109,587 (335,625,776) (47,271,902) 4,321,909,005 3,816,976,487 537,609,894 4,676,395,258 4,138,946,488 582,958,420 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 27. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY - CONTINUED Condensed statements of comprehensive (loss) income For the years ended December 31, General and administrative Interest income Foreign exchange loss Net loss on equity securities Net recovery on provision for credit losses Share of loss of subsidiaries Contractual interests in the VIEs and VIEs’ subsidiaries* Other income Other expense Net loss before income taxes Income tax expense Net loss Other comprehensive (loss) income, net of tax Total comprehensive (loss) income, net of tax Condensed statements of cash flows 2023 US$ RMB (6,797,975) 56,622,110 2022 RMB (7,443,140) 26,502,229 2021 RMB (10,079,685) 4,440,117 (390,858) (27,278,116) — — (9,705,617) (5,407,894) (411,971) (14,671,470) (178,578) (49,125) 362,724 (957,475) 7,975,057 (25,152) (6,919) 51,089 (15,118,076) (761,686) 37,717,412 (1,131,232,451) (87,530,375) (12,328,395) 5,105,839 719,142 1,928,027 — — (6,218,510) (5,334,339) (14,999,689) (1,112,718,723) (37,873,274) 6,455,337 — — (5,334,339) (8,544,352) (1,111,207,883) (37,873,274) 6,407,029 253,877,012 45,489,264 (72,130,683) 1,072,690 7,615,990 (857,330,871) (80,675,035) 24,251,883 (8,186) 1,510,840 Net loss Net loss on equity securities Net recovery on provision for credit losses Share of loss of subsidiaries Contractual interests in the VIEs and VIEs’ subsidiaries* Changes in operating assets and liabilities Net cash (used in) provided by operating activities Net cash provided by investing activities Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents and restricted cash Net increase (decrease) in cash and cash equivalents and restricted cash Cash and cash equivalents and restricted cash at beginning of the year Cash and cash equivalents and restricted cash at end of the year For the years ended December 31, 2021 RMB (8,544,352) 27,278,116 — 15,118,076 (37,717,412) (6,320,138) (10,185,710) 2,150,227,042 (1,391,602,116) (5,443,535) 742,995,681 114,892,815 857,888,496 2022 RMB (1,111,207,883) 14,671,470 — 9,705,617 1,131,232,451 (182,850) 44,218,805 1,028,108,135 (1,969,849,465) 125,457,077 (772,065,448) 857,888,496 85,823,048 2023 RMB (37,873,274) 49,125 (362,724) 5,407,894 87,530,375 6,050,188 60,801,584 739,237,782 (244,176,932) 39,697,653 595,560,087 85,823,048 681,383,135 US$ (5,334,339) 6,919 (51,089) 761,686 12,328,395 852,154 8,563,726 104,119,463 (34,391,602) 5,591,297 83,882,884 12,087,923 95,970,807 * It represents the primary beneficiary’s share of income or loss generated from the VIEs and their subsidiaries. F-60 Table of Contents CANGO INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023 (Amounts in Renminbi (“RMB”) and U.S. dollars (“US$”), except for number of shares and per share data) 27. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY - CONTINUED Basis of presentation Condensed financial information is used for the presentation of the Company, or the parent company. The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries and VIEs. The parent company records its investment in its subsidiaries and VIEs under the equity method of accounting as prescribed in ASC 323, Investments – Equity Method and Joint Ventures (“ASC 323”). Such investments are presented on the condensed balance sheets as “Investment in subsidiaries and VIEs’ and their respective profit or loss as “Equity in profits of subsidiaries and VIEs’ on the condensed statements of comprehensive (loss) income. Equity method accounting ceases when the carrying amount of the investment, including any additional financial support, in a subsidiary and VIEs is reduced to zero unless the parent company has guaranteed obligations of the subsidiary and VIEs or is otherwise committed to provide further financial support. If the subsidiary and VIEs subsequently reports net income, the parent company shall resume applying the equity method only after its share of that net income equals the share of net losses not recognized during the period the equity method was suspended. The parent company’s condensed financial statements should be read in conjunction with the Company’s consolidated financial statements. F-61 LIST OF SUBSIDIARIES AND CONSOLIDATED VARIABLE INTEREST ENTITY OF CANGO INC. AS OF DECEMBER 31, 2023 Subsidiaries Cango Group Limited Express Group Development Limited 捷联发展有限公司 Can Gu Long (Shanghai) Information Technology Consultation Service Co., Ltd.* 灿谷隆（上 海）信息科技咨询服务有限公司 Jurisdiction of Incorporation Hong Kong Hong Kong PRC Exhibit 8.1 Consolidated Variable Interest Entity (“VIE”) Shanghai Cango Investment and Management Consulting Service Co., Ltd.* 上海灿谷投资管理 咨询服务有限公司 Shanghai Yungu Haoche Electronic Technology Co., Ltd.* 上海鋆谷好车电子科技有限公司 Subsidiaries of the Consolidated VIEs Cango Financing Guarantee Co., Ltd.* 灿谷融资担保有限公司 Shanghai Wangjin Financial Information Service Co., Ltd.* 上海网金金融信息服务有限公司 Shanghai Cango Electronic Technology Co., Ltd.* 上海灿谷电子科技有限公司 Shanghai Wangtian Investment Co., Ltd.* 上海网天投资有限公司 Nanjing Canyuan Automotive Service Co., Ltd.* 南京灿元汽车服务有限公司 Hubei Huaitai Automotive Consulting Service Co., Ltd.* 湖北省怀泰汽车咨询服务有限公司 Chengdu Cango Automotive Service Co., Ltd.* 成都灿谷汽车服务有限公司 Shandong Huaitong Automotive Consulting Service Co., Ltd.* 山东怀通汽车咨询服务有限公 司 Hefei Cango Automotive Service Co., Ltd.* 合肥灿谷汽车服务有限公司 Shanghai Chejia Financing Lease Co., Ltd.* 上海有车有家融资租赁有限公司 Jilin Cango Automotive Information Consulting Service Co., Ltd.* 吉林灿谷汽车信息咨询有限 公司 PRC PRC PRC PRC PRC PRC PRC PRC PRC PRC PRC PRC PRC Gansu Cango Automotive Information Consulting Co., Ltd.* 甘肃灿谷汽车信息咨询有限公司 PRC PRC Nantong Cango Automotive Information Consulting Service Co., Ltd.* 南通灿谷汽车信息咨询 服务有限公司 Shanghai Cango Advertising Media Co., Ltd.* 上海灿谷广告传媒有限公司 Shanghai Yunrong Information Technology Co., Ltd.* 上海鋆融信息科技服务有限公司 PRC PRC Shanghai Cango Zhixing Automobile Lease Co., Ltd.* 上海灿谷知行汽车租赁有限公司 Shanghai Quanpin Automobile Sales and Service Co., Ltd.* 上海全品汽车销售服务有限公司 Shanghai Chejia Financing Lease Co., Ltd. Dongguan Branch* 上海有车有家融资租赁有限公 司东莞分公司 PRC PRC PRC Chengdu Chejia Automotive Leasing Service Co., Ltd.* 成都有车有家汽车租赁服务有限公司 PRC Fushun Insurance Broker Co., Ltd.* 福顺保险经纪有限公司 Fushun Insurance Broker Co., Ltd. Hunan Branch* 福顺保险经纪有限公司湖南分公司 Fushun Insurance Broker Co., Ltd. Gansu Branch* 福顺保险经纪有限公司甘肃分公司 Fushun Insurance Broker Co., Ltd. Guangdong Branch* 福顺保险经纪有限公司广东分公司 Fushun Insurance Broker Co., Ltd. Shaanxi Branch* 福顺保险经纪有限公司陕西分公司 Fushun Insurance Broker Co., Ltd. Qingdao Branch* 福顺保险经纪有限公司青岛分公司 Fushun Insurance Broker Co., Ltd. Shanxi Branch* 福顺保险经纪有限公司山西分公司 Fushun Insurance Broker Co., Ltd. Guangxi Branch* 福顺保险经纪有限公司广西分公司 Shanghai Cango Network Technology Co., Ltd.*上海灿谷网络科技有限公司 Shanghai Cango Network Technology Co., Ltd. Changde Branch*上海灿谷网络科技有限公司 常德分公司 Shanghai Cango Network Technology Co., Ltd. Yingtan Branch*上海灿谷网络科技有限公司鹰 潭分公司 Hubei Zhixing Automobile Lease Co., Ltd.* 湖北知行汽车租赁有限公司 PRC PRC PRC PRC PRC PRC PRC PRC PRC PRC PRC PRC * The English name of this subsidiary, consolidated VIE or subsidiary of a consolidated VIE, as applicable, has been translated from its Chinese name. Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Jiayuan Lin, certify that: 1. I have reviewed this annual report on Form 20-F of Cango Inc. (the “Company”); Exhibit 12.1 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. Date: April 26, 2024 By: Name: Title: /s/ Jiayuan Lin Jiayuan Lin Director and Chief Executive Officer Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Yongyi Zhang, certify that: 1. I have reviewed this annual report on Form 20-F of Cango Inc. (the “Company”); Exhibit 12.2 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. Date: April 26, 2024 /s/ Yongyi Zhang By: Name: Yongyi Zhang Title: Director and Chief Financial Officer Certification by the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 13.1 In connection with the annual report of Cango Inc. (the “Company”) on Form 20-F for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jiayuan Lin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: April 26, 2024 /s/ Jiayuan Lin Jiayuan Lin By: Name: Title: Director and Chief Executive Officer Certification by the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 13.2 In connection with the annual report of Cango Inc. (the “Company”) on Form 20-F for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Yongyi Zhang, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: April 26, 2024 /s/ Yongyi Zhang By: Name: Yongyi Zhang Title: Director and Chief Financial Officer FANGDA PARTNERS 北京 Beijing·广州 Guangzhou·香港 Hong Kong·南京 Nanjing·上海 Shanghai·深圳 Shenzhen http://www.fangdalaw.com Exhibit 15.1 中国北京市朝阳区光华路一号 北京嘉里中心北楼27层 邮政编码：100020 27/F, North Tower, Beijing Kerry Centre 1 Guanghua Road, Chaoyang District Beijing 100020, PRC Cango Inc. 8F, New Bund Oriental Plaza II 556 West Haiyang Road, Pudong, Shanghai, People’s Republic of China Dear Sirs, 电子邮件 E-mail: 电 话 传 真 Tel.: Fax: email@fangdalaw.com 86-10-5769-5600 86-10-5769-5788 April 26, 2024 We consent to the references to our firm under “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure—If the PRC government deems that the contractual arrangements in relation to our consolidated VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements among Can Gu Long, the Consolidated VIEs and Their Shareholders”, in Cango Inc.’s Annual Report on Form 20-F for the year ended December 31, 2023 (the “Annual Report”), which is filed with the Securities and Exchange Commission (the “SEC”) on the date hereof. We also consent to the filing with the SEC of this consent letter as an exhibit to the Annual Report. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder. Yours faithfully, /s/ Fangda Partners Ernst & Young Hua Ming LLP Shanghai Branch 50/F, Shanghai World Financial Center 100 Century Avenue Pudong New Area Shanghai, China 200120 安永华明会计师事务所（特殊普通合伙) 上海分所 中国上海巿浦东新区世纪大道100号 上海环球金融中心50楼 邮政编码: 200120 Exhibit 15.2 Tel电话: +86 21 2228 8888 Fax传真: +86 21 2228 0000 ey.com Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-238454) pertaining to the Share Incentive Plan 2018 of Cango Inc. of our reports dated April 26, 2024, with respect to the consolidated financial statements of Cango Inc., and the effectiveness of internal control over financial reporting of Cango Inc., included in this Annual Report (Form 20-F) for the year ended December 31, 2023. /s/ Ernst & Young Hua Ming LLP Shanghai, The People’s Republic of China April 26, 2024 A member firm of Ernst & Young Global Limited Cango Inc. Incentive Compensation Clawback Policy (As Adopted on October 10, 2023 Pursuant to NYSE Rule 303A.14) Exhibit 97.1 1. Overview. The Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of Cango Inc. (the “Company”) has adopted this Incentive Compensation Clawback Policy (the “Policy”) which requires the recoupment of certain incentive-based compensation in accordance with the terms herein and is intended to comply with Section 303A.14 of The New York Stock Exchange Listed Company Manual, as such section may be amended from time to time (the “Listing Rules”). Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms under Section 12 of this Policy. 2. Interpretation and Administration. The Committee shall have full authority to interpret and enforce the Policy; provided, however, that the Policy shall be interpreted in a manner consistent with its intent to meet the requirements of the Listing Rules. As further set forth in Section 10 below, this Policy is intended to supplement any other clawback policies and procedures that the Company may have in place from time to time pursuant to other applicable law, plans, policies or agreements. 3. Covered Executives. The Policy applies to each current and former Executive Officer of the Company who serves or served as an Executive Officer at any time during a performance period in respect of which Incentive Compensation is Received, to the extent that any portion of such Incentive Compensation is (a) Received by the Executive Officer during the last three completed Fiscal Years or any applicable Transition Period preceding the date that the Company is required to prepare a Restatement (regardless of whether any such Restatement is actually filed) and (b) determined to have included Erroneously Awarded Compensation. For purposes of determining the relevant recovery period referenced in the preceding clause (a), the date that the Company is required to prepare a Restatement under the Policy is the earlier to occur of (i) the date that the Board, a committee of the Board, or the officer or officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare a Restatement or (ii) the date a court, regulator, or other legally authorized body directs the Company to prepare a Restatement. Executive Officers subject to this Policy pursuant to this Section 3 are referred to herein as “Covered Executives.” 4. Recovery of Erroneously Awarded Compensation. If any Erroneously Awarded Compensation is Received by a Covered Executive, the Company shall reasonably promptly take steps to recover such Erroneously Awarded Compensation in a manner described under Section 5 of this Policy. 5. Forms of Recovery. The Committee shall determine, in its sole discretion and in a manner that effectuates the purpose of the Listing Rules, one or more methods for recovering any Erroneously Awarded Compensation hereunder in accordance with Section 4 above, which may include, without limitation: (a) requiring cash reimbursement; (b) seeking recovery or forfeiture of any gain realized on the vesting, exercise, settlement, sale, transfer or other disposition of any equity-based awards; (c) offsetting the amount to be recouped from any compensation otherwise owed by the Company to the Covered Executive; (d) cancelling outstanding vested or unvested equity awards; or (e) taking any other remedial and recovery action permitted by law, as determined by the Committee. To the extent the Covered Executive refuses to pay to the Company an amount equal to the Erroneously Awarded Compensation, the Company shall have the right to sue for repayment and/or enforce the Covered Executive’s obligation to make payment through the reduction or cancellation of outstanding and future compensation. Any reduction, cancellation or forfeiture of compensation shall be done in compliance with Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. 6. No Indemnification. The Company shall not indemnify any Covered Executive against the loss of any Erroneously Awarded Compensation for which the Committee has determined to seek recoupment pursuant to this Policy. 7. Exceptions to the Recovery Requirement. Notwithstanding anything in this Policy to the contrary, Erroneously Awarded Compensation need not be recovered pursuant to this Policy if the Committee (or, if the Committee is not composed solely of Independent Directors, a majority of the Independent Directors serving on the Board) determines that recovery would be impracticable as a result of any of the following: (a) the direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered; provided that, before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on expense of enforcement, the Company must make a reasonable attempt to recover such Erroneously Awarded Compensation, document such reasonable attempt(s) to recover, and provide that documentation to the Exchange; (b) recovery would violate home country law where that law was adopted prior to November 28, 2022; provided that, before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on violation of home country law, the Company must obtain an opinion of home country counsel, acceptable to the Exchange, that recovery would result in such a violation, and must provide such opinion to the Exchange; or (c) recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(l3) or 26 U.S.C. 411(a) and the regulations thereunder. 8. Committee Determination Final. Any determination by the Committee with respect to the Policy shall be final, conclusive and binding on all interested parties. 9. Amendment. The Policy may be amended by the Committee from time to time, to the extent permitted under the Listing Rules. 10. Non-Exclusivity. Nothing in the Policy shall be viewed as limiting the right of the Company or the Committee to pursue additional remedies or recoupment under or as required by any similar policy adopted by the Company or under the Company’s compensation plans, award agreements, employment agreements or similar agreements or the applicable provisions of any law, rule or regulation which may require or permit recoupment to a greater degree or with respect to additional compensation as compared to this Policy (but without duplication as to any 2 recoupment already made with respect to Erroneously Awarded Compensation pursuant to this Policy). This Policy shall be interpreted in all respects to comply with the Listing Rules. 11. Successors. The Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal representatives. 12. Defined Terms. “Covered Executives” shall have the meaning set forth in Section 3 of this Policy. “Erroneously Awarded Compensation” shall mean the amount of Incentive Compensation actually Received that exceeds the amount of Incentive Compensation that otherwise would have been Received had it been detennined based on the restated amounts, and computed without regard to any taxes paid. For Incentive Compensation based on stock price or total shareholder return, where the amount of erroneously awarded Incentive Compensation is not subject to mathematical recalculation directly from the information in a Restatement: (A) (B) The calculation of Erroneously Awarded Compensation shall be based on a reasonable estimate of the effect of the Restatement on the stock price or total shareholder return upon which the Incentive Compensation was Received; and The Company shall maintain documentation of the determination of that reasonable estimate and provide such documentation to the Exchange. “Exchange” shall mean The New York Stock Exchange. “Executive Officer” shall mean the Company’s president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company. Executive officers of the Company’s parent(s) or subsidiaries shall be deemed executive officers of the Company if they perform such policy-making functions for the Company. “Financial Reporting Measures” shall mean measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures, including, without limitation, stock price and total shareholder return (in each case, regardless of whether such measures are presented within the Company’s financial statements or included in a filing with the Securities and Exchange Commission). “Fiscal Year” shall mean the Company’s fiscal year; provided that a Transition Period between the last day of the Company’s previous fiscal year end and the first day of its new fiscal year that comprises a period of nine to 12 months will be deemed a completed fiscal year. vested based wholly or in part upon the attainment of a Financial “Incentive Compensation” shall mean any compensation (whether cash or equity based) that is granted, earned, or 3 Reporting Measure, and may include, but shall not be limited to, performance bonuses and long term incentive awards such as stock options, stock appreciation rights, restricted stock, restricted stock units, performance share units or other equity-based awards. For the avoidance of doubt, Incentive Compensation does not include (i) awards that are granted, earned and vested exclusively upon completion of a specified employment period, without any performance condition, and (ii) bonus awards that are discretionary or based on subjective goals or goals unrelated to Financial Reporting Measures. Notwithstanding the foregoing, compensation amounts shall not be considered “Incentive Compensation” for purposes of the Policy unless such compensation is Received (1) while the Company has a class of securities listed on a national securities exchange or a national securities association and (2) on or after October 2, 2023, the effective date of the Listing Rules. Committee membership, as applicable, under the rules of the Exchange, as of any determination date. “Independent Director” shall mean a director who is determined by the Board to be “independent” for Board or “Listing Rules” shall have the meaning set forth in Section 1 of this Policy. Incentive Compensation shall be deemed “Received” in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive Compensation award is attained, even if the payment or grant of the Incentive Compensation occurs after the end of that period. “Restatement” shall mean an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the Company’s previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. “Transition Period” shall mean any transition period that results from a change in the Company’s Fiscal Year within or immediately following the three completed Fiscal Years immediately preceding the Company’s requirement to prepare a Restatement. Adopted on: October 10, 2023 4 

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