CNFinance Holdings Limited

 
 
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 20-F
 
(Mark One)
 
☐ REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES

EXCHANGE ACT OF 1934
 
OR
 
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
For the fiscal year ended December 31,
2024
 
OR
 
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
For the transition period from                          
to                          .
 
OR
 
☐ SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
Date of event requiring this shell company report                                  
 
For the transition period from           to          
 
Commission file number: 001-38726
 
CNFinance Holdings
Limited

(Exact name of Registrant as specified in its charter)
 
N/A

(Translation of Registrant’s name into English)
 
Cayman Islands

(Jurisdiction of incorporation or organization)
 
22/F, South Finance Center, No. 6 Wuheng Road

Tianhe District, Guangzhou City, Guangdong Province

People’s Republic of China 
(Address of principal executive offices)

Bin Zhai, Chief Executive Officer and Chairman

Tel: +86-20-62316688

E-mail: ir@cashchina.cn

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
 
Trading Symbol
 
Name of each exchange on which registered
American depositary shares, each ADS
representing 20 ordinary shares, par value
US$0.0001 per share
 
CNF
 
The New York Stock Exchange
Ordinary shares, par value US$0.0001 per share*  
 
 
The 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)
 
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.
 
1,371,643,240 ordinary shares, par value US$0.0001 per share, as of
December 31, 2024.
 
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 ☒
 
Note – Checking the box above will not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 from their obligations under those Sections.
 
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 electronically
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
definition 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. ☐
 
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 registrant 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 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 Exchange Act).
 
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 Section 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 ☐
 
†
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.
 
 
 
 

 
TABLE OF CONTENTS
 
 
Page
Introduction
iii
Forward-Looking Information
v
Part I
1
Item 1. Identity of Directors, Senior Management and Advisers
1
Item 2. Offer Statistics And Expected Timetable
1
Item 3. Key Information
1
3.A. [Reserved]
5
3.B. Capitalization and Indebtedness
5
3.C. Reason for the Offer and Use of Proceeds
5
3.D. Risk Factors
5
Item 4. Information On The Company
55
4.A. History and Development of the Company
55
4.B. Business Overview
55
Item 4A. Unresolved Staff Comments
96
Item 5. Operating and Financial Review and Prospects
96
5.A. Operating Results
96
5.B. Liquidity and Capital Resources
123
5.C. Research and Development
128
5.D. Trend Information
129
5.E. Critical Accounting Estimates
129
Item 6. Directors, Senior Management and Employees
129
6.A. Directors and Senior Management
129
6.B. Compensation
131
6.C. Board Practices
134
Item 7. Major Shareholders and Related Party Transactions
139
7.A. Major Shareholders
139
7.B. Related Party Transactions
139
7.C. Interests of Experts and Counsel
139
Item 8. Financial Information
139
8.A. Consolidated Statements and Other Financial Information
139
8.B. Significant Changes
140
Item 9. The Offer And Listing
140
9.A. Offering and Listing Details
140
9.B. Plan of Distribution
140
9.C.
Markets
140
9.D. Selling Shareholders
140
9.E. Dilution
141
9.F. Expenses of the Issue
141
Item 10. Additional Information
141
10.A. Share Capital
141
10.B. Memorandum and Articles of Association
141
10.C. Material Contracts
141
10.D. Exchange Controls
141
10.E. Taxation
141
10.F. Dividends and Paying Agents
148
10.G. Statement by Experts
148
10.H. Documents on Display
148
10.I. Subsidiary information
149
10.J. Annual Report to Security Holders
149
Item 11. Quantitative And Qualitative Disclosures About Market Risk
149
Item 12. Description of Securities Other Than Equity Securities
150
 
 
i

 
12.A. Debt Securities
150
12.B. Warrants and Rights
150
12.C. Other Securities
150
12.D. American Depositary Shares
150
Part II
152
Item 13. Item Defaults, Dividend Arrearages And Delinquencies
152
Item 14. Material Modifications To The Rights Of Security Holders and Use of Proceeds
152
14.A.-14.D. Material Modifications to the Rights of Security Holders
152
14.E. Use of Proceeds
152
Item 15. Controls and Procedures
152
Item 16. [Reserved]
153
16.A. Audit Committee Financial Expert
153
16.B. Code of Ethics
153
16.C. Principal Accountant Fees and Services
154
16.D. Exemptions from the Listing Standards for Audit Committees
154
16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
154
16.F. Change in Registrant’s Certifying Accountant
155
16.G. Corporate Governance
155
16.H. Mine Safety Disclosure
156
16.I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
156
16.J. Insider Trading Policies
156
16.K. Cybersecurity
156
Part III
157
Item 17. Financial Statements
157
Item 18. Financial Statements
157
Item 19. Exhibits
157
 
ii

 
INTRODUCTION
 
Except where the context otherwise indicates
and for the purpose of this annual report only:
 
●
“ADSs” refers to the American depositary shares, each representing 20 of our ordinary shares;
 
●
“allowance ratio” of a particular date refers to amount of allowance for loan principal, interest and financing service
fee receivables as a
percentage of the outstanding loan principal, interest and financing service fee receivables as of the date;
 
●
“China” or “the PRC” refers to the People’s Republic of China, including Hong Kong and Macau and, only
for the purpose of this annual report,
excluding Taiwan; the only instances in which “China” or “the PRC” do not
include Hong Kong or Macau are when used in the case of laws and
regulations, including, among others, tax matters, adopted by the People’s
Republic of China; the legal and operational risks associated with
operating in China also apply to our operations in Hong Kong;
 
●
“contractual interest rate” refers to the interest rate prescribed under loan agreements;
 
●·
“CNFinance”, “the Company”, or “the Group”refers to CNFinance Holdings Limited, a Cayman Islands
exempted company with limited liability;
 
●
“Credit Risk Mitigation Position” or “CRMP” refers to the amount contributed by the sales partners equal to
5% to 25% of the loans issued to the
borrowers introduced by the sales partners to share the credit risk with the Company;
 
●
“delinquency ratio” of a particular date refers to total balance of outstanding loan principal for which any installment
payment is one or more days
past-due as a percentage of the outstanding loan principal as of the date;
 
●
“effective interest rate” refers to the annualized internal rate of return based on initial outlay of loan principal,
initial inflow of financing service
fees (if applicable) and expected monthly inflow of repayments;
 
●
“effective sales partners” refers to the sales partners who have introduced at least one borrower since inception to us
that was approved by our
trust company partners for loan facilitation;
 
●
“leverage ratio” refers to the ratio of total assets to total shareholders’ equity;
 
●
“charge-off ratio” refers to the ratio of charge-offs during a period over the average beginning and ending balances of
outstanding loan principal of
the same period;
 
●
“loan-to-value ratio” or “LTV ratio” refers to the ratio of loan amount to the value of asset collateral;
the loan amount is calculated as the amount
of all outstanding loans to be secured by the collateral;
 
●
“NPL” refers to a loan being delinquent for over 90 days;
 
●
“NPL provision coverage ratio” of a particular date refers to amount of allowance for loan principal, interest and financing
service fee receivables
as a percentage of the outstanding balance of NPL principal as of the date;
 
●
“NPL ratio” as of a particular date represents total balance of outstanding loan principal for which any installment payment
is over 90 calendar
days past-due as a percentage of the outstanding loan principal as of the date;
 
iii

 
●
“ordinary shares” refers to our ordinary shares of par value US$0.0001 per share;
 
●
“Pearl River Delta region” refers to Dongguan, Zhongshan, Foshan, Guangzhou, Huizhou, Jiangmen, Shenzhen, Zhuhai and Zhaoqing;
 
●
“quick disposal plans” refers to the mechanisms that we utilize to quickly dispose of delinquent loans or collateral to
recover potential losses,
including selling the delinquent loans to third parties or disposal of collateral without going through judicial
proceedings;
 
●
“RMB” or “Renminbi” refers to the legal currency of the People’s Republic of China;
 
●
“senior units” refers to the senior units and intermediate units, if applicable, in a trust plan;
 
●
“structural leverage ratio” refers to the ratio of the total amount of senior units and subordinated units; intermediate
units are included as senior
units for the purpose of calculation;
 
●
“Tier 1 cities” refers to Beijing, Shanghai, Shenzhen and Guangzhou;
 
●
“Tier 2 cities” refers to Dongguan, Foshan, Nanjing, Nanchang, Nantong, Xiamen, Hefei, Dalian, Tianjin, Changzhou, Xuzhou,
Huizhou,
Chengdu, Wuxi, Kunming, Hangzhou, Wuhan, Ji’nan, Zhuhai, Shijiazhuang, Fuzhou, Suzhou, Xi’an, Zhengzhou, Chongqing,
Changsha,
Qingdao, Shaoxing, Ningbo, Wuxi, Harbin, Changchun, Nanning, Wenzhou, Quanzhou, Guiyang, Taiyuan, Jinhua, Yantai, Jiaxing, Taizhou,
Zhongshan, Baoding, Lanzhou and Langfang;
 
●
“total operating income” refers to the sum of (i) net interest and fees income after collaboration cost and (ii) total
non-interest income;
 
●
“US$,” “dollars” or “U.S. dollars” refers to the legal currency of the United States;
 
●
“we,” “us,” “our company,” “the Company,” “the Group,” and “our”
refer to CNFinance Holdings Limited, a Cayman Islands exempted company
with limited liability and its subsidiaries and consolidated affiliated
entities, including but not limited to Shenzhen Fanhua United Investment
Group Co., Ltd. and Guangzhou Heze Information Technology Co.,
Ltd., as a group; and
 
●
“Yangtze River Delta region” refers to Shanghai, Nanjing, Nantong, Hefei, Yixing, Changzhou, Yangzhou, Wuxi, Hangzhou,
Jiangyin, Taizhou,
Shaoxing, Suzhou, Jiaxing and Zhenjiang.
 
We present our financial results in RMB. We make
no representation that any RMB or U.S. dollar amounts could have been, or could be, converted
into U.S. dollars or RMB, as the case may
be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in
part through direct regulation
of the conversion of RMB into foreign exchange and through restrictions on foreign trade. This annual report contains
translations of
certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of Renminbi
into U.S. dollars were made at the rate at RMB7.2993 to US$1.00, the exchange rate as set forth in the H.10 statistical release of the
Board of Governors of
the Federal Reserve System in effect as of December 31, 2024.
 
iv

 
FORWARD-LOOKING
INFORMATION
 
This annual report on Form 20-F contains forward-looking
statements that reflect our current expectations and views of future events. 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, you can
identify these forward-
looking statements by terminology such as “may,” “will,” “expect,” “anticipate,”
“aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,”
“potential,” “continue” or other similar expressions. 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.
These forward-looking statements include, but are not limited to:
 
●
our goals and growth strategies;
 
●
our future business development, results of operations and financial condition;
 
●
relevant government policies and regulations relating to our business and industry;
 
●
general economic and business conditions in China; and
 
●
assumptions
underlying or related to any of the foregoing.
 
We would like to caution you not to place undue
reliance on these forward-looking statements and you should read these statements in conjunction
with the risk factors 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. Those risks are not exhaustive. We operate in an evolving environment. New risks emerge from time
to
time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business
or the extent to which
any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking
statement. We qualify all of our
forward-looking statements by these cautionary statements.
 
You should not rely upon forward-looking statements
as predictions of future events. We do not undertake any obligation to update or revise the
forward-looking statements except as required
under applicable law. You should read this annual report and the documents that we reference in this annual
report completely and with
the understanding that our actual future results may be materially different from what we expect.
 
v

 
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
 
Risks Associated with Being Based in or Having the Majority of
the Operations in China
 
We are exposed to legal and operational risks
associated with our operations in China. The PRC government has significant authority to exert influence
on the ability of a company with
operations in China, including us, to conduct its business. Changes in China’s economic, political or social conditions or
government
policies could materially and adversely affect our business and results of operations. We are subject to risks due to the uncertainty
of the
interpretation and the application of the PRC laws and regulations, including but not limited to the risks of uncertainty about
any future actions of the PRC
government on U.S. listed companies. We may also be subject to sanctions imposed by PRC regulatory agencies,
including the China Securities Regulatory
Commission (“CSRC”), if we fail to comply with their rules and regulations. Any
actions by the PRC government to exert more oversight and control over
offerings that are conducted overseas and/or foreign investment
in companies having operations in China, including us, could significantly limit or
completely hinder our ability to offer or continue
to offer securities to investors, and cause the value of our securities to significantly decline or become
worthless. These China-related
risks could result in a material change in our operations and/or the value of our securities, or could significantly limit or
completely
hinder our ability to offer securities to investors in the future and cause the value of such securities to significantly decline or become
worthless.
 
The Regulations on Mergers and Acquisitions of
Domestic Enterprises by Foreign Investors, or the M&A Rules, require an overseas special purpose
vehicle formed for listing purposes
through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the
approval of the CSRC prior
to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. However, the application
of the M&A Rules remains unclear. If CSRC approval is required, it is uncertain whether it would be possible for us to obtain the
approval, and any failure
to obtain or delay in obtaining CSRC approval for future offerings of securities overseas or to maintain the
listing status of our ADSs would subject us to
sanctions imposed by the CSRC and other PRC regulatory agencies.
 
On July 6, 2021, certain PRC regulatory
authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the
Law. These opinions
call for strengthened regulation over illegal securities activities and supervision on overseas listings by China-based companies
and
propose to take effective measures, such as promoting the development of relevant regulatory systems to deal with the risks and
incidents faced by China-
based overseas-listed companies. On February 17, 2023, the CSRC, promulgated the Trial Administrative
Measures of Overseas Securities Offering and
Listing by Domestic Companies (the “Overseas Listing Trial Measures”), and
five supporting guidelines, which became effective on March 31, 2023. The
Overseas Listing Trial Measures will comprehensively
improve and reform the existing regulatory regime for overseas offering and listing of PRC
domestic companies’ securities and
will regulate both direct and indirect overseas offering and listing of PRC domestic companies’ securities by adopting a
filing-based regulatory regime. According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list
securities in overseas
markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and
report relevant information. If a company fails to
complete the filing procedure or conceals any material fact or falsifies any
major content in its filing documents, it may be subject to administrative
penalties, such as order to rectify, warnings, fines, and
its controlling shareholders, actual controllers, the person directly in charge and other directly liable
persons may also be
subject to administrative penalties, such as warnings and fines. The Overseas Listing Trial Measures also provide that a company in
mainland China must file with the CSRC within three business days for its follow-on offering of securities after it is listed in an
overseas market. On
February 17, 2023, the CSRC also issued the Notice on Administration of the Filing of Overseas Offering and
Listing by Domestic Companies and held a
press conference for the release of the Overseas Listing Trial Measures, which, among
others, clarified that the companies in mainland China that have
been listed overseas before March 31, 2023 are not required to file
with the CSRC immediately, but these companies should complete filing with the CSRC
for their financing activities in accordance
with the Overseas Listing Trial Measures. Based on the foregoing, as an issuer that has been listed overseas
before the effective
date of the Overseas Listing Trial Measures, we are not required to complete filing with the CSRC for our prior offshore offerings
at
this stage, but we may be subject to the filing requirements for our future capital raising activities under the Overseas Listing
Trial Measures.
 
1

 
In addition, the Data Security Law was promulgated
on June 10, 2021 and became effective in September 2021. The Personal Information Protection
Law was promulgated on August 20, 2021 and
officially implemented on November 1, 2021. The Data Security Law stipulates that the data handling
activities that affect or may affect
the national security should undergo national security review, and the Personal Information Protection Law stipulates that
critical information
infrastructure (“CII”) operators, or personal information processors whose processing of personal information reaches the
threshold
amount prescribed by the national cyberspace authority, shall store the personal information collected or generated by them
within the territory of the PRC.
If it is necessary to provide the data overseas, the organization is required to pass the security assessment
organized by the national cyberspace authority.
The Measures for Cyber Security Review published by Cyberspace Administration of China
(CAC) in December 2021 provides that a network platform
operator that has the personal information of more than one million users must
apply to the Cybersecurity Review Office (the “CRO”) for a cybersecurity
review when it seeks to list overseas. Also, a CII
operator, when procuring a network product or service, shall predict any national security risk that may
arise after the use of such product
or service. If national security will be affected or may be affected, the CII operator shall apply to the CRO for a
cybersecurity review.
 
Although we do not believe we are a CII operator
or a network platform operator, the PRC authorities could interpret such term broadly. If our
company is deemed to be a CII operator or
a network platform operator under such rules, we could be subject to cybersecurity review by the CAC and
other relevant PRC regulatory
authorities and be required to change our existing practices in data privacy and cybersecurity matters at substantial costs.
During such
cybersecurity review, we may be required to stop providing services to our customers. If the CSRC or other PRC regulatory body subsequently
determines that we need to obtain the CSRC’s approval for future offerings of securities overseas or to maintain the listing status
of our ADSs or if the
CSRC or any other PRC government authorities promulgates any interpretation or implements rules before our listing
that would require us to obtain
CSRC or other governmental approvals for future offerings of securities overseas or to maintain the listing
status of our ADSs, we may not be able to
proceed with future offerings of securities overseas or to the listing of our ADSs on the New
York Stock Exchange, face adverse actions or sanctions by the
CSRC or other PRC regulatory agencies. In any such event, these regulatory
agencies may impose fines and penalties on our operations in China, limit our
operating privileges in China, delay or restrict the repatriation
of the proceeds from future offerings of securities overseas into the PRC or take other actions
that could have a material adverse effect
on our business, financial condition, results of operations, reputation and prospects, as well as our ability to
complete future offerings
of securities overseas or to maintain the listing status of our ADSs. We also cannot rule out the possibility that certain of our
customers
may be deemed as CII operators, in which case our products or services or data processing activities, if being deemed as related to national
security, will need to be submitted for cybersecurity review before we can enter into agreements with such customers, and before the conclusion
of such
procedure, the customers will not be allowed to use our products or services. If the reviewing authority considers that the use
of our services by certain of
our customers involves risk of disruption, is vulnerable to external attacks, or may negatively affect,
compromise, or weaken the protection of national
security, we may not be able to provide our products or services to such customers, which
could have a material adverse effect on our results of operations
and prospects. Uncertainties also exist regarding the interpretation
and implementation of the newly enacted PRC Foreign Investment Law and how it may
impact the viability of our current corporate structure
and the viability of business operation. On March 15, 2019, the National People’s Congress approved
the Foreign Investment Law of
the People’s Republic of China (“PRC Foreign Investment Law”), and the State Council promulgated the Implementing
Regulations
to the PRC Foreign Investment Law (“Implementing Regulations”) on December 26, 2019, both of which came into effect on January
1, 2020.
The PRC Foreign Investment Law and its Implementing Regulations replaced the trio of previous laws regulating foreign investment
in China, namely, the
Law of the People’s Republic of China on Chinese-foreign Equity Joint Ventures, the Law of the People’s Republic of China
on Chinese-foreign
Cooperative Joint Ventures, and the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises,
together with their implementation
rules and ancillary regulations.
 
2

 
PRC Foreign Investment Law and its
Implementing Regulations specify that foreign investments shall be conducted in line with the negative list
issued by or approved to
be issued by the State Council. If a foreign investment enterprise (the “FIE”) proposes to conduct business in an
industry subject
to foreign investment “restrictions” in the negative list, the FIE must meet certain conditions under
the negative list before being established. If an FIE
proposes to conduct business in an industry subject to foreign investment
“prohibitions” in the “negative list,” it must not engage in the business.
Investments made in Mainland
China by investors from the Hong Kong Special Administrative Region and the Macao Special Administrative Region shall
be governed by
the PRC Foreign Investment Law and its Implementing Regulations. On September 6, 2024, the NDRC and the MOFCOM promulgated
the
Special Administrative Measures (Negative List) for Access of Foreign Investments (2024 Edition), as came into effect on November 1,
2024,
according to which the industry of loan service has not been subject to foreign investment “restrictions” or
“prohibitions” in the Negative List. Our PRC
legal advisor, Global Law Office, advises us that according to the PRC
Foreign Investment Law and the Implementing Regulations, the PRC regulatory
agencies shall, considering the needs for further
foreign opening and economic and social development, adjust the Negative List where appropriate.
Therefore, if the industry of loan
service is subject to the foreign investment restrictions or prohibitions under the negative list issued subsequently, our
failure
to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and
adversely affect
our current corporate structure, corporate governance, and business operations.
 
As there are still uncertainties regarding these
new laws and regulations as well as the amendment, interpretation and implementation of the existing
laws and regulations related to cybersecurity
and data protection, we cannot assure you that we will be able to comply with these laws and regulations in all
respects. The regulatory
authorities may deem our activities or services non-compliant and therefore require us to suspend or terminate its business. We
may also
be subject to fines, legal or administrative sanctions and other adverse consequences, and may not be able to become in compliance with
relevant
laws and regulations in a timely manner, or at all. These may materially and adversely affect its business, financial condition,
results of operations and
reputation.
 
Since these statements and regulatory actions
are new, it is highly uncertain how soon legislative or administrative regulation making bodies will
respond and what existing or new
laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the
potential impact
such modified or new laws and regulations will have on our daily business operation, our ability to accept foreign investments and conduct
follow-on offerings, and listing or continuing listing on a U.S. or other foreign exchanges. In addition, the PRC government has recently
published new
policies that significantly affected certain industries such as the real estate, education and internet industries, and
we cannot rule out the possibility that it
will in the future release regulations or policies regarding any other industry including the
industry in which we operate, which could adversely affect our
business, financial condition and results of operations. See “Item
3. Key Information—D. Risk Factors—Risk Factors—Risks Related to Doing Business in
China” for more details.
 
Risks Associated with Our Corporate
Structure
 
CNFinance Holdings Limited is a holding company
with no operations of its own. It conducts substantially all of its operations in China primarily
through its subsidiaries in China, in
particular Shenfanlian Investment Group Co., Ltd. (formerly known as Shenzhen Fanhua United Investment Group
Co., Ltd.), Guangzhou Heze
Information Technology Co., Ltd., and their subsidiaries and consolidated affiliated entities, and substantially all of its assets
and
operations are located in China. With a holding company structure, we principally rely on dividends from our PRC subsidiaries for our
cash
requirements, including any payment of dividends to our shareholders. If these subsidiaries or any newly formed subsidiaries incur
debt on their own behalf
in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
 
In 2022, 2023 and 2024, CNFinance has not transferred
any cash proceeds to any of its PRC subsidiaries. For instance, cash proceeds raised from
overseas financing activities, may be transferred
by CNFinance through China Financial Services Group Limited, our Hong Kong subsidiary, to Fanhua
Chuangli Information Technology (Shenzhen)
Company Limited (“Fanhua Chuangli”), a PRC subsidiary, via capital contribution and shareholder loans, as
the case may be.
Fanhua Chuangli then will transfer funds to its subsidiaries to meet the capital needs of business operations. None of our PRC subsidiaries
have issued any dividends or distributions to respective holding companies, including CNFinance, or any investors as of the date of this
annual report. Our
subsidiaries in the PRC generate and retain cash generated from operating activities and re-invest it in business operations.
 
3

 
In this annual report, “we,” “us,”
“our company,” and “our” refer to CNFinance Holdings Limited, a Cayman Islands exempted company with limited
liability
and its subsidiaries and consolidated affiliated entities, including but not limited to Shenzhen Fanhua United Investment Group Co., Ltd.
and
Guangzhou Heze Information Technology Co., Ltd., as a group.
 
Financial Information Related to the Consolidated Affiliated Entities
 
Loans that we facilitate are granted to borrowers
through structured funds set up by our trust company partners, such as the series of FOTIC Jinghua
structured funds. Each structured trust
fund has a separate bank account, and the assets of the structured funds can only be used to settle obligations under
the respective structured
fund. Under most trust plan agreements, we subscribe to all of the subordinated units of each structured trust plan and provide
credit
strengthening services as the subordinated unit holder. This requires us to ensure sufficient capital to repay the principal amount and
the agreed
financing costs for the senior unit holders. We are designated as the service provider to assist our trust company partners
acquire and screen borrowers and
perform credit assessment pursuant to collaboration agreements with our trust company partners. We provide
loan facilitation and post-loan management
services for service fees charged directly to the trust plans. As a result, we are deemed as
the primary beneficiary of the funds from the accounting
perspective as we have the power to direct the activities of the structured funds
and have obligation to absorb losses of the funds or right to receive benefits.
Under Accounting Standards Codification (ASC) Topic 810,
the structured funds are considered as variable interest entities (VIEs) which need to be
consolidated on our balance sheet. However,
as advised by our PRC counsel, such structured funds are not considered as separate legal entities or VIEs
under the Notice on Relevant
Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through
Offshore Special
Purpose Vehicles, or SAFE Circular 75. We subscribe to the subordinated units and act as the service provider under the trust plans
through
our wholly-owned subsidiaries.
 
Risks Associated with the Holding Foreign Companies Accountable
Act
 
In recent years, U.S. regulatory authorities have
continued to express their concerns about challenges in their oversight of financial statement audits of
U.S.-listed companies with significant
operations in China. More recently, as part of a continued regulatory focus in the United States on access to audit
and other information
currently protected by national law, in particular China’s, the United States enacted the Holding Foreign Companies Accountable
Act, or the HFCAA, in December 2020. Trading in our securities on U.S. markets, including the NYSE, may be prohibited under the HFCAA
if the
PCAOB determines that it is unable to inspect or investigate completely our auditor for two consecutive years. On December 16,
2021, the PCAOB issued
the HFCAA Determination Report to notify the SEC of its determinations that the PCAOB was unable to inspect or
investigate completely registered
public accounting firms headquartered in mainland China and Hong Kong, or the 2021 Determinations, including
the accounting firms that prepared the
audit reports included in this annual report. On May 26, 2022, we were conclusively identified
by the SEC under the HFCAA as having filed audit reports
issued by a registered public accounting firm that cannot be inspected or investigated
completely by the PCAOB in connection with the filing of our 2021
Form 20-F. On December 15, 2022, the PCAOB announced that it was able
to conduct inspections and investigations completely of PCAOB-registered
public accounting firms headquartered in mainland China and Hong
Kong in 2022. The PCAOB vacated its previous 2021 Determinations accordingly. As
a result, we do not believe we are at risk of having
our securities subject to a trading prohibition under the HFCAA unless a new determination is made by
the PCAOB.
 
However, whether the PCAOB will continue to conduct
inspections and investigations completely to its satisfaction of PCAOB-registered public
accounting firms headquartered in mainland China
and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our
auditor’s, control, including positions
taken by authorities of the PRC. The PCAOB is required under the HFCAA to make its determination on an annual
basis with regards to its
ability to inspect and investigate completely accounting firms based in the mainland China and Hong Kong. The possibility of
being a Commission-Identified Issuer
and risk of delisting could continue to adversely affect the trading price of our securities.
 
4

 
For the details of the risks associated with the
enactment of the HFCAA, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing
Business in China—
The accounting firms that prepared the audit reports included in this annual report, like other independent registered public accounting
firms operating in China, was historically not permitted to be subject to inspection by the PCAOB, and consequently, investors were deprived
of the
benefits of such inspection in the past. Trading in our securities may be prohibited under the HFCAA if the PCAOB determines that
it is unable to inspect
or investigate completely our auditor, and as a result, U.S. national securities exchanges, such as the NYSE,
may determine to delist our securities.”
 
3.A. [Reserved]
 
3.B. Capitalization and Indebtedness
 
Not applicable.
 
3.C. Reason for the Offer and Use of Proceeds
 
Not applicable.
 
3.D. Risk Factors
 
The PRC government has significant authority to
exert influence on the ability of a company based in China, such as ours, to conduct its business,
accept foreign investments or list
on U.S. or other foreign exchanges. We face risks associated with regulatory approvals of overseas offerings, anti-
monopoly regulatory
actions, oversight on cybersecurity and data privacy. For example, in recent years, regulatory actions undertaken by China’s
government,
including the enactment of China’s new Data Security Law, amended Cybersecurity Review Measures, Personal Information Protection
Law,
Regulations for the Administration of Network Data Security, and any other future laws and regulations may require us to incur significant
expenses and
could materially affect our ability to conduct our business, accept foreign investments or list on a U.S. or foreign exchange.
The PRC government also has
significant oversight and discretion over the conduct of our business and as such may influence our operations
at any time, which could result in a material
adverse effect on our operations. The PRC government has published new policies that significantly
affected certain industries, and we cannot rule out the
possibility that it will in the future release regulations or policies regarding
the industry where we operate, which could adversely affect our business,
financial condition and results of operations. For example,
the PRC anti-monopoly enforcement agencies have in recent years strengthened enforcement
under the anti-monopoly law. Although we do not
believe the current antimonopoly laws and regulations have a material adverse impact on our business
and results of operations, any failure
or perceived failure by us to comply with the relevant anti-monopoly laws and regulations may result in governmental
investigations, enforcement
actions or lawsuits and could have an adverse impact on our business and results of operations.
 
Furthermore, the PRC government has recently indicated
an intent to exert more oversight and control over overseas securities offerings and other
capital markets activities and foreign investment
in China-based companies like ours. These risks could result in a material change in our operations and the
value of our ordinary shares
or the ADSs, or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and
cause
the value of such securities to significantly decline or become worthless.
 
5

 
Additionally, trading in our securities on U.S.
markets, including the NYSE, may be prohibited under the HFCAA if the PCAOB determines that it is
unable to inspect or investigate completely
our auditor for two consecutive years. On December 16, 2021, the PCAOB issued the HFCAA Determination
Report to notify the SEC of its
determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms
headquartered in mainland
China and Hong Kong (the “2021 Determinations”), including the accounting firms that prepared the audit reports included
in
this annual report. On May 26, 2022, we were conclusively identified by the SEC under the HFCAA as having filed audit reports issued
by a registered
public accounting firm that cannot be inspected or investigated completely by the PCAOB in connection with the filing
of our 2021 Form 20-F. The
inability of the PCAOB to conduct inspections in the past also deprived our investors of the benefits of such
inspections. On December 15, 2022, the
PCAOB announced that it was able to conduct inspections and investigations completely of PCAOB-registered
public accounting firms headquartered in
mainland China and Hong Kong in 2022. The PCAOB vacated its previous 2021 Determinations accordingly.
As a result, we do not believe we are at risk
of having our securities subject to a trading prohibition under the HFCAA unless a new
determination is made by the PCAOB. However, whether the
PCAOB will continue to conduct inspections and investigations completely to
its satisfaction of PCAOB-registered public accounting firms headquartered
in mainland China and Hong Kong is subject to uncertainty
and depends on a number of factors out of our, and our auditor’s, control, including positions
taken by authorities of the PRC.
The PCAOB is expected to continue to demand complete access to inspections and investigations against accounting firms
headquartered
in mainland China and Hong Kong in the future. The PCAOB is required under the HFCAA to make its determination on an annual basis
with
regards to its ability to inspect and investigate completely accounting firms based in the mainland China and Hong Kong. The possibility
of being a
Commission-Identified Issuer and risk of delisting could continue to adversely affect the trading price of our securities.
If the PCAOB determines in the
future that it no longer has full access to inspect and investigate accounting firms headquartered in
mainland China and Hong Kong and we use such
accounting firm to conduct audit work, we would be identified as a Commission-Identified
Issuer under the HFCAA following the filing of the annual
report for the relevant fiscal year, and if we were so identified for two consecutive
years, trading in our securities on U.S. markets would be prohibited.
Such risk could result in a material change in our operations and/or
the value of the ADSs or could significantly limit or completely hinder our ability to
offer or continue to offer ADSs and/or other securities
to investors and cause the value of such securities to significantly decline or be worthless. See “Item
3. Key Information—D.
Risk Factors—Risks Related to Doing Business in China— The accounting firms that prepared the audit reports included in this
annual report, like other independent registered public accounting firms operating in China, was historically not permitted to be subject
to inspection by the
PCAOB, and consequently, investors were deprived of the benefits of such inspection in the past. Trading in our
securities may be prohibited under the
HFCAA if the PCAOB determines that it is unable to inspect or investigate completely our auditor,
and as a result, U.S. national securities exchanges, such
as the NYSE, may determine to delist our securities.”
 
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 and uncertainties we
face, organized under relevant headings. In particular, as we are a China-based company incorporated in the
Cayman Islands, you should
pay special attention to subsections headed “Item 3. Key Information—3.D. Risk Factors—Risks Related to Doing Business
in
China.”
 
Below please find a summary of the principal risks
we face, organized under relevant headings.
 
Risks Related to Doing Business in China
 
●
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our
business and
operations.
 
●
Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and unexpected changes
in laws
and regulations in China could adversely affect us and limit the legal protections available to you and us.
 
●
The PRC government has significant oversight over the conduct of our business and as such may influence our operations, which may
potentially
result in a material adverse effect on our operations.
 
●
The oversight of the China Securities Regulatory Commission, Cybersecurity Administration of China or other governmental authorities
may
adversely affect our business and their approval may be required in connection with future offerings of securities overseas or to
maintain the
listing status of our ADSs, and, if required, we cannot predict whether we will be able to obtain such approval.
 
6

 
●
We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements
we may
have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect
on our ability to
conduct our business.
 
●
PRC regulations of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency
conversion may delay us from using the proceeds of our public offering to make loans or additional capital contributions to our PRC subsidiaries,
which could materially and adversely affect our liquidity and our ability to fund and expand our business.
 
●
The collaboration model we have in place with our sales partners to acquire borrowers might be regarded as financial marketing and
might face
compliance risks.
 
●
The accounting firms that prepared the audit reports included in this annual report, like other independent registered public accounting
firms
operating in China, was historically not permitted to be subject to inspection by the PCAOB, and consequently, investors were deprived
of the
benefits of such inspection in the past. Trading in our securities may be prohibited under the HFCAA if the PCAOB determines that
it is unable to
inspect or investigate completely our auditor, and as a result, U.S. national securities exchanges, such as the NYSE,
may determine to delist our
securities.
 
Risks Related to Our Business
 
●
We have a limited operating history and our business practice continues to evolve, which makes it difficult to evaluate our future
prospects.
 
●
Our credit strengthening services to the trust plans as the subordinated unit holder might be subject to challenges by relevant regulatory
authorities, and we may potentially be required to obtain licenses.
 
●
Our trust company partners operate in a strictly regulated industry. If the practice of our trust company partners, including the
cooperation
arrangements with us, is challenged under any PRC laws and regulations, our business, financial condition and results of operations
would be
materially and adversely affected.
 
●
Our business may be adversely affected if we are unable to secure funding on terms acceptable to us or our borrowers, or at all.
 
●
We face risks related to natural disasters, health epidemics and other outbreaks of contagious diseases.
 
●
Our collaboration model with our sales partners might be subject to challenges by relevant regulatory authorities.
 
●
Some of our funding sources are highly regulated and are subject to the changing regulatory environment. If any of the funding sources
is deemed
to violate the PRC laws and regulations, we may need to secure new funding-failure of which may result in material and adverse
impact on our
business, financial condition, results of operations and prospects.
 
●
Our high leverage ratio may expose us to liquidity risk and we may not have sufficient capital reserve to manage losses.
 
●
Our business depends on our ability to collect payment on and service the transactions we facilitate.
 
●
The foreclosure action and enforcement process may be time-consuming, difficult and uncertain for legal and practicable reasons, which
could
adversely affect our liquidity, business, financial condition and results of operations.
 
●
Credit and other information that we or our trust company partners or our commercial bank partners receive from prospective borrowers
and third
parties about a borrower and the collateral may not accurately reflect the borrower’s creditworthiness or the collateral’s
fair/recoverable value,
which may compromise the accuracy of our and our trust company partners’ credit assessment.
 
7

 
●
We primarily rely on our trust company partners and our commercial bank partners to fund loans to borrowers, which may constitute
provision of
intermediary service, and our agreements with these partners and borrowers may be deemed as intermediation contracts under
the Civil Code of
the People’s Republic of China (the “Civil Code”).
 
Risks Related to Our American Depositary Shares
 
●
The trading price of our ADSs may be volatile, which could result in substantial losses to investors.
 
●
If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations
regarding the ADSs, the market price for the ADSs and trading volume could decline.
 
●
Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.
 
●
Although
the matter is not entirely clear, we were likely a passive foreign investment company (a “PFIC”) for our 2024 taxable year,
and we will
likely be a PFIC for 2025 and our future taxable years, which could result in adverse U.S. federal income tax consequences
to U.S. taxpayers.
 
Risks Related to Doing Business in China
 
Changes in China’s economic, political
or social conditions or government policies could have a material adverse effect on our business and
operations.
 
Substantially all of our assets and operations
are located in China. Accordingly, our business, financial condition, results of operations and prospects
may be influenced to a significant
degree by political, economic and social conditions in China generally. The Chinese economy differs from the economies
of most developed
countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign
exchange
and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for
economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business
enterprises, a
substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government
continues to play a significant role
in regulating industry development by imposing industrial policies. The Chinese government also exercises
significant control over China’s economic
growth through allocating resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential
treatment to particular industries or companies.
 
While the Chinese economy has experienced significant
growth over past decades, growth has been uneven, both geographically and among various
sectors of the economy. Any adverse changes in
economic conditions in China, in the policies of the Chinese government or in the laws and regulations in
China could have a material
adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating
results, lead
to a reduction in demand for our services and adversely affect our competitive position. The Chinese government has implemented various
measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy,
but may
have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government
control over capital
investments or changes in tax regulations. In addition, in the past, the Chinese government has implemented certain
measures, including interest rate
adjustment, to control the pace of economic growth. These measures may cause decreased economic activity
in China, which may adversely affect our
business and operating results. Recent international trade tensions, or a severe or prolonged
downturn in the Chinese or global economy in general, could
materially and adversely affect our business and financial condition.
 
8

 
Any prolonged slowdown in the Chinese or global
economy may have a negative impact on our business, results of operations and financial condition.
In particular, general economic factors
and conditions in China or worldwide, including the general interest rate environment and unemployment rates, may
affect micro- and small-enterprise
owners’ willingness to seek credit and our partners’ ability and desire to invest in loans. Economic conditions in China
are
sensitive to global economic conditions. The global financial markets have experienced significant disruptions in the past, including
the recent
international trade disputes and tariff actions announced by the United States, the PRC and certain other countries, as well
as the recent banking turmoil in
the United States and European Union. For instance, the U.S. administration has imposed significant amount
of tariffs on Chinese goods, and the PRC
government has imposed tariffs on certain goods manufactured in the United States. For instance,
President Trump has recently escalated his tariff policies,
imposing sweeping new tariffs on imports from numerous countries, including
China, as part of what Trump describes as a strategy to address trade
imbalances and revive domestic manufacturing. The tensions between
the United States and China have intensified, marked by the imposition of higher
tariffs and retaliatory measures from both sides. While
these developments have not directly impacted our business, they could harm the business
operations of those suppliers, customers and
business partners engaged in exporting goods to these markets, which may ultimately impact our business as
well. Additionally, there is
no assurance that the list of goods impacted by additional tariffs will not be expanded or the tariffs will not be increased
materially.
Prolonged trade disputes may disrupt global economic conditions, potentially impacting our business and growth prospects.
 
There is considerable uncertainty over the long-term
effects of the expansionary monetary and fiscal policies adopted by the central banks and
financial authorities of some of the world’s
leading economies, including the United States and China. There have also been concerns over unrest in the
Middle East and Africa, which
have resulted in volatility in financial and other markets. There have also been concerns about the economic effect of the
tensions in
the relationship between China and surrounding Asian countries. Recently, the Russia-Ukraine war has caused, and continues to intensify,
significant geopolitical tensions in Europe and across the globe. The resulting sanctions are expected to have significant impacts on
the economic
conditions of the targeted countries and markets. The Israeli–Palestinian conflict since October 2023, and potential
escalation of hostilities between these
countries or regions may further complicate the geopolitical landscape and affect global economy.
If present Chinese and global economic uncertainties
persist, we may have difficulty in obtaining funding sources to fund the credit utilized
by borrowers. Adverse economic conditions could also reduce the
number of quality micro- and small-enterprise owners seeking credit from
us, as well as their ability to make payments. Should any of these situations
occur, the amount of loans facilitated to borrowers and,
therefore, our operating income will decline, and our 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 recent regulatory development has also imposed
challenges to our future business and operations. On August 20, 2020, the Supreme People’s
Court announced an amendment to the judicial
interpretation of China’s private lending, which reduces the maximum annual interest rate allowed on
private lending to four times
of the latest one-year loan prime rate (LPR) (the “Amendment”). Although we do not believe we are regulated by the
Amendment
as a loan facilitator in collaboration with licensed trust company partners, our trust company partners have voluntarily adjusted the
interest
rates on some loan products we facilitate to comply with the new standards under the Amendment with some trust company partners
to prevent the
compliance risks due to the uncertainty of regulatory enforcement. As a result, our profit margin, results of operations
and financial position may be
adversely impacted going forward.
 
If we became subject to the U.S. Department
of Treasury’s final rule on outbound investment in the future, investments in our securities by U.S.
persons and our ability to
raise capital from U.S. persons could be subject to restrictions.
 
On August 9, 2023, the Biden administration published
an executive order, and the Treasury published an advanced notice of proposed rule-making
(the “ANPRM”), providing a conceptual
framework for outbound investment controls focused on China, including Hong Kong and Macau (the “Outbound
Investment Program”
or the “OIP”). Further to this ANPRM, on June 21, 2024, the Treasury issued a proposed rule on outbound U.S. investments
involving
China that was generally consistent in its requirements with the ANPRM. On October 28, 2024, Treasury issued a Final Rule to implement
the
executive order of August 9, 2023. The Final Rule took effect on January 2, 2025. The Final Rule imposes investment prohibition and
notification
requirements on U.S. persons for certain investments in entities associated with China (including Hong Kong and Macau) that
are engaged in certain
activities relating to three sectors: (i) semiconductors and microelectronics, (ii) quantum information technologies,
and (iii) artificial intelligence systems,
collectively defined as “Covered Foreign Persons.” U.S. persons subject to the
Final Rule are in some instances prohibited altogether from making, and in
other instances required to report, certain investments in
Covered Foreign Persons, which are defined as “Covered Transactions.”
 
9

 
“Covered Transactions” include acquisitions
of equity interests, certain debt financing, joint ventures, and certain investments as a limited partner in a
non-U.S. person pooled
investment fund. The Final Rule excludes some investments from the scope of Covered Transactions, including those in publicly
traded securities
listed on a national stock exchange. The Final Rule is aimed at exerting greater U.S. government oversight over U.S. direct and indirect
investments involving China and may introduce new hurdles and uncertainties for cross-border collaborations, investments, and funding
opportunities of
China-based issuers including us.
 
More recently, the America First Investment Policy
aims to expand the industry sectors covered by the U.S. outbound investment regulations and
supplement outbound restrictions through the
imposition of sanctions. The proposed restrictions may further deepen the uncertainties for cross-border
collaboration, investment, and
funding opportunities of China-based issuers, including us. It is unclear whether these challenges and uncertainties will be
addressed
or resolved, and how they might impact global political and economic conditions over the long term. Possible changes to the U.S. outbound
investment regulations could limit or, in the worst case scenario, eliminate our ability to raise capital or contingent equity capital
from U.S. investors in the
future, or our ability to raise such capital may be significantly and negatively affected, which could be detrimental
to our capital-raising capacity and our
business, financial condition and prospects. If we were deemed a Covered Foreign Person and therefore
be subject to the Final Rule, even though U.S.
persons’ acquisitions of certain publicly traded securities (such as our ADSs) will
be exempted from the scope of covered transactions under the Final Rule,
the Final Rule could still limit our ability to raise capital
or contingent equity capital from U.S. investors after this offering, or our ability to raise such
capital may be significantly and negatively
affected, which could be detrimental to our capital raising capacity and our business, financial condition and
prospects. In such case,
the value of the ADSs may significantly decline, or in extreme cases, become worthless.
 
Uncertainties with respect to the PRC legal
system, including uncertainties regarding the enforcement of laws, and unexpected changes in laws and
regulations in China could adversely
affect us and limit the legal protections available to you and us.
 
Our operations in China are governed by the PRC
laws and regulations. The PRC legal system is a civil law system based on written statutes. Prior
court decisions under the civil law
system may be cited for reference but have limited precedential value. The overall effect of legislation over the past four
decades has
significantly enhanced the protections afforded to various forms of foreign investments in China. However, recently enacted laws and
regulations
may not sufficiently cover all aspects of economic activities in China. Since these laws and regulations are relatively new and may be
amended
from time to time, and the PRC legal system continues to rapidly evolve, the interpretations of many laws and regulations are
not always uniform and
enforcement of these laws and regulations involves uncertainties. In addition, any new PRC laws or changes in PRC
laws and regulations related to, among
other things, foreign investment and business activities in China could have a material adverse
effect on our business and our ability to operate our business
in China.
 
From time to time, we may have to resort to administrative
and court proceedings to enforce our legal rights. Any administrative and court proceedings
in China may be protracted, resulting in substantial
costs and diversion of resources and management attention. Since PRC administrative and court
authorities have significant discretion
in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the
outcome of administrative
and court proceedings and the level of legal protection we enjoy. These uncertainties may impede our ability to enforce contracts
in China
and could materially and adversely affect our business and results of operations.
 
Furthermore, the PRC legal system is based in
part on government policies and internal rules, some of which are not published on a timely basis, or at
all, and may have retroactive
effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after
the violation.
Such uncertainty towards the scope and effect of our contractual, property (including intellectual property) and procedural
rights and any failure to quickly
respond to changes in the regulatory environment in the PRC could adversely affect our business, and
impede our ability to continue our operations and
proceed with our future business plans.
 
10

 
The PRC government has significant oversight
over the conduct of our business and as such may influence our operations, which may potentially
result in a material adverse effect on
our operations.
 
The PRC government has exercised and continues
to exercise substantial control over the Chinese economy through regulation and state ownership.
Our ability to operate in China may be
harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land
use rights, property
and other matters. The central or local PRC governments of may impose new, stricter regulations or interpretations of existing
regulations
that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.
Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return
to a more centrally
planned economy or regional or local variations in the implementation of economic policies, could have a significant
effect on economic conditions in
China or specific regions thereof, and could require us to divest ourselves of any interest we then hold
in Chinese properties. The PRC government has
recently published new policies that significantly affected certain industries such as real
estate and credit industries, and we cannot rule out the possibility
that it will in the future release regulations or policies regarding
our industry that could adversely affect our business, financial condition and results of
operations. For example, on November 1, 2021,
the Personal Information Protection Law came into effect. Although we do not believe the current personal
information protection laws
and regulations have a material adverse impact on our business and results of operations, any failure or perceived failure by us
to comply
with the relevant personal information protection laws and regulations may result in governmental investigations, enforcement actions
or
lawsuits and could have an adverse impact on our business and results of operations. Furthermore, the PRC government has recently indicated
an intent to
exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas
and foreign investment in China-
based companies like us. Any such intervention in or influence on our business operations or action to
exert more oversight and control over securities
offerings and other capital markets activities, once taken by the PRC government, could
adversely affect our business, financial condition and results of
operations and the value of our ordinary shares or the ADSs, or significantly
limit or completely hinder our ability to offer or continue to offer securities to
investors and cause the value of such securities to
significantly decline or in extreme cases, become worthless.
 
The approval of and/or filing with the CSRC
or other PRC government authorities may be required in connection with our issuance of securities
overseas or maintenance of the listing
status of our ADRs, and, if required, we cannot predict whether we will be able to obtain such approval or
complete such filing.
 
The Regulations on Mergers and Acquisitions of
Domestic Enterprises by Foreign Investors, or the M&A Rules, require an overseas special purpose
vehicle formed for listing purposes
through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the
approval of the CSRC prior
to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. However, the application
of the M&A Rules remains unclear. If CSRC approval is required, it is uncertain whether it would be possible for us to obtain the
approval, and any failure
to obtain or delay in obtaining CSRC approval for future offerings of securities overseas or maintenance of
the listing status of our ADSs would subject us
to sanctions imposed by the CSRC and other PRC regulatory agencies.
 
11

 
On July 6, 2021, certain PRC regulatory authorities issued
Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the
Law. These opinions call for strengthened
regulation over illegal securities activities and supervision on overseas listings by China-based companies and
propose to take
effective measures, such as promoting the development of relevant regulatory systems to deal with the risks and incidents faced by
China-
based overseas-listed companies. On February 17, 2023, the China Securities Regulatory Commission promulgated the Overseas
Listing Trial Measures,
and five supporting guidelines, which became effective on March 31, 2023. According to the Overseas Listing
Trial Measures, PRC domestic companies
that seek to offer and list securities in overseas markets, either in direct or indirect
means, are required to fulfill the filing procedure with the CSRC and
report relevant information. If a company fails to complete
the filing procedure or conceals any material fact or falsifies any major content in its filing
documents, it may be subject to
administrative penalties, such as order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the
person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and
fines. The Overseas Listing
Trial Measures also provide that a company in mainland China must file with the CSRC within three
business days for its follow-on offering of securities
after it is listed in an overseas market. On February 17, 2023, the CSRC also
issued the Notice on Administration of the Filing of Overseas Offering and
Listing by Domestic Companies and held a press conference
for the release of the Overseas Listing Trial Measures, which, among others, clarified that the
companies in mainland China that
have been listed overseas before March 31, 2023 are not required to file with the CSRC immediately, but these
companies should
complete filing with the CSRC for their financing activities in accordance with the Overseas Listing Trial Measures. Based on the
foregoing, as an issuer that has been listed overseas before the effective date of the Overseas Listing Trial Measures, we are not
required to complete filing
with the CSRC for our offshore offerings prior to the effective date of the Overseas Listing Trial
Measures, but we may be subject to the filing requirements
for our financing activities under the Overseas Listing Trial Measures.
Any securities offerings and listings outside of mainland China by our Company
after the effective date of the Overseas Listing
Trial Measures, including but not limited to follow on offerings, secondary listings, and going private
transactions, will be
subject to the filing requirements with the CSRC under the Overseas Listing Trial Measures, and we cannot assure you that we will be
able to comply with such filing requirements in a timely manner, or at all. Since the Overseas Listing Trial Measures was newly
promulgated, the
interpretation, application and enforcement of the Overseas Listing Trial Measures remain unclear. We cannot assure
you that we will be able to complete
such filing in a timely manner and fully comply with such rules to maintain the listing status
of our ADSs and/or other securities, or to conduct any
securities offerings in the future.
 
As of the date of this annual report, we have
not received any inquiry, notice, warning, sanctions or regulatory objection from the CSRC in connection
with requirements of obtaining
prior approval for the listing of our ADSs. However, since the Overseas Listing Trial Measures was newly promulgated, the
interpretation,
application and enforcement of the Overseas Listing Trial Measures remain unclear. We cannot assure you that we will be able to complete
any required filing in a timely manner and fully comply with such rules to maintain the listing status of our ADSs and/or other securities,
or to conduct any
securities offerings in the future.
 
On April 2, 2022, the CSRC released the revised
Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities
Offering and Listing by Domestic Companies
(Draft for Comments), or the Draft Archives Rules. On February 24, 2023, the CSRC, jointly with other
relevant governmental authorities,
issued the Provisions on Strengthening the Confidentiality and Archive Management Work Relating to the Overseas
Securities Offering and
Listing by Domestic Companies (the “Confidentiality Provisions”), which became effective on March 31, 2023. The
Confidentiality
Provisions requires, among others, that companies based in mainland China seeking to offer securities in overseas markets, either directly
or indirectly, shall establish the confidentiality and archives system, and shall complete approval and filing procedures with competent
authorities, if such
companies or their overseas listing entities provide or publicly disclose documents or materials involving state
secrets and work secrets of PRC government
agencies to relevant securities companies, securities service institutions, overseas regulatory
agencies and other entities and individuals. It further stipulates
that providing or publicly disclosing documents and materials which
may adversely affect national security or public interests, and accounting files or
copies shall be subject to corresponding procedures
in accordance with relevant laws and regulations. Given the Confidentiality Provisions were recently
promulgated, there remain substantial
uncertainties about how these provisions will be interpreted, or implemented and how it will affect our operations or
future securities
offerings.
 
As of the date of this annual report, we have
not provided files or copies of files outside China that involve national secrets, national security, vital
interests, or have important
preservation value to the nation and society. However, we cannot guarantee that relevant government agencies of China,
including the CSRC,
will share the same opinion as ours.
 
12

 
The interpretation and implementation of
these opinions and new rules remain unclear at this stage. We cannot assure you that we will not be required
to obtain the approval
of or file with the CSRC or other regulatory authorities to maintain the listing status of our ADSs on NYSE or to conduct offerings
of
securities in the future. If such approvals are required, it is uncertain whether we can or how long it will take us to obtain
such approval or complete such
filing procedures and any such approval or filing could be rescinded or rejected. Any failure to
obtain or delay in obtaining such approval or completing
such filing procedures for our overseas offerings, or a rescission of any
such approval or filing if obtained by us, would subject us to sanctions by the
CSRC or other PRC regulatory authorities. These
regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay
dividends outside of
China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into
China
or take other actions that could materially and adversely affect our business, financial condition, results of operations, and
prospects, as well as the trading
price of our listed securities. The CSRC or other PRC regulatory authorities also may take actions
requiring us, or making it advisable for us, to halt our
offshore offerings before settlement and delivery of the shares offered.
Consequently, if investors engage in market trading or other activities in anticipation
of and prior to settlement and delivery,
they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory
authorities later
promulgate new rules or explanations requiring that we obtain their approvals or accomplish the required filing or other regulatory
procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval requirements, if and when
procedures are established to
obtain such a waiver. Any uncertainties or negative publicity regarding such approval requirement
could materially and adversely affect our business,
prospects, financial condition, reputation, and the trading price of our listed
securities.
 
Our PRC legal advisor, Global Law Office, has
advised us, based on their understanding of the current PRC laws, rules and regulations, that no
permission is required from any Chinese
authorities (including the CSRC and the CAC) for our overseas offerings and maintaining the listing status of the
ADSs on the New York
Stock Exchange, given that: (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether any
offering
such as offerings completed or contemplated by our company is subject to the M&A Rules; and (ii) our PRC subsidiaries were either
incorporated
as wholly foreign-owned enterprises by means of direct investment or by merger or acquisition of equity interest or assets
of a PRC domestic company not
subject to the M&A Rules. However, there can be no assurance that the relevant PRC government agencies,
including the CSRC, would reach the same
conclusion as our PRC legal advisor. There are still uncertainties regarding the interpretation
and implementation of these opinions, and further
explanations or detailed rules and regulations with respect to these opinions may be
issued in the future, which may impose additional requirements on us.
 
Uncertainties exist with respect to the interpretation
and implementation of cybersecurity related regulations and cybersecurity review as well as any
impact these may have on our business
operations.
 
The Data Security Law was promulgated on June
10, 2021 and became effective in September 2021, which stipulates that the data handling activities
that affect or may affect the national
security should undergo national security review. The Personal Information Protection Law was promulgated on
August 20, 2021 and officially
implemented on November 1, 2021, which stipulates that critical information infrastructure (“CII”) operators, or personal
information processors whose processing of personal information reaches the threshold amount prescribed by the national cyberspace authority,
shall store
the personal information collected or generated by them within the territory of the PRC. If it is necessary to provide the
data overseas, the organization is
required to pass the security assessment organized by the national cyberspace authority.
 
On August 17, 2021, the State Council issued the
Regulations on the Security Protection of Critical Information Infrastructures, which took effect on
September 1, 2021. The regulations
stipulate that the departments responsible for the security protection of critical information infrastructure (hereinafter
referred to
as the security protection departments) shall formulate rules for the identification of critical information infrastructure based on the
actual
situation of the industry and field, and report it to the public security department of the State Council for record. The following
factors shall be considered
in the formulation of identification rules: (1) the degree of importance of the network facilities and information
systems to the core businesses of the
industry and area concerned; (2) the degree of damage that may be caused if the network facilities
and information systems are under destruction, loss of
function or data leakage; and (3) the correlative impact on other industries
and areas. The security protection departments shall be responsible for
organizing the identification of critical information infrastructure
in their respective industries and areas in accordance with the identification rules, timely
notify the identification results to the
operators and report such results to the public security department under the State Council.
 
13

 
In December 2021, the CAC published the
amended Cybersecurity Review Measures, or the new measures, which provides that a network platform
operator that has the personal
information of more than one million users must apply to the Cybersecurity Review Office (the “CRO”) for a cybersecurity
review when it seeks to list overseas. Also, a CII operator, when procuring a network product or service, shall predict any national
security risk that may
arise after the use of such product or service. If national security will be affected or may be affected, the
CII operator shall apply to the CRO for a
cybersecurity review.
 
On September 24, 2024, the State Council issued
the Regulations on Network Data Security Management (the “Regulation”), which came into effect
on January 1, 2025. This regulation
requires network data processors whose data processing activities affect or potentially affect national security to
undergo a cybersecurity
review in accordance with relevant regulations. However, the Regulation do not explicitly define actions that constitute “affecting
or potentially affecting national security”.
 
Given the nature of our business and as
advised by our PRC legal advisor, Global Law Office, we do not believe that our company is either a “CII
operator” or a
“network platform operator” who possesses personal information of more than one million users, our data processing
activities do not affect
or are unlikely to affect national security, and therefore are not required to file for a cybersecurity
review under the new measures, although we cannot
guarantee that the relevant PRC regulatory authority will agree with such
conclusion reached. If our company is deemed to be a CII operator or a network
platform operator under such rules, or our data
processing activities are considered to affect or potentially to affect national security, we
could be subject to
cybersecurity review by the CAC and other relevant PRC regulatory authorities and be required to change our
existing practices in data privacy and
cybersecurity matters at substantial costs. During such cybersecurity review, we may be
required to stop providing services to our customers. If the CSRC
or other PRC regulatory body subsequently determines that we need
to obtain the CSRC’s approval for future offerings of securities overseas or to maintain
the listing status of our ADSs or if
the CSRC or any other PRC government authorities promulgates any interpretation or implements rules before our
listing that would
require us to obtain CSRC or other governmental approvals for future offerings of securities overseas or to maintain the listing
status of
our ADSs, we may not be able to proceed with future offerings of securities overseas or to the listing of our ADSs on the
New York Stock Exchange and
face adverse actions or sanctions by the CSRC or other PRC regulatory agencies. In any such event, these
regulatory agencies may impose fines and
penalties on our operations in China, limit our operating privileges in China, delay or
restrict the repatriation of the proceeds from future offerings of
securities overseas into the PRC or take other actions that could
have a material adverse effect on our business, financial condition, results of operations,
reputation and prospects, as well as our
ability to complete future offerings of securities overseas or to maintain the listing status of our ADSs.
 
We also cannot rule out the possibility that certain
of our customers may be deemed as CII operators, in which case our products or services or data
processing activities, if being deemed
as related to national security, will need to be submitted for cybersecurity review before we can enter into agreements
with such customers,
and before the conclusion of such procedure, the customers will not be allowed to use our products or services. If the reviewing
authority
considers that the use of our services by certain of our customers involves risk of disruption, is vulnerable to external attacks, or
may negatively
affect, compromise, or weaken the protection of national security, we may not be able to provide our products or services
to such customers, which could
have a material adverse effect on our results of operations and prospects.
 
As of the date of this annual report, we have
not been informed or involved in any investigations or become subject to a cybersecurity review initiated
by the CAC based on the new
measures, and we have not received any inquiry, notice, warning, sanctions in such respect or any regulatory objections to
our current
NYSE listing status from the CAC as of the date of this annual report. As there are still uncertainties regarding the enactment of these
new laws
and regulations as well as the amendment, interpretation and implementation of existing laws and regulations, we cannot assure
you that we will be able to
comply with such laws and regulations in all respects, and we may be ordered to rectify, suspend or terminate
any activities or services that are deemed
illegal or non-compliant by the regulatory authorities and become subject to fines and/or other
penalties. If we fail to address such issue in a timely manner,
or at all, we may be required to suspend or terminate our related businesses
or face other penalties. This may materially and adversely affect our business,
financial condition, results of operations and prospects.
 
14

 
You may experience difficulties in effecting
service of legal process, enforcing foreign judgments or bringing actions in China against us or our
management named in the annual report
based on foreign laws.
 
CNFinance Holdings Limited is an exempted company
incorporated under the laws of the Cayman Islands. We conduct substantially all of our
operations in China, and substantially all of our
assets are located in China. In addition, all of our executive officers are located in China. All of our
directors who are not our executive
officers are located in China, except for one independent director who resides in the United States. Service of court
documents on a Cayman
Islands company can be effected by serving the documents at the Company’s registered office and it may be possible to enforce
foreign
judgments in the Cayman Islands against a Cayman Islands company, subject to some exceptions. However, if investors wish to serve documents
on and/or enforce foreign judgments against our directors and officers, they will need to ensure that they comply with the rules of the
jurisdiction where the
directors and officers are located. As a result, it may be difficult for our shareholders to effect service of
process within the United States upon us or those
persons located inside China. In addition, China does not have treaties providing for
the reciprocal recognition and enforcement of judgments of courts
with the Cayman Islands and many other countries and regions. Therefore,
recognition and enforcement in China of judgments of a court in any of these
non-PRC jurisdictions in relation to any matter not subject
to a binding arbitration provision may be difficult or impossible.
 
We may rely on dividends and other distributions
on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have,
and any limitation on the ability of our
PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our
business.
 
With a holding company structure, we rely principally
on dividends and other distributions on equity from our PRC subsidiaries for our cash
requirements, including for services of any debt
we may incur.
 
Our PRC subsidiary’s ability to distribute
dividends is based upon its distributable earnings. Current PRC regulations permit our PRC subsidiaries to
pay dividends to its respective
shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and
regulations. In
addition, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory
reserve
until such reserve reaches 50% of its registered capital. Each of our PRC subsidiaries, as a foreign invested enterprise, or FIE,
is also required to further set
aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be
set aside, if any, is determined at its discretion. These
reserves are not distributable as cash dividends. If our PRC subsidiaries incur
debt on their own behalf in the future, the instruments governing the debt
may restrict their ability to pay dividends or make other payments
to us. Any limitation on the ability of our PRC subsidiaries to distribute dividends or
other payments to their respective shareholders
could materially and adversely limit our ability to grow, make investments or acquisitions that could be
beneficial to our businesses,
pay dividends or otherwise fund and conduct our business.
 
In addition, the Enterprise Income Tax Law and
its implementation rules provide that a withholding tax rate of up to 15% will be applicable to
dividends payable by Chinese companies
to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements
between the PRC central government
and governments of other countries or regions where the non-PRC resident enterprises are incorporated.
 
PRC regulations of loans to and direct investment
in PRC entities by offshore holding companies and governmental control of currency conversion
may delay us from using the proceeds of
our public offering to make loans or additional capital contributions to our PRC subsidiaries, which could
materially and adversely affect
our liquidity and our ability to fund and expand our business.
 
Any funds we transfer to our PRC subsidiaries,
either as a shareholder loan or as an increase in registered capital, are subject to approval by or
registration with relevant governmental
authorities in China. According to the relevant PRC regulations on FIEs in China, capital contributions to our PRC
subsidiaries are subject
to the approval of or filing with the MOFCOM or its local branches and registration with a local bank authorized by SAFE. In
addition,
(i) any foreign loan procured by our PRC subsidiaries is required to be registered with SAFE or its local branches and (ii) any of our
PRC
subsidiaries may not procure loans which exceed the difference between its total investment amount and registered capital or, as an
alternative, only
procure loans subject to the calculation approach and limitation as provided in the Notice of the People’s Bank
of China on Matters concerning the Macro-
Prudential Management of Full-Covered Cross-Border Financing. For the restriction
and limitation on the amount of loans, please refer to “Item 4.
Information on the Company—B. Business Overview—Regulation—Regulations
on Foreign Exchange—Regulations on Foreign Exchange Registration of
Overseas Investment by PRC Residents”. We may not be able
to complete such registrations on a timely basis, with respect to future capital contributions
or foreign loans by us to our PRC subsidiaries.
If we fail to complete such registrations, our ability to use the proceeds of our public offerings, and our
ability to capitalize our
PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our
business.
 
15

 
On March 30, 2015, SAFE promulgated the Circular
on Reforming the Management Approach Regarding the Foreign Exchange Capital Settlement of
Foreign-Invested Enterprises, or SAFE Circular
19, which took effect as of June 1, 2015 and was amended on December 30, 2019. SAFE Circular 19
launched a nationwide reform of the administration
of the settlement of the foreign exchange capitals of FIEs and allows FIEs to settle their foreign
exchange capital at their discretion,
but continues to prohibit FIEs from using the Renminbi fund converted from their foreign exchange capital for
expenditure beyond their
business scopes, providing entrusted loans or repaying loans between nonfinancial enterprises. SAFE issued the Circular on
Reforming and
Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, effective in June 2016.
Pursuant to SAFE Circular 16, enterprises registered in China may also convert their foreign debts from foreign currency to Renminbi on
a self-
discretionary basis. SAFE Circular 16 provides an integrated standard for conversion of foreign exchange under capital account
items (including but not
limited to foreign currency capital and foreign debts) on a self-discretionary basis which applies to all enterprises
registered in China. SAFE Circular 16
reiterates the principle that Renminbi converted from foreign currency-denominated capital of a
company may not be directly or indirectly used for
purposes beyond its business scope or prohibited by PRC laws or regulations, while
such converted Renminbi shall not be provided as loans to its
nonaffiliated entities. As this circular is relatively new, there remains
uncertainty as to its interpretation and application and any other future foreign
exchange-related rules. Violations of these circulars
could result in severe monetary or other penalties. SAFE Circular 19 and SAFE Circular 16 may
significantly limit our ability to use Renminbi
converted from the net proceeds of our public offerings to fund the establishment of new entities in China or
their subsidiaries, to invest
in or acquire any other PRC companies through our PRC subsidiaries, or to establish variable interest entities in China, which
may adversely
affect our business, financial condition and results of operations.
 
Fluctuations in the value of the Renminbi could
have a material and adverse effect on your investment.
 
The change in value of the Renminbi against the
U.S. dollar and other currencies is affected by various factors such as changes in political and
economic conditions in the PRC. In July
2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. dollar, and
the RMB appreciated more
than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and
the exchange
rate between the RMB and the U.S. dollar remained within a narrow band. Since June 2010, the RMB 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, RMB
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 RMB has depreciated significantly
in the backdrop of a surging U.S. dollar and persistent
capital outflows of China. While appreciating approximately by 7% against the
U.S. dollar in 2017, the Renminbi in 2018 depreciated approximately by
5% against the U.S. dollar. With the development of the foreign
exchange market and progress towards interest rate liberalization and RMB
internationalization, the PRC government may in the future announce
further changes to the exchange rate system, and we cannot assure you that the RMB
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.
 
Any significant appreciation or revaluation of
the Renminbi may have a material adverse effect on the value of, and any dividends payable on, our
ADSs in foreign currency terms. More
specifically, if we decide to convert our Renminbi into U.S. dollars, appreciation of the U.S. dollar against the
Renminbi would have
a negative effect on the U.S. dollar amount available to us. To the extent that we need to convert U.S. dollars we receive from our
initial
public offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi
amount we would receive from the
conversion. In addition, appreciation or depreciation in the exchange rate of the Renminbi to the U.S. dollar could
materially and adversely
affect the price of our ADSs in U.S. dollars without giving effect to any underlying change in our business or results of operations.
 
16

 
Governmental control of currency conversion
may limit our ability to utilize our operating income effectively and affect the value of your investment.
 
The PRC government imposes controls on the convertibility
of the Renminbi into foreign currencies and, in certain cases, the remittance of currency
out of China. We receive substantially all of
our operating income in Renminbi. Under our current corporate structure, our Cayman Islands incorporated
holding company primarily relies
on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under
existing PRC foreign exchange
regulations, payments of current account items, including profit distributions, interest payments and trade and service-
related foreign
exchange transactions, can be made in foreign currencies without prior approval of SAFE by complying with certain procedural
requirements.
Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC
subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government
authorities is
required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such
as the repayment of loans
denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the
operations of our PRC subsidiaries to pay
off their respective debt in a currency other than Renminbi owed to entities outside China,
or to make other capital expenditure payments outside China in a
currency other than Renminbi. The PRC government may at its discretion
restrict access to foreign currencies for current account transactions in the future.
If the foreign exchange control system prevents
us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able
to pay dividends in foreign
currencies to our shareholders, including holders of our ADSs.
 
Certain PRC regulations may make it more difficult
for us to pursue growth through acquisitions.
 
Among other things, the Regulations on Mergers
and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six
PRC regulatory agencies in 2006 and
amended in 2009, established additional procedures and requirements that could make merger and acquisition
activities by foreign investors
more time-consuming and complex. Such regulation stipulates that if a foreign investor acquires a domestic enterprise and
obtains actual
control, and if it involves key industries, or has factors that affect or may affect national economic security, or causes the transfer
of actual
control of domestic enterprises with well-known trademarks or Chinese time-honored brands, the parties concerned shall report
to MOFCOM. Moreover,
the Anti-Monopoly Law promulgated by the Standing Committee of the NPC which became effective in 2008 and was amended
on October 1, 2022,
requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds
must be cleared by the MOFCOM before
they can be completed. In addition, according to the Measures for the Security Review of Foreign
Investment, which has been effective since January 28,
2021, a foreign investor or a party concerned in China (hereinafter collectively
referred to as “party concerned”) shall take the initiative to make a
declaration to the working mechanism office prior to
making one of the following investments and the working mechanism office shall be entitled to
require the party concerned to make a declaration
thereof: (i) investment in any of such fields as the military industry and military-supporting industry that
concern state defense and
security, as well as military facilities and areas surrounding industrial military facilities; and (ii) investment in any important
agricultural product, important energy and resources, major equipment manufacturing, important infrastructure, important transportation
services,
important cultural products and services, important information technologies and internet products and services, important financial
services, key
technologies and other important fields that concern state security while obtaining the actual control over the enterprises
invested in. We may pursue
potential strategic acquisitions that are complementary to our business and operations. Complying with the
requirements of these regulations to complete
such transactions could be time-consuming, and any required approval processes, including
obtaining approval or clearance from the MOFCOM, may
delay or inhibit our ability to complete such transactions, which could affect our
ability to expand our business or maintain our market share.
 
17

 
PRC regulations relating to the establishment
of offshore special purpose 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, limit our PRC subsidiary’s ability to
increase
their registered capital or distribute profits to us, or may otherwise adversely affect us.
 
In July 2014, 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, to replace the Notice on Relevant Issues Concerning
Foreign Exchange Administration
for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE
Circular 75, which
ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC
individuals and
PRC corporate entities) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities.
SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make
in the future.
 
Under SAFE Circular 37, PRC residents who make,
or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in
offshore special purpose vehicles, or
SPVs, will be required to register such investments with SAFE or its local branches. In addition, any PRC resident
who is a direct or
indirect shareholder of an SPV is required to update its filed registration with the local branch of SAFE with respect to that SPV, to
reflect
any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update
their registration with the
local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration or to update
the previously filed registration, the
subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds
from any capital reduction, share transfer or liquidation to
the SPV, and the SPV may also be prohibited from making additional capital
contributions into its subsidiary in China. On February 13, 2015, the SAFE
promulgated a Notice on Further Simplifying and Improving Foreign
Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which
became effective on June 1, 2015 and was amended in 2019.
Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign
direct investments and outbound overseas direct
investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of
SAFE. The qualified banks
will directly examine the applications and accept registrations under the supervision of SAFE.
 
Several of our shareholders that we are aware
of are subject to SAFE regulations, and all of these shareholders have completed all necessary
registrations with the local SAFE branch
or qualified banks as required by SAFE Circular 37. We cannot assure you, however, that all of these individuals
may continue to make
required filings or updates on a timely manner, or at all. We can provide no assurance that we are or will in the future continue to be
informed of identities of all PRC residents holding direct or indirect interest in our company. Any failure or inability by such individuals
to comply with
SAFE regulations may subject us to fines or legal sanctions, such as restrictions on our cross-border investment activities
or our PRC subsidiary’s ability to
distribute dividends to, or obtain foreign exchange-denominated loans from, our company or prevent
us from making distributions or paying dividends. As
a result, our business operations and our ability to make distributions to you could
be materially and adversely affected.
 
Furthermore, as the interpretation and implementation
of these foreign exchange regulations have been constantly evolving, it is unclear how these
regulations, and any future regulation concerning
offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant
government authorities. For example,
we may be subject to a more stringent review and approval process with respect to our foreign exchange activities,
such as remittance
of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of
operations.
In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may
be,
will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange
regulations. This may
restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
 
18

 
Uncertainties exist regarding the interpretation
and implementation of the newly enacted PRC Foreign Investment Law and how it may impact the
viability of our current corporate structure
and the viability of business operation.
 
On March 15, 2019, the National People’s
Congress approved the Foreign Investment Law of the People’s Republic of China (“PRC Foreign
Investment Law”),and the
State Council promulgated the Implementing Regulations to the PRC Foreign Investment Law (“Implementing Regulations”) on
December
26, 2019, both of which came into effect on January 1, 2020. The PRC Foreign Investment Law and its Implementing Regulations replaced
the
trio of previous laws regulating foreign investment in China, namely, the Law of the People’s Republic of China on Chinese-foreign
Equity Joint Ventures,
the Law of the People’s Republic of China on Chinese-foreign Cooperative Joint Ventures and the Law of the
People’s Republic of China on Wholly
Foreign-Owned Enterprises, together with their implementation rules and ancillary regulations.
 
PRC Foreign Investment Law and its Implementing
Regulations specify that foreign investments shall be conducted in line with the negative list
issued by or approved to be issued by
the State Council. If a foreign investment enterprise (the “FIE”) proposes to conduct business in an industry subject
to
foreign investment “restrictions” in the negative list, the FIE must meet certain conditions under the negative list before
being established. If an FIE
proposes to conduct business in an industry subject to foreign investment “prohibitions” in
the “negative list,” it must not engage in the business.
Investments made in Mainland China by investors from the Hong Kong
Special Administrative Region and the Macao Special Administrative Region shall
be governed by the PRC Foreign Investment Law and its
Implementing Regulations. On September 6, 2024, the NDRC and the MOFCOM promulgated
the Special Administrative Measures (Negative List)
for Access of Foreign Investments (2024 Version), as came into effect on November 1, 2024,
according to which the industry of loan service
has not been subject to foreign investment “restrictions” or “prohibitions” in the Negative List. Our PRC
legal
advisor, Global Law Office, advises us that according to the PRC Foreign Investment Law and the Implementing Regulations, the PRC regulatory
agencies shall, considering the needs for further foreign opening and economic and social development, adjust the Negative List where
appropriate.
Therefore, if the industry of loan service is subject to the foreign investment restrictions or prohibitions under the negative
list issued subsequently, our
failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance
challenges could materially and adversely affect
our current corporate structure, corporate governance, and business operations.
 
Any failure to comply with PRC regulations regarding
the registration requirements for employee stock incentive plans may subject the PRC plan
participants or us to fines and other legal
or administrative sanctions.
 
In February 2012, SAFE promulgated the Notices
on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating
in Stock Incentive Plan of Overseas Publicly
Listed Company, replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC citizens and non-
PRC citizens who reside in
China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed
company,
subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries
of such
overseas-listed company, and complete certain other procedures. In addition, an overseas-entrusted institution must be retained
to handle matters in
connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our
executive officers and other employees
who are PRC citizens or who reside in the PRC for a continuous period of not less than one year
and who have been granted options are subject to these
regulations after our company becomes an overseas-listed company upon the completion
of our initial public offering. Failure to complete the SAFE
registrations may subject us or them to fines and legal sanctions, there
may be additional restrictions on the ability of us or them to exercise stock options
or remit proceeds gained from sale of stock into
the PRC. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive
plans for our directors,
executive officers and employees under PRC law. See “Item 4. Information on the Company—B. Business Overview—Regulation
—Regulations
on Foreign Exchange—Regulations on Stock Incentive Plans.”
 
19

 
If we are classified as a PRC resident enterprise
for PRC enterprise income tax purposes, such classification could result in unfavorable tax
consequences to us and our non-PRC shareholders
and ADS holders.
 
Under the PRC Enterprise Income Tax Law and its
implementation rules, an enterprise established outside of the PRC with its “de facto management
body” within the PRC is considered
a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The
implementation
rules define the term “de facto management body” as the body that exercises full and substantial control and overall management
over the
business, productions, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation, or
SAT, issued a circular-the
Circular of the State Administration of Taxation on Issues Concerning the Identification of Chinese-Controlled
Overseas Registered Enterprises as Resident
Enterprises in Accordance With the Actual Standards of Organizational Management (SAT Circular
82), which was amended on December 29,2017 and
provides certain specific criteria for determining whether the “de facto management
body” of a PRC-controlled enterprise that is incorporated offshore is
located in China. Although this circular only applies to offshore
enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled
by PRC individuals or foreigners, the criteria
set forth in the circular may reflect the SAT’s general position on how the “de facto management body” test
should be
applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise
controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto
management body” in
China, and will be subject to PRC enterprise income tax on its global income only if all of the following conditions
are met: (i) the primary location of the
day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s
financial and human resource matters are made or are subject to
approval by organizations or personnel in the PRC; (iii) the enterprise’s
primary assets, accounting books and records, company seals, and board and
shareholder resolutions are located or maintained in the PRC;
and (iv) at least 50% of voting board members or senior executives habitually reside in the
PRC.
 
We believe our company is not 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.” If the PRC
tax authorities
determine that our company or any of our non-PRC subsidiaries is a PRC resident enterprise for enterprise income tax purposes, we or
any
such non-PRC subsidiary will be subject to PRC enterprise income on our or such subsidiary’s worldwide income at the rate of
25%. Furthermore, we will
be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are nonresident
enterprises, including the holders of our
ADSs. In addition, nonresident enterprise shareholders (including our ADS holders) may be subject
to PRC tax at a rate of 10% on gains realized on the
sale or other disposition of ADSs or ordinary shares, if such income is treated
as sourced from within the PRC. Furthermore, if we are deemed a PRC
resident enterprise, dividends paid to our non-PRC individual shareholders
(including our ADS holders) and any gain realized on the transfer of ADSs or
ordinary shares by such shareholders may be subject to PRC
tax at a rate of 20% (which, in the case of dividends, may be withheld at source). These rates
may be reduced by an applicable tax treaty,
but it is unclear whether non-PRC shareholders of our company would be able to obtain the benefits of any tax
treaties between their
country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such PRC tax may reduce the
returns
on your investment in the ADSs or ordinary shares.
 
We face uncertainty with respect to indirect
transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
 
On February 3, 2015, the SAT issued the Public
Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-
Tax Resident Enterprises, or SAT Bulletin
7, which was amended on December 1 and December 29, 2017. SAT Bulletin 7 extends its tax jurisdiction to
transactions involving the transfer
of taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 has
introduced safe
harbors for internal group restructurings and the purchase and sale of equity securities through a public securities market. SAT Bulletin
7
also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable
assets.
 
On October 17, 2017, the SAT issued the Announcement
of the State Administration of Taxation on Issues Concerning the Withholding of Nonresident
Enterprise Income Tax at Source, or SAT Bulletin
37, which came into effect on December 1, 2017 and was later amended on June 15, 2018.
The SAT
Bulletin 37 further clarifies the practice and procedure of the withholding of nonresident enterprise income tax.
 
20

 
Where a nonresident enterprise transfers taxable
assets indirectly by disposing of the equity interests of an overseas holding company, which is an
Indirect Transfer, the nonresident
enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such
Indirect Transfer
to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence
of the overseas
holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding
or deferring PRC tax. As a result,
gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee
or other person who is obligated to pay for the
transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for
the transfer of equity interests in a PRC resident enterprise. Both the
transferor and the transferee may be subject to penalties under
PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the
taxes.
 
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 and 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
SAT
Bulletin 7 and/or SAT Bulletin 37. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC
subsidiaries may be
requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to
expend valuable resources to comply with
SAT Bulletin 7 and/or SAT Bulletin 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.
 
The accounting firms that prepared the audit
reports included in this annual report, like other independent registered public accounting firms
operating in China, was historically
not permitted to be subject to inspection by the PCAOB, and consequently, investors were deprived of the benefits
of such inspection in
the past. Trading in our securities may be prohibited under the HFCAA if the PCAOB determines that it is unable to inspect or
investigate
completely our auditor, and as a result, U.S. national securities exchanges, such as the NYSE, may determine to delist our securities.
 
Independent registered public accounting firms
that issue the audit report included in this annual report, as an auditor of companies that are traded
publicly in the United States and
a firm registered with the PCAOB, are required by the laws of the United States to undergo regular inspections by the
PCAOB to assess
its compliance with the laws of the United States and professional standards. KPMG Huazhen LLP, our former independent registered
public
accounting firm who audited the consolidated financial statements as of December 31, 2023 and for the years ended December 31, 2022 and
2023
included elsewhere in this annual report, is located in China, a jurisdiction where the PCAOB was historically unable to conduct
inspections and
investigations completely, without the approval of the Chinese authorities.
 
The inability of the PCAOB to conduct inspections
of auditors in China in the past has made it more difficult to evaluate the effectiveness of our
independent registered public accounting
firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to
the PCAOB inspections.
As a result, investors were deprived of the benefits of such PCAOB inspections.
 
21

 
In recent years, U.S. regulatory authorities have
continued to express their concerns about challenges in their oversight of financial statement audits of
U.S.-listed companies with significant
operations in China. More recently, as part of a continued regulatory focus in the United States on access to audit
and other information
currently protected by national law, in particular China’s, the United States enacted the Holding Foreign Companies Accountable
Act, or the HFCAA, in December 2020. Trading in our securities on U.S. markets, including the NYSE, may be prohibited under the HFCAA
if the
PCAOB determines that it is unable to inspect or investigate completely our auditor for two consecutive years. On December 16,
2021, the PCAOB issued
the HFCAA Determination Report to notify the SEC of its determinations that the PCAOB was unable to inspect or
investigate completely registered
public accounting firms headquartered in mainland China and Hong Kong, or the 2021 Determinations, including
the accounting firms that prepared the
audit reports included in this annual report. On May 26, 2022, we were conclusively identified
by the SEC under the HFCAA as having filed audit reports
issued by a registered public accounting firm that cannot be inspected or investigated
completely by the PCAOB in connection with the filing of our 2021
Form 20-F. The inability of the PCAOB to conduct inspections in the
past also deprived our investors of the benefits of such inspections. On December 15,
2022, the PCAOB announced that it was able to conduct
inspections and investigations completely of PCAOB-registered public accounting firms
headquartered in mainland China and Hong Kong in
2022. The PCAOB vacated its previous 2021 Determinations accordingly. Our auditor, HTL, the
independent registered public accounting firm
that issues the audit report included elsewhere in this annual report, is an auditor of companies that are traded
publicly in the United
States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular
inspections
to assess our auditor’s compliance with the applicable professional standards. HTL is headquartered in Houston, Texas, and is subject
to
inspection by the PCAOB on a regular basis. As a result, we do not believe we are at risk of having our securities subject to a trading
prohibition under the
HFCAA unless a new determination is made by the PCAOB.
 
However, whether the PCAOB will continue to conduct
inspections and investigations completely to its satisfaction of PCAOB-registered public
accounting firms headquartered in mainland China
and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our
auditor’s, control, including positions
taken by authorities of the PRC. The PCAOB is expected to continue to demand complete access to inspections and
investigations against
accounting firms headquartered in mainland China and Hong Kong in the future. The PCAOB is required under the HFCAA to make
its determination
on an annual basis with regards to its ability to inspect and investigate completely accounting firms based in the mainland China and
Hong Kong. The possibility of being a Commission-Identified Issuer and risk of delisting could continue to adversely affect the trading
price of our
securities.
 
If the PCAOB determines in the future that it
no longer has full access to inspect and investigate accounting firms headquartered in mainland China
and Hong Kong and we use such accounting
firm to conduct audit work, we would be identified as a Commission-Identified Issuer under the HFCAA
following the filing of the annual
report for the relevant fiscal year. If we were so identified for two consecutive years, trading in our securities on U.S.
markets would
be prohibited. This would substantially impair your ability to sell or purchase the ADSs when you wish to do so. Furthermore, such trading
prohibition 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.
 
Proceedings instituted by the SEC against Chinese
affiliates of the “big four” accounting firms could result in financial statements being determined to
not be in compliance
with the requirements of the Exchange Act.
 
Starting in 2011, the Chinese affiliates of the
“big four” accounting firms, including our former independent registered public accounting firm that
prepared the audit reports
included in this annual report, 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 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.
 
 
22

 
In late 2012, this impasse led the SEC to commence administrative
proceedings under Rule 102E of its Rules of Practice and also under the Sarbanes-
Oxley Act of 2002 against the Chinese accounting
firms. A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court
resulted in an
adverse judgment against the firms. The administrative law judge proposed penalties on the firms, including a temporary suspension
of their
right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of
the SEC. On February 6, 2015,
before a review by the Commissioner 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 noncompliance 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. If
additional remedial measures are imposed on the Chinese affiliates of the “big
four” accounting firms 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 may 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 United States 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
common stock may be adversely affected.
 
If we use any independent registered public accounting
firm that was 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 our financial statements, our financial statements could be
determined not to be in compliance
with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ADSs
from the New York Stock
Exchange or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our
ADSs in
the United States.
 
Regulation and censorship of information disseminated
over the internet in China may adversely affect our business and reputation and subject us to
liability for information displayed on our
website.
 
The PRC government has adopted regulations governing
internet access and the distribution of news and other information over the internet. Under
these regulations, internet content providers
and internet publishers are prohibited from posting or displaying over the internet content that, among other
things, violates PRC laws
and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure
to
comply with these requirements may result in the revocation of licenses to provide internet content and other licenses, and the closure
of the concerned
websites. The website operator may also be held liable for such censored information displayed on or linked to the websites.
If our website is found to be in
violation of any such requirements, we may be penalized by relevant authorities, and our operations or
reputation could be adversely affected.
 
You may have difficulty enforcing judgments
in Hong Kong.
 
Our PRC subsidiaries are wholly owned by our subsidiary
incorporated in Hong Kong. You may have difficulties in enforcing court judgments
obtained in United States courts against our Hong Kong
subsidiary, including judgments relating to the federal securities laws of the United States. There is
also doubt as to whether courts
in Hong Kong will enforce judgments of United States courts based only upon the civil liability provisions of the federal
securities laws
of the United States, or the securities laws of any state of the United States.
 
Risks Related to Our Business
 
We have a limited operating history and our
business practice continues to evolve, which makes it difficult to evaluate our future prospects.
 
We commenced our loan service business in 2006
and adopted our previous business model in 2014, and introduced our collaboration model in
December 2018. We have a limited operating
history in the home equity loan market, especially in some aspects of our business operations, such as loan
facilitation service and collateral
management service, credit analysis and the development of cooperative relationships with funding partners and other
business partners.
Our ability to continuously attract borrowers and funding sources is critical to our business. We may from time to time introduce new
loan services and products, make adjustments to our existing loan facilitation services and products and our risk management system, or
make adjustments
to our business operations in general.
 
23

 
The regulatory framework and market condition
for China’s home equity loan market is evolving and may remain uncertain for the foreseeable future.
If our business practices or
the business practices of our trust company partners are challenged under any PRC laws or regulations, our business, financial
condition,
results of operations and prospects would be materially and adversely affected. From time to time we may refine existing commercial
arrangements
in our business operations to comply with changing regulatory focuses. For example, FOTIC, one of our primary trust company partners,
amended its loan agreements in 2017 with certain borrowers to add an option for FOTIC to demand payment of outstanding loan principal
and interests
before the maturity of the underlying trust funding. Starting in March 2018, we have been working with FOTIC to implement
a performance-based service
fee structure (the “2018 FOTIC Service Fee Structure”). For details, please refer to “Item
4. Information on the Company—B. Business Overview—Our
Products—Credit Strengthening Services.” We have also been
exploring new business model to broaden our prospective borrower bases. Since December
2018, we have sought to collaborate with limited
partnerships and certain well-established corporations, where limited partners in such limited partnerships
and the established corporations
work as our sales partners to introduce prospective borrowers to us. For details, please refer to “Item 4. Information on the
Company—B.
Business Overview—Our Products—Collaboration Model.” In order to expand our financing channels, we launched a new funding
model in
2021 in collaboration with commercial banks, under which our commercial bank partners are responsible for reviewing and approving
the loan while we
charge a service fee for our loan facilitation services. For details, please refer to “Item 4. Information on
the Company—B. Business Overview—Our
Products—Commercial Bank Partnership.” Unfavorable reception of the new business
arrangements and new collaboration and funding model by potential
borrowers could have a material adverse impact on our business, results
of operations, financial condition and cash flows. We may face the risk of
increased borrower complaints, potential supervision, examinations
or enforcement actions by regulatory agencies and/or penalties for violation of financial
regulations and other applicable laws and regulations.
We may not be able to successfully address the risks and difficulties associated with the new business
arrangement and new funding model,
which could materially harm our business and operating results. The modifications to our business arrangements and
business model may
also increase the complexity of our business and may present new and significant challenges, as well as strains on our management,
personnel,
operations, systems, technical performance and financial resources. As a result, past performance of our practice does not necessarily
indicate
our future prospects and performance. Such past performance may or may not be sustained in the future.
 
You should consider our business and prospects
in light of the risks and challenges we encounter or may encounter given the rapidly evolving market
in which we operate and our limited
operating history in this particular market. These risks and challenges include, among other things, our ability to:
 
●
offer customized and competitive loan services and products;
 
●
increase the utilization of our loan services by existing borrowers as well as new borrowers;
 
●
maintain low delinquency ratio of loans originated by us;
 
●
achieve an effective and efficient collection and foreclosure process to assist our trust company partners to recover delinquent loans
in the event of
loan default;
 
●
develop sufficient, diversified, cost-efficient and reputable funding sources;
 
●
broaden our prospective borrower base;
 
●
navigate through a complex and evolving regulatory environment;
 
●
improve our operational efficiency;
 
●
promote standardized and disciplined operational procedures in local offices;
 
●
attract, retain and motivate talented employees to support our business growth;
 
●
maintain and enhance relationships with our business partners;
 
24

 
●
enhance our technology infrastructure to support the growth of our business and maintain the security of our system and the confidentiality
of the
information provided and utilized across our system;
 
●
navigate economic condition and fluctuation; and
 
●
defend ourselves against legal and regulatory actions.
 
Our credit strengthening services to the trust
plans as the subordinated unit holder might be subject to challenges by relevant regulatory authorities,
and we may potentially be required
to obtain licenses.
 
The Guiding Opinion on Regulating the Asset Management
Business of Financial Institutions (the “Guiding Opinion”) was issued by PBOC, together
with China Banking and Insurance Regulatory
Commission (“CBIRC”), China Securities Regulatory Commission (“CSRC”) and State Administration of
Foreign Exchange
on April 27, 2018. The Guiding Opinion prohibits direct or indirect guarantee for the principal and expected investment return of the
senior unit holders of structural asset management products. The Guiding Opinion provides a grace period by the end of 2020. During the
grace period,
existing products not in compliance with the Guiding Opinion shall be gradually phased out. After the grace period, financial
institutions shall not issue or
renew any asset management products not in compliance with the Guiding Opinion.
 
Our credit strengthening arrangements may be deemed
as indirectly guaranteeing senior unit holders’ principal and expected investment return on the
investments. As such, we may be
required to further modify such arrangements with the trust plans, which could materially and adversely affect our
business. As of the
date of this annual report, we have not received any notice or been made aware of any issues or concerns raised by regulatory
authorities
on our credit strengthening arrangements. We cannot guarantee you, however, that the regulatory authorities will hold the opinion that
our credit
strengthening arrangements are in compliance with the relevant regulations.
 
Our trust company partners operate in a strictly
regulated industry. If the practice of our trust company partners, including the cooperation
arrangements with us, is challenged under
any PRC laws and regulations, our business, financial condition and results of operations would be
materially and adversely affected.
 
We provide home equity loan service to borrowers
primarily through collaboration with our trust company partners. Our trust company partners
operate in a highly regulated industry and,
as a result, are required to comply with a wide array of laws and regulations that are continually evolving. If our
collaboration arrangement
is deemed to violate any of these laws and regulations, we may be required to make significant changes to our business
arrangements. These
changes may have a material adverse impact on our business, results of operations and financial condition and may not be
implemented successfully.
 
For example, according to the Measures for the
Administration of Trust Companies’ Trust Plans of Assembled Funds issued by the CBRC, trust
companies may not provide loans in excess
of 30% of the paid-in balance of all the trust plans under its management. It is our trust company partners’
responsibility to comply
with these regulations and we have no specific knowledge as to whether our trust company partners are in compliance. We cannot
assure
you that our trust company partners have been in compliance at all times. In addition, according to the Several Opinions on Strengthening
Supervision, Preventing Risks and Promoting the High - Quality Development of the Trust Industry, which was issued on January 27, 2025,
requires
strengthening the supervision over the whole process of trust business, enhancing the monitoring of the sources and investment
directions of trust funds,
and intensifying the supervision over businesses with concentrated investment, relatively high risks, complex
structures and rapid scale growth. At the
same time, closely monitor and prudently resolve the risks in trust businesses in fields such
as real estate. We cannot assure you that relevant regulatory
authorities will not impose additional restrictions on our trust company
partners’ businesses. This regulation may limit our access to funding from our trust
company partners in the future, which may have
a material adverse impact on our source of funding and results of operations.
 
25

 
While we believe we currently are in
compliance with existing PRC regulations, in all material aspects, we cannot assure you that the PRC government
authorities would
agree with our interpretation of the relevant regulations. It is also possible that new laws and regulations may be adopted which,
along
with any possible changes needed to fully comply with any existing or newly released regulations, could require us to further
modify our business or
operations. The cost to comply with such laws or regulations would increase our operating expenses, and
modifications of our business may have a material
and adverse impact on our business, financial condition and results of operations.
If any of our trust company partners are deemed to violate any laws,
regulations and rules, they may face, among other things,
regulatory warning, correction order, condemnation, fines, suspension of business license and
criminal liability, which may have a
material adverse impact on our funding source and results of operations.
 
Our business may be adversely affected if we
are unable to secure funding on terms acceptable to us or our borrowers, or at all.
 
We fund most of the loans we originate through
our trust company partners. Loans funded by our trust company partners are disbursed to borrowers
directly through trust plans. 82.7%,
70.7% and 87.3% of our home equity loan origination volume was originated under trust lending model in 2022, 2023
and 2024, respectively.
In order to expand our funding channels, we launched a new funding model in 2021 in collaboration with commercial banks, under
which our
commercial bank partners are responsible for reviewing and approving the loan while we charge a service fee for our loan facilitation
services.
17.2%, 29.0% and 9.8% of our home equity loan origination volume was originated under collaboration with commercial banks in
2022, 2023 and 2024,
respectively.
 
The availability of funding from our trust company
partners depends on many factors, such as the availability of investors on their platforms, general
economic conditions, change of regulatory
requirements, actual and expected delinquency ratio compared to alternative opportunities, some of which are
out of our control. Our trust
company partners may seek to acquire borrowers independently or through other third parties. In addition, our trust company
partners may
not be able to adapt their compliance practices with the evolving financial institution licensing and other regulations in the PRC. As
a result,
our ability to cooperate with our existing trust company partners may be subject to regulatory or other limitations. See “Item
3. Key Information—D. Risk
Factors—Risks Related to Our Business—Some of our funding sources are highly regulated and
are subject to the changing regulatory environment. If any
of the funding sources is deemed to violate the PRC laws and regulations, we
may need to secure new funding, failure of which may result in material and
adverse impact on our business, financial condition, results
of operations and prospects.”
 
As our business grows, we may need to obtain new
funding sources or require current funding partners to increase the amount of funding provided,
such as collaborating with commercial
banks. If there is a sudden or unexpected shortage of funds from our trust company partners or if we fail to maintain
or develop relationships
with our existing trust company partners or new funding partners, we may not be able to maintain necessary levels of funding
without agreeing
to less favorable terms, or at all. We may not be able to arrange additional, new or alternative methods of funding on favorable terms,
or at
all, or ensure that our cooperation with new funding partners will meet our expectations and the expectations of borrowers.
 
Additionally, if there is an unexpected scale
of decrease in subordinated units due to a higher NPL ratio, we may not be able to arrange additional
capital to increase our subordinated
units contribution to satisfy the contractual structural leverage ratio as required by the subordinated units subscription
agreement.
If we are unable to secure sufficient funding on terms acceptable to us and our borrowers, or at all, we may not be able to provide attractive
products and services to our borrowers, and our business, financial condition and results of operations may be materially and adversely
affected.
 
We face risks related to natural disasters,
health epidemics and other outbreaks of contagious diseases.
 
Our business could be adversely affected by natural
disasters or outbreaks of epidemics. These natural disasters, outbreaks of contagious diseases, and
other adverse public health developments
in China or any other market in which we operate and conduct business could severely disrupt our business
operations by damaging our network
infrastructure or information technology system or affecting the productivity of our workforce. The outbreak of any
severe epidemic disease,
such as avian flu, H1N1 flu, SARS or coronavirus, may disrupt our operations, which could negatively affect our financial
condition and
business prospects.
 
 
26

 
Our headquarters are located in Guangzhou, where
most of our directors and management and a large majority of our employees currently reside.
Consequently, we are highly susceptible to
factors adversely affecting Guangzhou. If any of the abovementioned natural disasters, health epidemics
or other
outbreaks were to occur in Guangzhou, our operation may experience material disruptions, such as temporary closure of our offices
and suspension of
services, which may materially and adversely affect our business, financial condition and results of operations.
 
Our trust company partners may need to lower
the structural leverage ratio of the trust plans which could materially and adversely affect our business.
 
The Guiding Opinion sets a limit on the contractual
structural leverage ratio which is calculated as the total amount of senior units divided by
subordinated units, and intermediate units
shall be included as senior units for the purpose of this calculation. For a fixed-income product, the structural
leverage ratio shall
not exceed 3:1. The contractual structural leverage ratio of the trust plans or products set up by our trust company partners is determined
pursuant to our collaboration agreements with them, which set the upper limit to such ratio at a range of 3:1 to 9:1. As of the date of
this annual report, the
actual structural leverage ratio of our trust plans is in compliance with the Guiding Opinion. For details, please
refer to “Item 4. Information on the
Company—B. Business Overview—Our Products—Terms of the Trust Plans”
and “Item 4. Information on the Company—B. Business Overview—Our
Products—Trust Lending—Funding Partners.”
We cannot assure you, however, that the actual structural leverage ratio of our trust plans are always in
compliance and in the future,
we may need to contribute additional funding to maintain a lower structural leverage ratio and our overall cost of funding
may increase,
which could materially and adversely affect our business.
 
Our concentration of funding provided by our
trust company partners and our concentration of borrowers introduced by one sales partner may have a
material adverse effect on our financial
condition, liquidity and results of operations, if we lose any of our trust company partners or such sales partner
either as a result
of its decision to acquire services from our competitors or otherwise.
 
82.7%, 70.7% and 87.3% of our total home equity
loan origination volume was originated under trust lending model in 2022, 2023 and 2024,
respectively. Among the loans originated through
our trust lending model, 62.3%, 55.8% and 37.9% were funded through FOTIC trust plans in 2022, 2023
and 2024, respectively. We generally
acquire borrowers through the collaboration model where we collaborate with sales partners who introduce borrowers
and receive incentives.
See “Item 4. Information on the Company—B. Business Overview—Our Products—Collaboration Model.” In 2022,
we started to
collaborate with a sales partner and the balance of outstanding loan principal of the loans issued to borrowers introduced
by such sales partner accounted
for 95.9% of our total balance of outstanding loan principal as of December 31, 2024. Although we have
long-standing relationship with our trust company
partners and such sales partner, there is no guarantee as to the continuation of the
relationships between our trust company partners, such sales partner and
us. We endeavor to diversify our funding source and borrower
acquisition channel, but there is no assurance that we will be successful. The loss of any of
our trust company partners, in particular
FOTIC, or the afore-mentioned sales partner, whether as a result of its decision to acquire services from our
competitors, or otherwise,
would have a material adverse effect on our financial condition, liquidity and results of operations.
 
Our collaboration model with our sales partners
might be subject to challenges by relevant regulatory authorities.
 
Under the collaboration model, sales partners
contribute an amount equal to 5% to 25% of the loans issued to the borrowers introduced by them (such
contribution, the “Credit
Risk Mitigation Position,” or “CRMP”) and will receive incentive fees upon a pre-agreed schedule and other conditions.
 
According to the Judicial Interpretations to Issues
Concerning Applications of Laws for Trial of Criminal Cases on Illegal Fundraising, promulgated by
the Supreme People’s Court, whoever
meets the following four conditions, may be deemed as “absorbing public savings illegally or in disguised form” as
prescribed
in Article 176 of the Criminal Law, except as otherwise provided for by the Criminal Law: (i) taking in funds without license of the relevant
authority or under the disguise of lawful business operations; (ii) publicizing by means of internet, media, recommendation fairs,
leaflets or mobile phone
text messages, or other means; (iii) promising to repay the principal and interests or make payments in
forms such as currency, real objects or equities,
within a certain time limit; and (iv) absorbing funds from the general public,
namely unspecified people. According to Regulations on Preventing and
Dealing with Illegal Fund-raising, illegal fundraising involves
collecting funds from non-specific targets with promised principal and interest or other
investment returns, without lawful permission
from the State Council’s financial management departments or in violation of China’s financial management
rules. The definition
above stipulates the three features of illegal fundraising, which are illegal, with pecuniary interest, and targeting unspecified
audiences.
 
27

 
It is unclear whether the CRMP we received would
be deemed as absorbing funds illegally under PRC laws and regulations. As of the date of this
annual report, we have not been subject
to any fines or penalties under the aforementioned regulations with respect to our collaboration model with sales
partners. If we are
deemed to be absorbing public savings illegally or in disguised form, we may be subject to fines up to the amount of fund absorbed and
criminal penalties, which could materially and adversely affect our business. We are in the process of refining the collaboration model
with the sales
partnerships under which sales partners will be restricted to qualified persons only. In addition, we have not made any
commitments of making repayments
within a certain time limit. We also require the sales partners to use their own funds as the source
of the CRMP and prohibit collection of public funds from
unspecified people. While we believe we are in compliance with the abovementioned
laws and regulations, in all material aspects, we cannot assure you
that the relevant authorities would agree with our interpretation
of the relevant regulations. Our business and results of operations will be materially and
adversely affected if our collaboration model
with sales partners are deemed as absorbing public savings illegally or in disguised form.
 
According to the Administrative Measures on Assembled
Funds Trust Schemes of Trust Companies, which was amended on February 2009, the trustor
shall use legitimate funds of its own to subscribe
to the trust units, and shall not participate in the trust scheme by illegally pooling funds from any other
person. In addition, according
to the Guiding Opinions on Regulating Asset Management Business of Financial Institutions, which were promulgated on
April 2018, investors
may not use loans or funds from third parties raised by issuing bonds to invest in asset management products. As of the date of this
annual report, we have not been subject to any fines or penalties under the aforementioned regulations with respect to our collaboration
model with sales
partners. If the fund we subscribe for the subordinated units of the trust plan is identified as originated from CRMP,
we may be subject to fines up to the
amount of fund so identified and criminal and administrative penalties, which could materially and
adversely affect our business. Our PRC legal advisor,
Global Law Office, advises us that the CRMP from sales partners is for the purpose
of reducing our own risk exposure, not for the purpose of illegally and
publicly absorbing other people’s funds; in addition,
the CRMP does not belong to the loans or funds raised by issuing bonds as described in the
abovementioned regulations. While we believe
we are in compliance with the abovementioned laws and regulations, in all material aspects, we cannot
assure you that the relevant authorities
would agree with our interpretation of the relevant regulations. Our business and results of operations will be
materially and adversely
affected if the funds we subscribe for the subordinated units of the trust plan is identified as originating from CRMP.
 
In addition, under our collaboration model, the
CRMP paid by the sales partners either through direct contribution or through contribution to limited
partnerships may be seen as investment
in trust plans which may be identified by PRC regulatory authorities as disguised loans granted by sales partners.
According to the Regulation
on Private Lending and Maintaining the Economic and Financial Order, which was promulgated on April 2018, no entity or
individual may
set up an agency that conducts or mainly conducts the granting of loans, or takes the granting of loans as the daily business activities,
without the approval of the competent authority in accordance with the law. If the CRMP paid by sales partners either directly or to
limited partnerships is
identified by PRC regulatory authorities as disguised loans granted by sales partners, they may be subject to
fines up to the amount of fund so identified
and criminal and administrative penalties. Our PRC legal advisor, Global Law Office, advises
us that under the collaboration model, the main business of
the sales partners we cooperate with are to introduce real estate mortgage
loan projects to third parties, rather than providing loans. Our sales partners do
not engage in issuance of loans and have not entered
into any loan agreements with us. If the CRMP paid by sales partners either directly or to limited
partnerships is identified by PRC
regulatory authorities as disguised loans granted by sales partners, our business and results of operations will be
materially and adversely
affected.
 
28

 
Any lack of requisite approvals, licenses or
permits applicable to our business may have a material and adverse impact on our business, financial
condition and results of operations.
 
Our business is subject to governmental supervision
and regulation by the relevant PRC government authorities. Together, these government
authorities promulgate and enforce regulations
that cover many aspects of the operation of the home equity loan and finance industries. For details, please
refer to “Item 4.
Information on the Company—B. Business Overview—Regulation.” Our PRC legal advisor, Global Law Office, advises us that
our
businesses do not need special approvals or licenses, other than our small loan business and subject to “Item 3. Key Information—D.
Risk Factors—Risks
Related to Our Business—Our credit strengthening services to the trust plans as the subordinated unit
holder might be subject to challenges by relevant
regulatory authorities, and we may potentially be required to obtain licenses.”
We are further advised that these opinions are subject to uncertainties and the
regulatory authorities may hold a different view.
 
As of the date of this annual report, all of our
small loan subsidiaries have obtained such approvals or licenses.
 
Some of our funding sources are highly regulated
and are subject to the changing regulatory environment. If any of the finding sources is deemed to
violate the PRC laws and regulations,
we may need to secure new funding failure of which may result in a material and adverse impact on our
business, financial condition, results
of operations and prospects.
 
We have multiple funding sources to support our
business model, including funding sources that are highly regulated. Although we may or may not be
subject to any direct material fines
or penalties from the relevant regulatory authorities, if our funding sources are deemed to violate any relevant
regulations in collaboration
with us directly or indirectly, our business, financial condition, results of operations and prospects would be materially and
adversely
affected.
 
We subscribe to the subordinated units and therefore
have rights to the residual earnings under such trust plans. We historically acquire certain funding
for the subordinated units by transferring
our right to earnings with a repurchase arrangement to private equity funds. According to the regulations on
private equity funds, private
equity funds shall no longer engage in loan business and starting from April 1, 2020, the Asset Management Association of
China (AMAC)
will no longer accept new product filings which are not within the permitted investment scope of private equity funds. Private equity
funds
filed before April 1, 2020 may continue to invest in loan business. Our private equity funding sources’ filing of products
in collaboration with us were all
accepted before April 1, 2020. Our PRC legal advisor, Global Law Office, advises that the instructions
shall come into force as of the date of promulgation.
In case of any discrepancy between the self-discipline rules and Q&A issued
by the AMAC and the Instructions, the latter shall prevail. To ensure the
smooth transition, according to the principle of “separating
the existing applications from new ones”, the AMAC shall no longer handle any new and in-
process record-filing applications that
fail to meet the requirements of the Instructions from April 1, 2020. If a private investment fund which has
completed record-filing
formalities before April 1, 2020 engages in activities which do not comply with the essence of “fund” in Article 2 of the
Instructions, such private investment fund shall not increase its scale of fundraising or its investment after September 1, 2020, and
shall be liquidated upon
maturity, and shall not be renewed in principle. We are further advised that these opinions are subject to uncertainties
and the regulatory authorities may
hold a different view. We cannot assure you that the registered channels can satisfy our financing
needs, or that such regulations will not impose material
restrictions on our future business operations as we continue to grow our business.
 
According to Measures for the Supervision and
Administration of the Wealth Management Business of Commercial Banks promulgated in September
2018 (the “Wealth Management Measures”),
a commercial bank is subject to certain investment threshold of nonstandardized debt assets. A transition
period, starting from the effective
date until the end of 2020, will be set for the Wealth Management Measures. During the transition period, new wealth
management products
introduced by commercial banks shall comply with the Wealth Management Measures. Commercial banks may continue to offer
existing products
for the undue assets invested in by existing wealth management products, but shall strictly control them within the overall scale of
existing
products and decrease them progressively in an orderly manner. Neither our trust company partners nor we have specific knowledge on whether
a
commercial bank investing in the senior units is in compliance with the Wealth Management Measures. As of the date of this annual report,
we are not
aware of noncompliance by commercial banks as senior unit holders. We cannot assure you, however, that commercial banks as
senior unit holders will
continue to comply in the future. If commercial banks as senior unit holders violate the Wealth Management Measures,
such violation will have a material
adverse effect on our trust company partners’ funding sources and our business operations.
 
29

 
As of the date of this annual report, we are not
aware of any material fines or other penalties under any PRC laws or regulations with respect to the
aforesaid funding resources. If our
practice, or the practice of our funding partners in collaboration with us, is deemed to violate any laws, regulations and
rules, we may
face, among other things, regulatory warning, correction order, condemnation, fines, suspension of business license and criminal liability.
If
such situations occur, our business, financial condition, results of operations and prospects would be materially and adversely affected.
 
We lack product and business diversification.
Accordingly, our future operating income and earnings are more susceptible to fluctuations than a more
diversified company.
 
Currently, our primary business activities include
facilitating home equity loans and providing loan management services to borrowers and trust
company partners and to a lesser extent,
direct lending through our small loan subsidiaries. If we are unable to maintain and grow the operating income
from our current business
or develop additional revenue streams, our future operating income and earnings are not likely to grow and could decline. Our
lack of
product and business diversification could inhibit the opportunities for growth of our business and results of operations.
 
To maintain and increase the amount of loans we
originate, we must continue to engage our existing borrowers and attract new borrowers, either by
ourselves or through sales partners
under our collaboration model, both of which may be affected by several factors, including interest rates of loans we
originate, our brand
recognition and reputation, our loan services and products offered, our operating efficiency and ability in engaging prospective
borrowers,
the effectiveness of our credit analysis system, our ability to secure sufficient and cost-efficient funding, service fees we charge to
trust plans,
our borrower experience and the PRC regulatory environment. In addition, we have also entered into agreements with our sales
partners to utilize the
offline network they operate to engage some of our prospective borrowers. If these sales partners could not effectively
or efficiently introduce borrowers as
anticipated, or if we are unable to expand the scale of our sales partners, we may not be able to
acquire or engage new and existing borrowers efficiently. In
addition, we may also impose more stringent control over borrower qualifications
to ensure the quality of the loans we facilitate, which may negatively
affect the amount of loans we facilitate. If we are unable to attract
borrowers or if borrowers do not continue to use our services, we may be unable to
increase our loan origination volume and corresponding
income, and our business and results of operations may be materially and adversely affected.
 
Our concentration in loans secured by real properties
may increase our credit losses in times of deterioration in local or national property markets,
which would negatively affect our financial
results.
 
The home equity loans we facilitate are secured
by residential or commercial properties in our market areas. A significant decrease of property values
will cause an increase in LTV ratio,
resulting in borrowers having little or negative equity in their property, which may reduce new loan originations and
provide incentive
to borrowers to strategically default on their loans. Risk of loan defaults and foreclosures are unavoidable in the home equity loan
industry.
 
If we are unable to achieve low delinquency
ratio for loans originated by us, our business and results of operations may be materially and adversely
affected.
 
We may not be able to achieve low delinquency
ratio for loans originated by us, or such delinquency ratios may be significantly affected by economic
downturns or general economic conditions
beyond our control and beyond the control of individual borrowers. The outstanding principal of home equity
loans (including loans held
for sale) originated by us was RMB11,123 million, RMB11,828 million and RMB10,124 million (US$13.9 million) as of
December 31, 2022, 2023
and 2024. The delinquency ratio for loans originated by us (excluding loans held for sale) decreased from 18.26% as of
December 31, 2022
to 15.54% as of December 31, 2023, and increased to 29.72% as of December 31, 2024. Our NPL ratio (excluding loans held for sale)
remained
relatively stable at 1.12% as of December 31, 2022 and 1.11% as of as of December 31, 2023, and increased to 8.50% as of December 31,
2024.
In order to diversify our financing channels to better serve the demands of MSE owners with credible funding sources, we started
to collaborate with
commercial banks in 2021, under which model we provide guarantees against the potential defaults and such contractual
guarantee arrangement is
underwritten by the guarantor company to which we provide back-to-back guarantee at request. For details, please
refer to “Item 4. Information on the
Company—B. Business Overview—Our Products—Commercial Bank Partnership.”
Accordingly, our results of operations, financial position and liquidity
could be materially and adversely affected if we cannot achieve
low delinquency ratio for the loans generated under such new funding model. Furthermore,
our borrower base continues to expand with the
growth of our business operations, which may include loan applicants with lower creditworthiness. We may
not be able to achieve low delinquency
ratio for loans originated by us in the future, or return to the low delinquency ratio or NPL ratio we achieved in the
past.
 
30

 
Our high leverage ratio may expose us to liquidity
risk and we may not have sufficient capital reserve to manage losses.
 
As part of the collaboration we have with our
trust company partners, we subscribe to subordinated units in trust plans through our subsidiaries and
fund those units with (i) our own
funds and (ii) funding from transferring our right to earnings in subordinated units to third parties. We transfer our right to
earnings
in subordinated units to third parties with a repurchase arrangement, which requires us to repurchase the right to earnings in subordinated
units.
For details of our repurchase agreements with third parties under the trust lending model, please refer to “Item 4. Information
on the Company—B.
Business Overview—Our Products—Funding Sources.” In 2022, 2023 and 2024, we transferred our
right of earnings in subordinated units to a certain
private equity fund and to a certain third party. Our financing costs under such
repurchase arrangement ranged from 8% to 14% per annum of the transfer
prices in 2022, 2023 and 2024. We are required to consolidate all
of the results under trust plans on our consolidated financial statements, including those
of the senior units. This consolidation is
necessary as our trust lending model creates exposure to variability of returns from the activities of the trust plans.
 
We historically operated a small direct lending
business through our small loan subsidiaries, financed with our own funds or funds we received from
third parties by transferring our
rights in the loans together with a repurchase arrangement.
 
As a result of our funding model, we may be exposed
to high leverage ratio. Our leverage ratio was 3.7 times, 4.1 times and 4.9 times as of December
31, 2022, 2023 and 2024, respectively.
Our high level of borrowings and leverage ratio may adversely affect our liquidity and business operations,
including but not limited
to increasing our vulnerability under adverse economic condition, potentially limiting our ability to raise more debt and increasing
our
exposure to interest rate fluctuation. Our business and results of operations also depend on our ability to secure cost-effective financing.
The third
parties to whom we transfer our right to earnings or small rights to earnings in loans principal, interest and financing service
fee receivables may not
continue to provide funding at rates acceptable to us, and we may not find alternative financing at similar rates,
or at all.
 
If we continue to have a high leverage ratio,
our exposure to liquidity risk may restrict our ability to make necessary capital expenditures or develop
business opportunities in the
future. For the credit strengthening services we provide, we may also be required to provide additional funding when there is
an NPL in
the loan portfolio. Due to this arrangement and our high leverage ratio, we may not have sufficient capital reserve to manage potential
losses in
the future, which may adversely affect our results of operations and financial positions. In addition, although we are not currently
subject to any capital
reserve requirement, we cannot assure you that the regulatory authority will not impose such requirements in the
future, which may have a material adverse
impact on our results of operations and financial positions due to our high leverage ratio.
 
If our or our trust company partners’
or our commercial bank partners’ risk management system fails to perform effectively, such failure may
materially and adversely
impact our operating results.
 
Credit assessment of the borrowers we facilitate
is conducted by our risk management system, and subject to final risk assessment by our trust
company partners or commercial bank partners
under different funding models. Our risk management system uses credit analysis and data from prospective
borrowers and multiple external
sources and might not be effective as we continue to increase the amount of
transactions, expand the borrower base and
broaden our borrower engagement efforts through different channels in the future. If our system
or our trust company partners’ or commercial bank
partners’ system is ineffective or if the credit analysis and data we or
our trust company partners or our commercial bank partners obtained are incorrect or
outdated, the relevant risk management abilities
could be negatively affected, resulting in incorrect recommendations or denials of loan applications or
mispriced loan products, or eventually
loan default. If we are unable to effectively and accurately assess the credit risks of borrowers or price loan products
appropriately,
we may be unable to offer quality services to our trust company partners, commercial bank partners or borrowers. Our risk and credit
assessment
may not be able to provide more predictive assessments of future borrower behavior or result in better evaluation of our borrower base
when
compared to our competitors. Pursuant to the terms of our collaboration agreements with trust company partners and commercial bank
partners, trust
company partners or commercial bank partners are independently responsible for credit assessment and approving the loans
applications and we are not
subject to any penalties for inaccurate risk assessment or mispriced loan products. However, we ultimately
bear credit risk on loans we facilitate as we have
payment obligations under our credit strengthening arrangements or the new funding
model with commercial bank partners. For details, please refer to
“Item 4. Information on the Company—B. Business Overview—Our
Products—Credit Strengthening Services.” In addition, our performance-based
service fee and return under the subordinated
units may be reduced as a result of increased NPLs. If our or our trust company partners’ or commercial bank
partners’ risk
management system fails to perform effectively, our business and results of operations may be materially and adversely affected.
 
31

 
Our business depends on our ability to collect
payment on and service the transactions we facilitate.
 
We offer post-loan management services to our
trust company partners. We have implemented payment and collection policies and practices designed
to optimize compliant repayment, while
also providing superior borrower experience. Our collection process is divided into distinct stages based on the
days of delinquency,
which dictate the level of collection steps taken. For example, automatic reminders through text, voice and instant messages are sent
to a delinquent borrower as soon as the collections process commences. Our collection team will also make phone calls to borrowers following
the first
missed payment and periodically thereafter. We may also resort to arbitration or litigation to recover delinquent loans or assign
those loans to a third party
and collect proceeds upfront. Despite our servicing and collection efforts, we cannot assure you that we
will be able to collect payments on the transactions
we facilitate as expected. As we are exposed to credit risks as the subordinated
unit holder and also as a result of credit strengthening services we provide,
our failure to collect payment on the transactions will
have a material adverse effect on our business operations and financial positions. For example, in the
event of loans issued to the borrowers
referred by the sales partners are in default, the respective sales partners who introduced such borrowers will share
the credit risks
with us by choosing from several options, including relinquishing the respective CRMPs for such loan. Upon relinquishing its CRMPs, the
sales partner is deemed to be released from its repayment obligations under the collaboration agreement. For more details, see “4.B.
Business Overview –
Our Products.” In addition, our collection team may not possess adequate resource and manpower to collect
payment on and service the loans we
facilitated. If we fail to adequately collect amounts delinquent or due, then our service fees charged
to trust plans may be delayed or reduced and our results
of operations will be adversely affected. As the amount of transactions facilitated
by us increases in the future, we may devote additional resources into our
collection efforts. However, there can be no assurance that
we would be able to utilize such additional resources in a cost-efficient manner.
 
Moreover, Circular 141 provides that all types
of institutions or entrusted third-party institutions shall not collect loans through violence, intimidation,
insult, slander, harassment,
etc. Furthermore, according to the Notice on Further Regulating the Personal Trust Loan Business of Trust Companies issued
by Beijing
Bureau of the China Banking and Insurance Regulatory Commission in August 2020, trust companies within the Beijing jurisdiction shall
clarify the list of prohibited behaviors with the institutions they collaborate with and their staff, and must not collect loans through
violence, intimidation,
insult, slander, harassment, etc. The Amendment XI to the Criminal Law of the People’s Republic of China,
which was issued on December 2020 and
became effective in March 2021, stipulates that whoever falls under any of the following circumstances
when collecting any illegal debts generated from
offering loans with high interest shall, if the circumstances are serious, be sentenced
to fixed-term imprisonment of no more than three years, criminal
detention or public surveillance and shall also, or shall only, be fined:
(1) using violence or coercive methods; (2) restricting another person’s personal
freedom of movement or trespass to another
person’s dwelling; or (3) threatening, stalking, or harassing another person.
 
Although we aim to ensure our collection efforts
comply with the relevant laws and regulations in the PRC and we have established strict internal
policies that our collections personnel
shall not engage in aggressive practices, we cannot assure you that such personnel will not engage in any misconduct
as part of their
collection efforts. Any such misconduct by our collection personnel or the perception that our collection practices are considered to
be
aggressive and not compliant with the relevant laws and regulations in the PRC may result in harm to our reputation and business, which
could further
reduce our ability to collect payments from borrowers, lead to decrease in the willingness of prospective borrowers to apply
for the home equity loans we
facilitate, or fines and penalties imposed by the relevant regulatory authorities, any of which may have
a material adverse effect on our results of
operations.
 
32

 
If our allowance for loan losses is not sufficient
to cover actual loan losses, our results of operations would be negatively affected.
 
Our business is subject to fluctuations based
on local economic conditions. These fluctuations are neither predictable nor within our control and may
have a material adverse impact
on our operations and financial condition. In determining the amount of the allowance for loan losses, we analyze our loss
and delinquency
experience by loan categories and we consider the effect of existing economic conditions. In addition, we make various assumptions and
judgments about the collectability of loan portfolios, including the creditworthiness of borrowers and the value of real properties serving
as collateral for
the repayment loans. If the actual results are different from our estimates, or our analysis is incorrect, our allowance
for loan losses may not be sufficient to
cover losses inherent in a loan portfolio, which would require additions to allowance and would
decrease our net income. Our emphasis on loan growth and
on increasing portfolio, as well as any future loan deterioration, will require
us to increase our allowance further in the future. Any increase in our
allowance for loan losses or loan charge-offs as required by regulatory
authorities may have a material adverse effect on our results of operations and
financial condition.
 
Increases in market interest rates could negatively
affect the amount of loans facilitated by us and cost of funds provided to borrowers.
 
Borrowers’ costs of borrowing mainly consist
of interest expenses. An increase in prevailing interest rates could result in an increase in the interest
rates of loans we facilitate,
and borrowers may be less likely to accept such adjusted terms. If borrowers decide not to use the products or services we offer
because
of such increase in market interest rates, our ability to retain existing borrowers and engage prospective borrowers as well as our competitive
position may be severely impaired. If we are unable to effectively manage such market interest rate risk, our business, profitability,
results of operations and
financial condition could be materially and adversely affected. See “4.B. Business Overview – Our
Products” for more details on the interest rates of our
loan products.
 
Our overall funding costs may fluctuate with market
interest rates while the interest rates for existing loans are fixed during the terms of the loans. As a
result, an increase in the market
interest rates may negatively impact the availability and cost of our funding, which may have a material adverse impact on
our profitability
and results of operations.
 
We are involved in legal proceedings in the
ordinary course of our business from time to time. If the outcomes of these proceedings are adverse to us, it
could have a material adverse
effect on our business, results of operations and financial condition.
 
We are involved in various legal proceedings
in the ordinary course of business from time to time. In our opinion, based on the facts known at this
time, the ultimate resolution
of these ordinary course legal proceedings will not have a material adverse effect on our financial position or results of
operations as a whole. However, no assurances can be given as to the outcome of any pending legal proceedings, which could have a
material adverse
effect on our business, results of operations and financial condition. For debt collection purposes, we initiate
legal proceedings against borrowers to recover
payments that are delinquent for 30 days if we cannot reach agreement with the
default borrowers by then. As of December 31, 2024, we had 5,747
collection legal proceedings pending before courts and arbitration
tribunals with amounts in dispute of RMB3,996 million, where our funding partners
either directly or with our help sued borrowers of
such delinquent loans. We may not be able to obtain or enforce favorable judgments or arbitration
awards, or recover the amounts in
dispute in full or at all. Furthermore, claims arising out of actual or alleged violations of law could be asserted against us
by individuals,
governmental or other entities in civil, administrative or criminal investigations and proceedings. These claims could be asserted under
a
variety of laws and regulations, including but not limited to contract laws, online or private lending laws or regulations, consumer
protection laws or
regulations, intellectual property laws, information security and privacy laws, and labor and employment laws. For
further details, see the section headed
“Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal
and Administrative Proceedings.” These actions
could expose us to adverse publicity and to monetary damages, fines and penalties,
as well as suspension or revocation of licenses or permits to conduct
business. Even if we eventually prevail in these matters, we could
incur significant legal fees or suffer reputational harm, which could have a material
adverse effect on our business and results of operations
as well as our future growth and prospects.
 
33

 
The foreclosure action and enforcement process
may be time-consuming, difficult and uncertain for legal and practicable reasons, which could
adversely affect our liquidity, business,
financial condition and results of operations.
 
The home equity loans we facilitate are secured
by collateral, normally residential or commercial real properties owned by borrowers. In the event that
a borrower is in default and the
payment is past due for over 30 days or upon the incurrence of unusual situations (such as forfeiture of the collateral), we
may need
to help our trust company partners initiate judicial or arbitration proceedings against the defaulting borrower and foreclose the real
property
collateral. Historically, we were able to help our trust company partners enforce their rights to the collaterals through a power
of attorney that was signed
by the borrower and notarized by a notary public before loan disbursement. This allowed the trust company
partners to quickly dispose of the collaterals
without having to involve the borrower. However, the judicial or arbitration proceedings
may be time-consuming and may not ultimately be possible. In
addition, the enforcement process may be difficult in practice. Furthermore,
the defaulting borrowers may have concealed, transferred or disposed of their
assets beforehand, which make it difficult or impossible
for us to apply for attachment. Moreover, if the attached assets are found to be subject to prior
mortgage or other third parties’
rights during proceedings, our interests will be ranked lower than these prior parties, thereby limiting or even preventing us
from full
coverage by the collateral. As a result, in case of defaults we may not be able to recover the full amount of loans and outstanding interests
or at
all, and in turn our liquidity, business, financial condition and results of operations could be adversely affected.
 
In 2019, courts in certain regions of PRC issued
regulations on banning the filings and executions in “trap loans” cases. While we believe our business
does not fall into
“trap loans” and such regulations are not be applicable to us, the interpretations of such regulations may vary among different
courts. We
cannot guarantee that the regulatory authority will agree with our interpretation. In 2019, certain court proceedings relating
to the loans we facilitated were
delayed or suspended due to such regulations.
 
Credit and other information that we or our
trust company partners or our commercial bank partners receive from prospective borrowers and third
parties about a borrower and the collateral
may not accurately reflect the borrower’s creditworthiness or the collateral’s fair/recoverable value, which
may compromise
the accuracy of our and our trust company partners’ or our commercial bank partners’ credit assessment.
 
For the purposes of credit risk assessment, we
and our trust company partners or our commercial bank partners obtain from prospective borrowers and
third parties certain information
of the prospective borrowers or the prospective real property collateral, which may not be complete, accurate or reliable. A
credit report
on a borrower or prospective collateral generated by our third-party sources or our trust company partners’ or our commercial bank
partners’
own credit assessment system may not reflect that particular borrower’s actual creditworthiness or the prospective
collateral’s actual market value because
it may be based on outdated, incomplete or inaccurate information. Additionally, once we
and our trust company partners or our commercial bank partners
have obtained a borrower’s information, the borrower may subsequently
(i) become delinquent in the payment of an outstanding obligation; (ii) default on a
preexisting debt obligation; (iii) take
on additional debt; or (iv) sustain other adverse financial events, making the information we have previously obtained
inaccurate.
Such inaccurate or incomplete borrower information could compromise the accuracy of our or our trust company partners’ or our commercial
bank partners’ credit assessment and adversely affect the effectiveness of our risk management, which could in turn harm our reputation, lower our service
fees charged to trust plans, and
as a result, our business and results of operations could be materially and adversely affected.
 
34

 
We currently determine the preliminary market
value of the prospective real property collateral using external databases at the time borrowers submit
their loan applications. We also
conduct site visits to cross-check conditions and verify information of the prospective real property collateral. In addition,
we compare
the preliminary third-party appraiser report with quotes on an anonymous basis from local real estate agencies in the same neighborhood.
However, there is no assurance that we have complete and accurate information relating to the prospective real property collateral. In
addition, our trust
company partners or our commercial bank partners perform their own independent credit assessment and make the decision
on loan grants based on their
credit assessment results. If we or our trust company partners or our commercial bank partners overestimate
market value of the real property collateral, the
loans we facilitate may not be fully secured, which could affect the accuracy of our
or our trust company partners’ or our commercial bank partners’ credit
assessment and the effectiveness of our or our trust
company partners’ or our commercial bank partners’ risk management. Therefore, our reputation, and
as a result, our business
and results of operations could be materially and adversely affected.
 
Our business operations may be negatively impacted
if borrowers use loan proceeds to engage in activities prohibited or not encouraged by regulators.
 
Borrowers supply a variety of information that
is included in the standardized loan applications prepared by us, including intended use of proceeds. We
verify such information by conducting
site visits and informal interviews. As our business continues to grow and our borrower base continues to expand,
we might not have enough
resources to continuously verify or monitor the information provided by the borrowers, such as intended use of loan proceeds.
The loan
agreements our borrowers enter into limit the use of proceeds to business operation purposes, not purchase of real property or consumption.
The
trust companies have the right to require early payment if proceeds were not used for business operation purposes. However, we cannot
guarantee and may
not effectively monitor that the loan is strictly used for business operating purposes. The borrower may use loan proceeds
for other purposes with increased
risk than as originally provided or use loan proceeds to engage in activities prohibited or discouraged
by regulators. Such activities may harm our
reputation and negatively impact our business operations.
 
Fraudulent activity could negatively impact
our operating results, brand and reputation and cause the use of our loan facilitation services to decrease.
 
We are subject to the risk of fraudulent activity
associated with borrowers, our trust company partners and third parties handling borrower information.
Our resources, technologies and
fraud detection tools may be insufficient to accurately detect and prevent fraud. Significant increases in fraudulent activity
could negatively
impact our brand and reputation, reduce the volume of loan transactions facilitated through us and lead us to take additional steps to
reduce fraud risk, which could increase our costs. High-profile fraudulent activity could even lead to regulatory intervention, and may
divert our
management’s attention and cause us to incur additional expenses and costs. Although we have not experienced any material
business or reputational harm
as a result of fraudulent activities in the past, we cannot rule out the possibility that any of the foregoing
may occur, causing harm to our business or
reputation in the future. If any of the foregoing were to occur, our results of operations
and financial condition could be materially and adversely affected.
 
We are subject to credit cycle and the risk
of deterioration of credit profiles of borrowers.
 
Our business is subject to the credit cycle associated
with the volatility of the general economy. If economic conditions deteriorate, we may face
increased risk of default or delinquency of
borrowers, which will result in lower returns or losses. In the event that the creditworthiness of borrowers
deteriorates or we cannot
track the deterioration of their creditworthiness, the criteria we use for the analysis of borrower credit profiles may be rendered
inaccurate,
and our or our trust company partners’ risk management system may be subsequently rendered ineffective. This in turn may lead to
higher
delinquency ratio and adverse impacts on our reputation, business, results of operations and financial positions.
 
35

 
Our current business model has a relatively
large exposure to second lien mortgage.
 
In 2022, 2023 and 2024, loans secured by second
lien interest accounted for 60.6%, 62.9% and 57.1% of our loan origination volume of home equity
loans, respectively. For loans secured
by second lien interests, our rights over the collateral will be subordinated to other secured creditors with higher
priority. If the
borrowers default, we may not be able to collect the full amount of our security interests in the collateral due to lien subordination.
There is
no assurance that we will be able to realize the value of the collateral as we anticipated in a timely manner, or at all. As
a result, our business, financial
condition, results of operations and prospects may be adversely affected.
 
We primarily rely on our trust company partners
and our commercial bank partners to fund loans to borrowers, which may constitute provision of
intermediary service, and our agreements
with these partners and borrowers may be deemed as intermediation contracts under the Civil Code of the
People’s Republic of China
(the “Civil Code”).
 
Under the Civil Code, if an intermediary intentionally
conceals any material fact 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 shall be liable for the damages caused.
Therefore,
if we intentionally conceal material information or provide false information to our trust company partners and our commercial bank partners
and are found at fault, or if we fail to identify false information received from borrowers or others and in turn provide such information
to our trust
company partners and our commercial bank partners, we could be held liable for damages caused to our trust company partners
and our commercial bank
partners as an intermediary pursuant to the Civil Code. On the other hand, we do not assume any liability solely
on the basis of failure to correctly assign a
credit limit or pricing to a particular borrower in the process of facilitating a loan transaction,
as long as we do not intentionally conceal any material fact
intentionally or provide false information, and are not found to be at fault
otherwise. However, due to the lack of detailed regulations and guidance in the
area of home equity loans and the possibility that the
PRC government authority may promulgate new laws and regulations regulating home equity loans in
the future, there are substantial uncertainties
regarding the interpretation and application of current or future PRC laws and regulations for the home equity
loan industry, and there
can be no assurance that the PRC government authority will ultimately take a view that is consistent with ours.
 
The personal data and other confidential information
of borrowers and our partners which we collect or are provided access to may subject us to
liabilities imposed by relevant governmental
regulations or expose us to risks of cyberattacks, computer viruses, physical or electronic break-ins or
similar disruptions.
 
We receive, transmit and store a large
volume of personally identifiable information and other confidential data from borrowers and our partners. There
are numerous laws
regarding privacy and the storing, sharing, use, disclosure and protection of personally identifiable information and user data.
Specifically, personally identifiable and other confidential information is increasingly subject to legislation and regulations in
numerous domestic and
international jurisdictions, the intent of which is to protect the privacy of personal information that is
collected, processed and transmitted in or from the
governing jurisdiction. On November 28, 2019, the Secretary Bureau of the
Cyberspace Administration of China, the General Office of the Ministry of
Industry and Information Technology, the General Office of
the Ministry of Public Security and the General Office of the State Administration for Market
Regulation promulgated the
Identification Method of Illegal Collection and Use of Personal Information Through App, which provides guidance for the
regulatory
authorities to identify the illegal collection and use of personal information through mobile apps, and for the app operators to
conduct self-
examination and self-correction and for other participants to voluntarily monitor compliance. Personal Information
Protection Law stipulates that personal
information shall be processed in accordance with the principles of lawfulness, legitimacy,
necessity and good faith, and not in any manner that is
misleading, fraudulent or coercive. Collection of personal information shall
be limited to the minimum scope necessary for achieving the purpose of
processing and shall not be excessive. In addition, personal
information processing rules should be disclosed to personal information subjects, and the
purpose, method and scope of processing
should be clearly stated. While we strive to comply with all applicable data protection laws and regulations, as
well as our own
privacy policies, this regulatory framework for privacy issues in China and worldwide is currently evolving and is likely to remain
uncertain for the foreseeable future. We could be adversely affected if legislation or regulations are expanded to require changes
in business practices or
privacy policies, or if governing jurisdictions interpret or implement their legislation or regulations in
ways that negatively affect our business, financial
condition and results of operations. In addition
to laws, regulations and other applicable rules regarding privacy and privacy advocacy, industry groups or
other private parties may propose
new and different privacy standards. Because the interpretation and application of privacy and data protection laws and
privacy standards
are still uncertain, it is possible that these laws or privacy standards may be interpreted and applied in a manner that is inconsistent
with
our practices. Any inability to adequately address privacy concerns, even if unfounded, or to comply with applicable privacy or data
protection laws,
regulations and privacy standards, could result in additional cost and liability for us, damage our reputation, inhibit
the use of our platform and harm our
business. In addition, the data we possess may make us an attractive target for and potentially vulnerable
to, cyberattacks, computer viruses, physical or
electronic break-ins or similar disruptions. Furthermore, some of the data we possess
is stored on our servers, which are hosted by third parties. While we
and our third-party hosting facilities have taken steps to protect
confidential information to which we have access and we store our data in encrypted form,
our security measures may be breached in the
future. Any accidental or willful security breaches or other unauthorized access to our database could cause
confidential borrower, partner
information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information
could also
expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If our
security
measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software
are exposed and
exploited, our reputation, business and results of operations may be materially and adversely impacted.
 
36

 
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, we and our
third-party hosting facilities may be unable to anticipate these techniques or implement adequate preventative
measures. In addition,
the Administrative Measures for the Security of the International Network of Computer Information Network, effective on
December 30, 1997
and amended on January 8, 2011, require us to report any data or security breaches to the local offices of the PRC Ministry of Public
Security within 24 hours of any such breach. Any security breach, whether actual or perceived, would harm our reputation, and could cause
us to lose
borrowers and partners and adversely affect our business and results of operations. We do not have cybersecurity insurance
in case of security breach. As of
the date of this annual report, we have not experienced any material incidents of security breach.
 
Any failure by us or our third-party service
providers to comply with applicable anti-money laundering laws and regulations could damage our
reputation.
 
In cooperation with our trust company partners,
we have adopted various policies and procedures, including internal controls, “know-your-customer”
procedures, customer due
diligence and customer screening procedures, for anti-money laundering purposes. In addition, we rely on and may in the future,
rely on
other third-party service providers, in particular the custody banks and payment agents that handle the transfer of funds between borrowers
and
lenders, to have their own appropriate anti-money laundering policies and procedures. Custody banks and payment agents are subject
to anti-money
laundering obligations under applicable anti-money laundering laws and regulations and are regulated in that respect by
the PBOC. If any of our third-party
service providers fail to comply with applicable anti-money laundering laws and regulations, our reputation
could suffer and we could become subject to
regulatory intervention, which could have a material adverse effect on our business, financial
condition and results of operations. Any negative perception
of the industry, such as that arising from any failure of other home equity
loan service providers to detect or prevent money laundering activities, even if
factually incorrect or based on isolated incidents, could
compromise our image or undermine the trust and credibility we have established.
 
The PRC Anti-money Laundering Law, which became
effective in January 2007 and was amended on November 8, 2024, sets forth the principal anti-
money laundering requirements applicable
to financial institutions as well as nonfinancial 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 records and reports on large transactions and suspicious transactions. Measures for the Supervision and Administration of Combating
Money Laundering and Financing of Terrorism by Financial Institutions, effective in August 2021, provides that a financial institution
shall, according to
the provisions, establish and improve the internal control system for combating money laundering and financing of
terrorism, assess risks of money
laundering and financing of terrorism, establish a risk management mechanism commensurate with the risk
status and business scale, build an information
system for combating money laundering, and establish or designate a department and appoint corresponding personnel to effectively
perform the
obligations of combating money laundering and financing of terrorism.
 
37

 
However, as the detailed anti-money laundering
regulations of home equity loan facilitators have not been published, there is uncertainty as to how the
anti-money laundering requirements
will be interpreted and implemented, and whether home equity loan service providers like us must abide by the rules
and procedures set
forth in the PRC Anti-money Laundering Law that are applicable to nonfinancial institutions with anti-money laundering obligations.
We
cannot assure you that the anti-money laundering policies and procedures we have adopted will be effective in protecting our business
from being
exploited for money laundering purposes or will be deemed to be following applicable anti-money laundering implementing rules
if and when adopted.
 
The collaboration model we have in place with
our sales partners to acquire borrowers might be regarded as financial marketing and might face
compliance risks.
 
The People’s Bank of China, the China Banking
Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State
Administration of Foreign Exchange have issued
notice on further regulating financial marketing and publicity activities on December 20, 2019, which
took effect on January 25, 2020.
It is stipulated that financial marketing and publicity activities refer to the activities of financial product or financial
service providers
using various publicity tools or methods to publicize and promote financial products or financial services, and it is illegal to engage
in
financial business without a business license or beyond the permitted business scope, and market entities that fail to obtain relevant
financial business
qualifications shall not conduct marketing and publicity activities relating to the financial business, except that
information release platforms and media
entrusted by relevant financial business qualifications may carry out financial marketing and
publicity activities for them.
 
We currently collaborate with our sales partners
on the promotion of real estate mortgage loan projects, and we introduce borrowers to the trust
companies. As the above notice is broad
in regulatory scope and still evolving, we cannot guarantee you that the marketing activities of us or our sales
partners will not be
regarded as financial marketing and publicity activities. If the marketing activities of us or our sales partners are found to be in
violation
of the above notice, we may be penalized by relevant authorities and our marketing activities may be suspended, which could adversely
affect our
business operations.
 
The collecting, storing and sharing of information
among us, our sales partners and the trust companies might face compliance risks.
 
The PBOC and the National Financial Standardization
Technical Committee released the Personal Financial Information Protection Technical
Specifications (“Specifications”) on
February 13, 2020, according to which financial institutions shall not entrust or authorize other institutions, without the
qualification
for financial business, to collect information such as bank account information, personal identification number, mobile phone number,
KYC
information, home address and other information that is linked to the identity of a specific individual. Financial institutions shall
also forbid outsourcing
service agencies and external service agencies through agreements or contracts to store such information.
 
On 26, December, 2022, China Banking and Insurance
Regulatory Commission (“CBIRC”) issued the Administrative Measures for the Protection of
Consumer Rights and Interests by
Banking and Insurance Institutions. According to such Administrative Measures, banking institutions shall establish a
management mechanism
for the list of cooperating institutions and strengthen the ongoing management of cooperating institutions, and set entry and exit
criteria
for cooperating institutions on matters involving consumer rights and interests, such as the security of consumers’ personal information.
 
On December 27, 2024, China’s National Financial
Regulatory Administration (NFRA) issued the Administrative Measures for Data Security of
Banks and Insurance Institutions (“Measures”).
The Measures require that banking and trust institutions shall strengthen the access control and security
management of suppliers when
sensitive or higher-level data are involved in supply chain services. Banking and trust institutions shall formulate
centralized approval
management systems for external data procurement and cooperative introduction, incorporate them into the outsourcing risk
management system
for overall management, and comprehensively establish management mechanisms for data requirements, security assessment,
collection
and introduction, data operation and maintenance, registration and filing, and supervision and evaluation. Banking and trust institutions
shall
investigate the authenticity and legality of data sources, assess the security guarantee capabilities and data security risks of
data providers, and clarify the
data security responsibilities and obligations of both parties.
 
38

 
As of the date hereof, there is no such terms
or provisions that we are entrusted or authorized to collect such information from the borrower by the trust
companies and commercial
banks in the agreements between us and the trust companies and commercial banks. We have collected information from the
borrowers with
the borrowers’ express consent. Although the Specifications are a recommended industry standard and have no mandatory legal force,
but
they might still be referred to by regulatory agencies. Therefore, if our collecting, storing and sharing of the borrower’s
above-mentioned information are
found to be in violation of the laws, it could have an adverse impact on our business model and adversely
affect our business operations, especially in terms
of our collaboration model with commercial bank partners.
 
The Administrative Measures for Credit Reporting
Business may have a certain negative impact on our business, and we may face challenges from the
regulatory authorities.
 
The Administrative Measures for Credit Reporting
Business, which were adopted on September 17, 2021, are promulgated for implementation as of
January 1, 2022. For the purpose of the measures,
credit reporting business refers to activities in which credit information on enterprises and individuals is
collected, arranged, preserved,
processed, and provided to users; Credit information refers to basic information, loan information, and other relevant
information
collected in accordance with the law and used to identify and judge the credit status of enterprises and individuals when providing services
for
financial and other activities, as well as analysis and evaluation information formed based on the foregoing information. Also, an
applicant shall obtain the
permission for a personal credit reporting agency from the People’s Bank of China in accordance with
the law to engage in personal credit reporting
business; handle the record-filing of a corporate credit reporting agency in accordance
with the law to engage in corporate credit reporting business; or
handle the record-filing of a credit rating agency in accordance
with the law to engage in credit rating business. Financial institutions, including but not
limited to commercial banks and trust companies,
shall not carry out commercial cooperation with market institutions that have not obtained the lawful
qualifications for credit reporting
business in accessing credit information.
 
As we are in the process of loan facilitation
for trust companies or commercial banks, we may involve the collection and provision of borrowers’
information. Our PRC legal
advisor, Global Law Office, believes that we have not arranged or processed the borrower’s credit information while
conducting
business, and we are not engaged in personal credit investigation business. However, since the measures are relatively new and the relevant
interpretation is uncertain, we are not sure whether the regulatory authorities would take our business as credit investigation service,
or would require us to
obtain relevant licenses, to cooperate with third-party credit investigation agencies. As of the date of this
annual report, we have not received warnings,
penalties, or objections to our business. However, if the business we carry out is regarded
as credit investigation business by the regulatory authorities, we
may be required to adjust our existing business model within certain
period to comply with the authorities’ regulations, which may increase our operating
cost. If the adjustments and the rectification
cannot be completed within the prescribed period, we may face administrative penalties such as being banned
in accordance with the law,
confiscation of illegal gains, fines, etc.
 
If we are unable to maintain relationships with
our third-party service providers, our business will suffer.
 
We rely on third-party service providers to operate
various aspects of our business. For instance, third parties supply us with external data including
real property valuation, borrowers’
credit histories, government data and blacklists. Furthermore, we engage third-party service providers to maintain our
security systems,
ensuring confidentiality of data and preventing malicious attacks.
 
Our relationships with various third parties are
integral to the smooth operation of our business. Most of our agreements with third-party service
providers are nonexclusive and do not
prohibit third-party service providers from working with our competitors. If our relationships with third-party service
providers deteriorate
or third-party service providers decide to terminate our respective business relationships for any reason, such as to work with our
competitors
on more exclusive or more favorable terms, our operations may be disrupted. In addition, our third-party service providers may not uphold the
standard we expect under our agreements.
If any of these were to happen, our business operations could be materially impaired and our results of
operations would suffer.
 
39

 
Misconduct, fraud, errors and failure to function
by our employees or third-party service providers could harm our business and reputation
 
We are exposed to the risk of misconduct, fraud
and errors by our employees and third-party service providers with whom we collaborate. In addition,
we rely on our employees for debt
collection. We aim to ensure that our collection efforts comply with the relevant laws and regulations in the PRC and we
have established
strict policies that our employees should not engage in aggressive practices while performing debt collection. Nevertheless, we do not
have full control over our employees. Misconduct and errors by our employees could result in violations of law by us, regulatory sanctions
and/or serious
reputational or financial harm. We cannot always deter misconduct and errors by our employees, and the precautions we take
to prevent and detect these
activities may not be effective in all cases. There cannot be any assurance that misconduct and errors by
our employees will not lead to a material adverse
effect on our business. Any of these occurrences could result in our diminished ability
to operate our business, potential liability to third parties, inability to
attract borrowers and funding sources, reputational damage,
regulatory intervention and financial harm, which could negatively impact our business,
financial condition and results of operations.
 
Misconduct and errors by our trust company partners,
commercial bank partners, sales partners and other parties with whom we collaborate with could
harm our business and reputation.
 
We are exposed to the risk of misconduct and errors
by our trust company partners, commercial bank partners, sales partners and other business
partners with whom we collaborate. We rely
on our sales partners for borrower acquisition and we do not have full control over sales partners’ conduct or
conduct of their
respective acquisition channels while sourcing borrowers. We could be materially and adversely affected 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 our operations or systems. Financial products and financial institutions
are heavily regulated in China.
For example, the Administrative Measures for Working Capital Loans, the Administrative Measures for Fixed
Asset Loans and the Administrative
Measures for Personal Loans, which came into effect on July 1, 2024, have strengthened the management
requirements for personal loan operations at
banking institutions. These measures have clarified or adjusted business processes such as
loan amounts, loan terms, and payment methods. We are not
regulated as a financial institution, but we may be indirectly subject to PRC
financial regulations as a result of cooperation with financial institutions as our
funding source partners. If any financial product
designed by us and our funding partners is deemed to violate any PRC laws or regulations, we may be
jointly liable due to the service
we provide, or we may have to terminate the relationship with our funding partners. It is not always possible to identify and
deter misconduct
or errors by our trust company partners, commercial bank partners, sales partners and other business partners, and the precautions we
take
to detect and prevent such activities may not be effective in controlling unknown or unmanageable risks or losses. If any of our
funding partners, sales
partners and other business partners misuse or misappropriate funds, commit fraud or other misconduct, or fail
to follow our rules and procedures when
interacting with our borrowers, we could be liable for damages and subject to regulatory actions
and penalties. We could also be perceived to have
facilitated or participated in the illegal misappropriation of funds, documents or data,
and therefore be subject to civil or criminal liability. Any of these
occurrences could result in our diminished ability to operate our
business, potential liability to third parties, inability to attract third parties, reputational
damage, regulatory intervention or financial
harm, which could negatively impact our business, financial condition and results of operations.
 
If we do not compete effectively in our target
markets, our operating results could be harmed.
 
The PRC’s home equity loan market is rapidly
evolving. We compete with financial products and companies that attract potential borrowers or funding
sources, or both. Particularly,
we compete with other financial service companies that facilitate home equity loans.
 
Some of our current or potential competitors have
significantly more financial, technical, marketing and other resources than we do and may be able to
devote greater resources to the development,
promotion, sale and support of their platforms and distribution channels. Their business models
may also
ultimately prove more successful or more adaptable to new regulatory, technological and other developments. Our current or potential
competitors may also
have longer operating histories, a more extensive borrower base, more data and distribution channels, greater brand
recognition and brand loyalty and
broader partnership relationships than we have. For example, established internet companies, including
social media companies that possess large, existing
borrower bases, substantial financial resources and established distribution channels,
may enter the market. Traditional financial institutions may also focus
on the MSE market, which may have a material adverse impact on
our business and results of operations as we may not necessarily have competitive
advantage. Our competitors may be better at developing
new products, responding quickly to new technologies and undertaking more extensive marketing
campaigns. If we are unable to compete with
such companies or meet the need for innovation in our industry, the demand for our services could stagnate or
substantially decline and
we could experience reduced operating income, any of which could harm our business.
 
40

 
When new competitors seek to enter our target
market, or when existing market participants seek to increase their market share, they sometimes
undercut the pricing and/or terms common
in that market, which could adversely affect our market share or ability to exploit new market opportunities. In
addition, since the home
equity loan lending industry is a relatively recent development in China, potential partners and borrowers may not fully
understand how
our business works and may not be able to fully appreciate the features that we have invested in and adopted on our business as compared
to other home equity loan service providers. Our pricing and terms could deteriorate if we fail to act to meet these competitive challenges.
Further, to the
extent that our competitors are able to offer more attractive terms to our trust company partners, such trust companies
may choose to terminate their
relationships with us. All of the foregoing could adversely affect our business, results of operations,
financial condition and future growth.
 
If negative publicity arises with respect to
us or the home equity loan lending industry in general, our employees, our third-party service providers or
our trust company partners,
our business and operating results could be adversely affected.
 
If negative publicity arises about the home equity
loan lending industry or the secured lending industry in general in China or our company, including
the quality, effectiveness and reliability
of our business, our ability to effectively manage and resolve borrower complaints, privacy and security practices,
litigation, regulatory
challenges and the experience of borrowers with our services, even if inaccurate, could adversely affect our reputation and the
confidence
in, and the use of, our services, which could harm our business and operating results. The PRC government has recently instituted general
regulations and specific rules, including the Guiding Opinion, to develop a more transparent regulatory environment for assets management
products. See
“Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Our business may be adversely
affected if we are unable to secure funding
on terms acceptable to us or our borrowers, or at all.” Many companies in China’s
home equity loan lending industry have not been fully compliant with
these regulations, which prevents these companies from providing
home equity loans. To the extent that borrowers associate our company with these failed
companies, they may be less willing to use our
services. Harm to our reputation can also arise from many other sources, including employee misconduct,
misconduct by our partners, or
third-party service providers, failure by us, our partners or third-party service providers to meet minimum standards of
service and quality,
inadequate protection of borrower and partner information and compliance failures and claims. Additionally, negative publicity with
respect
to our partners or service providers could also affect our business and operating results to the extent that we rely on these partners
or if borrowers
associate our company with these partners.
 
If we fail to promote and maintain our brand
in an effective and cost-efficient way, our business and results of operations may be harmed.
 
Our brand and reputation are integral to our acquisition
of borrowers and funding sources, and we intend to invest in marketing and brand promoting
efforts. The success of our marketing efforts
and borrowing experience with our services are integral to our ability to attract new and retain repeat
borrowers. Our marketing channels
include traditional media such as telephone marketing and direct sales conducted by sales partners, and marketing
campaigns, as well as
online media, search engine optimization and search engine marketing. If our current marketing efforts and channels are less
effective
or inaccessible to us, or if the cost of such channels significantly increases or we cannot penetrate the market with new channels, we may
not be
able to promote and maintain our brand and reputation to maintain or grow the existing borrower base. If we are unable to promote
and maintain our brand
and reputation in a cost-efficient manner, our market share could diminish or we could experience a lower growth
rate than we anticipated, which would
harm our business, financial condition and results of operations.
 
41

 
Any failure to protect our own intellectual
property rights could impair our brand, negatively impact our business or both.
 
Our success and ability to compete also depend
in part on protecting our own intellectual property. We rely on a combination of copyright, trade secret,
trademark and other rights,
as well as confidentiality procedures and contractual provisions to protect our proprietary technology, processes and other
intellectual
property. However, the steps we take to protect our intellectual property rights may be inadequate. Third parties may seek to challenge,
invalidate or circumvent our copyright, trade secret, trademark and other rights or applications for any of the foregoing. In order to
protect our intellectual
property rights, we may be required to spend significant resources. Litigation brought to protect and enforce
our intellectual property rights could be costly,
time-consuming and distracting to management. Our failure to secure, protect and enforce
our intellectual property rights could seriously adversely affect
our brand and adversely impact our business.
 
We may be sued by third parties for alleged
infringement of their proprietary rights, which could harm our business.
 
Our competitors, as well as a number of other
entities and individuals, may own or claim to own intellectual property relating to our industry. From
time to time, third parties may
claim that we are infringing on their intellectual property rights. We may, however, be unaware of the intellectual property
rights that
others may claim cover some or all of our applications, technology or services. Any claims or litigation could cause us to incur significant
expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, restrict
us from conducting
our business or require that we comply with other unfavorable terms. We may also be obligated to indemnify parties
or pay substantial settlement costs,
including royalty payments, in connection with any such claim or litigation and to obtain licenses,
modify applications or refund fees, which could be
costly. Even if we were to prevail in such a dispute, any litigation regarding our
intellectual property could be costly and time-consuming and divert the
attention of our management from our business operations.
 
We have existing debts and may incur more in
the future, which may adversely affect our financial condition and negatively impact our operations.
 
We have substantial existing debts and we may
incur more in the future. The incurrence of debt could have a variety of negative effects, including:
 
●
default and foreclosure on our assets if our operating income is insufficient to repay debt obligations;
 
●
acceleration of obligations to repay the indebtedness (or other outstanding indebtedness), even if we make all principal and interest
payments
when due, if we breach any covenants that require the maintenance of certain financial ratios or reserves without a waiver or
renegotiation of that
covenant;
 
●
our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such
financing while
the debt security is outstanding;
 
●
diverting a substantial portion of cash flow to pay principal and interest on such debt, which would reduce the funds available for
expenses, capital
expenditures, acquisitions and other general corporate purposes; and
 
●
creating potential limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which
we operate.
 
The occurrence of any of these risks could adversely
affect our operations or financial condition.
 
42

 
Our business depends on the continued efforts
of our senior management. If one or more of our key executives were unable or unwilling to continue in
their present positions, our business
may be severely disrupted.
 
Our business operations depend on the continued
services of our senior management, particularly the executive officers named in this annual report.
While we have provided different incentives
to our management, we cannot assure you that we can continue to retain their services. If one or more of our
key executives were unable
or unwilling to continue in their present positions, we may not be able to replace them easily or at all, our future growth may be
constrained,
our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected,
and we
may incur additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into confidentiality
and noncompetition
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.
 
We may have exposure to greater than anticipated
tax liabilities.
 
We are subject to enterprise income tax, value-added
tax, and other taxes in each province and city in China where we have operations. Our tax
structure is subject to review by various local
tax authorities. The determination of our provision for income tax and other tax liabilities requires significant
judgment. In the ordinary
course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although
we believe
our estimates are reasonable, the ultimate decisions by the relevant tax authorities may differ from the amounts recorded in our financial
statements and may materially affect our financial results in the period or periods for which such determination is made.
 
Certain of our leased properties may have defective
titles and we may be forced to relocate operations affected by such defects, which could cause
disruption to our business and have a negative
impact on our business operations and financial condition.
 
As of December 31, 2024, we operated our businesses
primarily in over 106 leased properties in Shenzhen, Guangzhou, Chongqing, Beijing and other
cities in China. We have not signed lease
contracts or not renewed expired lease contracts with respect to a small portion of such leased properties, and we
may be forced to relocate
if the lessors request us to leave the premises. With respect to a small portion of such leased properties, the lessors failed to
provide
title certificates evidencing property ownership of these lessors. According to PRC laws and regulations, where a landlord lacks title
evidence or
rights to lease, the relevant lease contracts may be void or unenforceable under PRC laws and regulations, and may also be
subject to challenge by third
parties. Moreover, a small portion of the leased properties are mortgaged by the lessors. In case the mortgagees
enforce the mortgage, we may not be able
to continue using our leased properties. In addition, a small portion of our lease contracts
have not been registered with the relevant regulatory authorities.
According to PRC laws and regulations, failure to register lease contracts
will not affect the effectiveness. However, landlords and tenants may be subject
to administrative fines for such failure.
 
As of the date of this annual report, we are not aware of any action,
claim or investigation being conducted or threatened by the relevant regulatory
authorities with respect to defects in our leased contracts
or leased properties. However, we cannot assure you that such defects will be cured in a timely
manner, or at all. Our business may be
interrupted and additional relocation costs may be incurred if we are required to relocate operations affected by such
defects. Moreover,
if our lease contracts are challenged by third parties, it could result in diversion of management attention and cause us to incur costs
associated with defending such actions, even if such challenges are ultimately determined in our favor.
 
Competition for employees is intense, and we
may not be able to attract and retain the qualified and skilled employees needed to support our business.
 
We believe our success depends on the efforts
and talent of our employees, including risk management, software engineering, financial and marketing
personnel. Our future success depends
on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for
highly skilled technical,
risk management and financial personnel is extremely intense. We may not
be able to hire and retain these personnel at
compensation levels consistent with our existing compensation and salary structure. Some
of the companies with which we compete for experienced
employees have greater resources than we have and may be able to offer more attractive
terms of employment. In addition, we invest significant time and
expenses in training our employees, which increases their value to competitors
who may seek to recruit them. If we fail to retain our employees, we could
incur significant expenses in hiring and training new employees,
and the quality of our services and our ability to serve borrowers and our partner funding
sources could diminish, resulting in a material
adverse effect to our business.
 
43

 
Increases in labor costs in the PRC may adversely
affect our business and results of operations.
 
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,
we are required by PRC laws and regulations to pay various statutory employee benefits, including pension, housing fund,
medical insurance,
work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of
our
employees. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to control
our labor
costs or pass on these increased labor costs to borrowers by increasing the fees of our services, our financial condition and
results of operations may be
adversely affected.
 
If we cannot maintain our corporate culture
as we grow, we could lose the innovation, collaboration and focus that contribute to our business.
 
We believe that a critical component of our success
is our corporate culture, which we believe fosters innovation, encourages teamwork and cultivates
creativity. As we develop the infrastructure
of a public company and continue to grow, we may find it difficult to maintain these valuable aspects of our
corporate culture. Any failure
to preserve our culture could negatively impact our future success, including our ability to attract and retain employees,
encourage innovation
and teamwork and effectively focus on and pursue our corporate objectives.
 
We do not have any business 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 any business
liability or disruption insurance to cover our 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 us to have such insurance. Any
uninsured
business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect
on our
results of operations and financial condition.
 
If we fail to implement and maintain an effective
system of internal controls, we may be unable to accurately or timely report our results of operations
or prevent fraud, and investor
confidence and the market price of our ADSs may be materially and adversely affected.
 
Since the completion of our initial public offering,
we have become a public company in the United States subject to the Sarbanes-Oxley Act of 2002.
Section 404 of the Sarbanes-Oxley Act
of 2002, or Section 404, requires that we include a report from management on our internal control over financial
reporting in our annual
report on Form 20-F. In addition, we ceased to be an “emerging growth company” as such term is defined in the JOBS Act on
December 31, 2023. Our independent registered public accounting firm must attest to and report on the effectiveness of our internal control
over financial
reporting beginning with the annual report for the fiscal year ending December 31, 2023. Our management may conclude that
our internal control over
financial reporting is not effective. Moreover, even if our management concludes that our internal control over
financial reporting is effective, our
independent registered public accounting firm, after conducting its own independent testing, may
issue a report that is qualified if it is not satisfied with our
internal controls or the level at which our controls are documented,
designed, operated or reviewed, or if it interprets the relevant requirements differently
from us. In addition, since we have become a
public company, our reporting obligations may place a significant strain on our management, operational and
financial resources and systems
for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
 
44

 
During the course of documenting and testing our
internal control procedures, in order to satisfy the requirements of Section 404, we may identify
weaknesses and deficiencies in our internal
control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over
financial reporting, as
these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that
we have
effective internal control over financial reporting in accordance with Section 404. Generally speaking, if we fail to achieve and maintain
an
effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting
obligations, which
would likely cause investors to lose confidence in our reported financial information. This could, in turn, limit our
access to capital markets, harm our
results of operations and lead to a decline in the trading price of our ADSs. Additionally, ineffective
internal control over financial reporting could expose
us to increased risk of fraud or misuse of corporate assets and subject us to potential
delisting from the stock exchange on which we list, regulatory
investigations and civil or criminal sanctions.
 
We will continue to incur increased costs as
a result of being a public company, particularly since we have ceased to qualify as an “emerging growth
company.”
 
Since the completion of our initial public offering,
we have become a public company and have incurred significant legal, accounting and other
expenses that we did not incur as a private
company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the New
York Stock Exchange, impose
various requirements on the corporate governance practices of public companies. An emerging growth company may take
advantage of specified
reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include
exemption
from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the
emerging growth company’s internal control over financial reporting. The JOBS Act also permits an emerging growth company to delay
adopting new or
revised accounting standards until such time as those standards apply to private companies. However, we have elected to
“opt out” of this provision and, as
a result, we have been complying with new or revised accounting standards as required
when they were adopted for public companies.
 
Since we have ceased to be an “emerging
growth company,” we have incurred significant expenses and devote substantial management effort toward
ensuring compliance with
the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a result of becoming a public
company,
we need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures.
We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer
liability insurance,
and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain
the same or similar coverage. In addition,
we will incur additional costs associated with our public company reporting requirements. It
may also be more difficult for us to find qualified persons to
serve on our Board of Directors or as executive officers. 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.
 
We have granted, and may continue to grant,
share incentives, which may result in increased share-based compensation expenses.
 
We adopted an equity incentive plan in 2018, or
the 2018 Plan, for the purpose of granting share-based compensation awards to employees, officers,
directors and consultants to incentivize
their performance and promote the success of our business.
 
We account for compensation costs for all share-based awards using
a fair-value-based method and recognize expenses in our consolidated statements
of comprehensive income in accordance with U.S. GAAP.
Under the 2018 Plan, we are authorized to grant options, restricted stock units and other types of
awards the administrator of the 2018
Plan decides. Under the 2018 Plan, the maximum aggregate number of shares which may be issued pursuant to all
awards is 307,608,510 shares.
As of the date of this annual report, options to purchase a total of 307,608,510 ordinary shares were outstanding under the
2018 Plan.
We believe the granting of share-based awards is of significant importance to our ability to attract and retain key personnel and employees,
and
we will continue to grant share-based awards in the future. As a result, our expenses associated with share-based compensation may
increase, which may
have an adverse effect on our results of operations.
 
45

 
Certain of our existing shareholders have substantial
influence over our company, and their interests may not be aligned with the interests of our other
stockholders.
 
Kylin Investment Holdings Limited, a company incorporated
in the British Virgin Islands, holds 17.8% of our ordinary shares. As a result, each
shareholder has significant influence over our business,
including decisions regarding mergers, consolidations, liquidations and the sale of all or
substantially all of our assets, election of
directors and other significant corporate actions. This concentration of ownership may also have the effect of
discouraging, delaying
or preventing a future change of control, which could deprive our stockholders of an opportunity to receive a premium for their
shares
as part of a sale of our company, and might reduce the price of our ADSs.
 
Failure to make adequate contributions to various
employee benefits plans as required by PRC regulations may subject us to penalties.
 
Companies operating in China are required to participate
in various government-sponsored employee benefit plans, including social insurance plans,
unemployment insurance, medical insurance, work-related
injury insurance, maternity insurance, housing provident fund 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 local government from time to time at locations where our employees are based. The requirement of employee benefit
plans has not been
implemented consistently by the local governments in China given the different levels of economic development in different locations.
Our failure in making adequate contributions to various employee benefit plans and in complying with applicable PRC labor-related laws
may subject us to
late payment penalties, and we could be required to make up the contributions for these plans as well as to pay late
fees and fines. If we are subject to late
fees or fines in relation to the underpaid employee benefits, our financial condition and results
of operations may be adversely affected.
 
Our branches have not made full contributions to the social insurance
plans and the housing provident fund for employees as required by the relevant
PRC laws and regulations. As of the date of this annual
report, we are not aware of any notice from regulatory authorities or any claim or request from
these employees in this regard. However,
we cannot assure you that the relevant regulatory authorities will not require us to pay outstanding amounts and
impose late payment penalties
or fines on us, which may materially and adversely affect our business, financial condition and results of operations.
 
The inconsistency of domicile and place of business
of our PRC subsidiaries may have a material adverse effect on our business and operations.
 
Substantially all of our assets and operations are located in China.
We have developed a network of 52 branches and sub-branches in over 50 cities in
China. According to the PRC laws and regulations, the
domicile and the place of business of our PRC subsidiaries should be the same. As our business
grows rapidly, we may change the place
of business according to market development strategy. We cannot assure you that the domicile of all the PRC
subsidiaries, branches and
sub-branches are consistent with the place of their business. In the event that our PRC subsidiaries, branches and sub-branches
cannot
be reached by relevant regulatory authorities at the domicile or place of business they provided, such subsidiaries, branches or sub-branches
may be
included in the unusual operation enterprise list, and may be required to rectify or may be imposed with penalties, which may adversely
affect our business
and results of operations.
 
From time to time we may evaluate and enter
into strategic alliances, which could divert significant management attention and resources, disrupt our
business and adversely affect
our financial results.
 
We may from time to time evaluate and enter into
strategic alliances with various third parties. Strategic alliances with third parties could subject us to
a number of risks, including
the potential failure to achieve the expected benefits of the alliance, risks associated with potential leakage of proprietary
information,
nonperformance by the counterparty and an increase in expenses incurred in establishing new strategic alliances, any of which may materially
and adversely affect our business. Strategic alliances will also divert the management’s time and resources from our normal operations
and we may have to
incur unexpected liabilities or expenses.
 
46

 
Risks Related to Our American Depositary Shares
 
The trading price of our ADSs may be volatile,
which could result in substantial losses to investors.
 
The trading price of our ADSs have been, and is
likely to continue to be, volatile and could fluctuate widely due to factors beyond our control. This
may happen because of broad market
and industry factors, including the performance and fluctuation of the market prices of other companies with business
operations located
mainly in China that have listed their securities in the United States. In addition to market and industry factors, the price and trading
volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:
 
●
variations in our earnings and cash flows;
 
●
announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;
 
●
announcements of new offerings, solutions and expansions by us or our competitors;
 
●
changes in financial estimates by securities analysts;
 
●
detrimental adverse publicity about us, our services or our industry;
 
●
announcements of new regulations, rules or policies relevant for our business;
 
●
additions or departures of key personnel;
 
●
our share repurchase program;
 
●
release of lockup or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;
and
 
●
potential litigation or regulatory investigations.
 
Any of these factors may result in large and sudden
changes in the volume and price at which our ADSs will trade.
 
In the past, shareholders of public companies
have often brought securities class action suits against those companies following periods of instability in
the market price of their
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 and require us to incur significant expenses to defend the suit, which could harm our results
of operations. 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.
 
If securities or industry analysts do not publish
research or reports about our business, or if they adversely change their recommendations regarding
the ADSs, the market price for the
ADSs and trading volume could decline.
 
The trading market for the ADSs will be influenced
by research or reports that industry or securities analysts publish about our business. If one or more
analysts who cover us downgrade
the ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail to
regularly
publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume
for the ADSs
to decline.
 
47

 
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, 2024, we
had 1,371,643,240 ordinary shares outstanding. Among these shares, 823,681,600 ordinary shares are in the
form of ADSs. All of our ADSs
sold in our initial public offering will be 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 will be
available for sale, upon the expiration of the lock-up periods described elsewhere in this annual report beginning
from May 5, 2019 (if applicable to such
holder), subject to volume and other restrictions as applicable under Rules 144 and 701 under
the Securities Act. Any or all of these ordinary shares may be
released prior to the expiration of the applicable lock-up period at the
discretion of the designated representatives. To the extent shares are released before
the expiration of the applicable lock-up period
and sold into the market, the market price of our ADSs could decline significantly.
 
Certain major holders of our ordinary shares have
the right to cause us to register under the Securities Act the sale of their shares, subject to the
applicable lock-up periods in connection
with our initial public offering. 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. We adopted
an equity
incentive plan in 2018, or the 2018 Plan, under which we have the discretion to grant a broad range of equity-based awards to
eligible participants. See
“Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.”
We have registered certain ordinary shares that we
may issue under our share incentive plans and intend to register all ordinary shares
that we may issue under our share incentive plans. Once we register
these ordinary shares, they can be freely sold in the public market
in the form of ADSs upon issuance, subject to volume limitations applicable to affiliates
and relevant lock-up agreements. If a large
number of our ordinary shares or securities convertible into our ordinary shares are sold in the public market in
the form of ADSs after
they become eligible for sale, the sales could reduce the trading price of our ADSs and impede our ability to raise future capital. In
addition, any ordinary shares that we issue under our share incentive plans would dilute the percentage ownership held by the investors
who purchased
ADSs.
 
We cannot guarantee that any share repurchase
program will be fully consummated or that any share repurchase program will enhance long-term
shareholder value, and share repurchases
could increase the volatility of the price of our ordinary shares and/or ADSs and could diminish our cash
reserves.
 
On March 16, 2022, our board of directors authorized a share repurchase
program whereby our company was authorized a share repurchase program
under which the Company may repurchase up to US$20.0 million of
its ordinary shares in the form of ADSs during a period of up to 12 months
commencing on March 16, 2022. On March 16, 2023, the Company’s
board of directors authorized to extend the share repurchase program for 12 months
commencing on March 16, 2023. On March 16, 2024, the
Company’s board of directors authorized to extend the share repurchase program for 24 months
commencing on March 16, 2024. As of
December 31, 2024, our Company had repurchased a total of 6.85 million ADSs at an aggregate amount of
US$17.83 million.
 
Our board of directors also has the discretion
to authorize additional share repurchase programs in the future. The share repurchase programs do not
obligate us to repurchase any specific
dollar amount or to acquire any specific number of ADSs and/or shares. We cannot guarantee that any share
repurchase program will enhance
long-term shareholder value. The share repurchase programs could affect the price of our listed securities and increase
volatility and
may be suspended or terminated at any time, which may result in a decrease in the trading price of our ordinary shares and/or ADSs.
Furthermore,
share repurchases could increase the volatility of the price of our ordinary and/or ADSs could diminish our cash reserves.
 
Techniques employed by short sellers may drive
down the market price of the ADSs.
 
Short selling is the practice of selling securities
that the seller does not own but rather has borrowed from a third party with the intention of buying
identical securities back at a later
date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of
the borrowed
securities and the purchase of the replacement shares, as the short seller expects to
pay less in that purchase than it received in the sale. As it
is in the short seller’s interest for the price of the security to
decline, many short sellers publish, or arrange for the publication of, negative opinions
regarding the relevant issuer and its business
prospects in order to create negative market momentum and generate profits for themselves after selling a
security short. These short
attacks have, in the past, led to selling of shares in the market.
 
48

 
Public companies that have substantially all of
their operations in China have been the subject of short selling. Much of the scrutiny and negative
publicity has centered on allegations
of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and
mistakes, inadequate
corporate governance policies or a lack of adherence thereto, and, in many cases, allegations of fraud. As a result, many of these
companies
are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits
and/or SEC
enforcement actions.
 
It is not clear what effect such negative publicity
could have on us. If we were to become the subject of any unfavorable allegations, whether such
allegations are proven to be true or untrue,
we could have to expend a significant amount of resources to investigate such allegations and/or defend
ourselves. While we would strongly
defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the
relevant short seller
by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and
time-consuming, and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless,
allegations against us could severely impact our business operations, and any investment in the ADSs could be greatly reduced or even
rendered worthless.
 
Because we do not expect to pay dividends in
the foreseeable future, you must rely on a price appreciation of the ADSs for a return on your investment.
 
We currently intend to retain most, if not all,
of our available funds and any future earnings to fund the development and growth of our business. As a
result, we do not expect to pay
any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in the ADSs as a source for
any future dividend
income.
 
Our Board of Directors has complete discretion
as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In
addition, our shareholders may, subject
to the provisions of our second amended and restated memorandum and articles of association, by ordinary
resolution, declare a dividend,
but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands
company may pay a dividend
out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result
in our being
unable to pay its debts as they fall due in the ordinary course of business. Even if our Board of Directors decides to declare and pay
dividends,
the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our
capital requirements and surplus,
the amount of distributions, if any, received by us from our subsidiaries, our financial condition,
contractual restrictions and other factors deemed relevant
by our Board of Directors. Accordingly, the return on your investment in the
ADSs will likely depend entirely upon any future price appreciation of the
ADSs. There is no guarantee that the ADSs will appreciate in
value 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 the ADSs.
 
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 with limited
liability incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our
second amended and restated
memorandum and articles of association, the Companies Act (as amended) of the Cayman Islands and the common law of the
Cayman
Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary
duties of our
directors to us under Cayman Islands law are governed by our second amended and restated memorandum and articles of
association, the Companies Act
(as amended) of the Cayman Islands and 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 compared to U.S. law) as
well as from the common law of England. The decisions of
the English courts are of highly persuasive authority, but are not binding,
on a court in the Cayman Islands (except for those decisions handed down from
Judicial Committee of the Privy Council
to the extent that these have been appealed from the Cayman Islands courts. The rights of our shareholders and the
fiduciary duties of
our directors under Cayman Islands law are broadly similar to those in other common law jurisdictions, but there may be differences in
the statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed
body of securities laws
than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted
bodies of corporate law than the Cayman
Islands. In addition, if shareholders want to proceed against the Company outside of the Cayman
Islands, they will need to demonstrate that they have
standing to initiate a shareholders derivative action in a federal court of the
United States.
 
49

 
Shareholders of Cayman Islands exempted companies
like us have no general rights under Cayman Islands law to inspect corporate records or to
obtain copies of lists of shareholders of these
companies save for some exceptions. Our directors have discretion under our second 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 motion or to solicit proxies from other shareholders in connection with a proxy contest.
 
Your rights to pursue claims against the depositary
as a holder of ADSs are limited by the terms of the deposit agreement.
 
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. Notwithstanding the foregoing, the depositary may, in its
sole
discretion, elect to institute any action, controversy, claim or dispute directly or indirectly based on, arising out of or relating
to the deposit agreement or the
ADRs or the transactions contemplated thereby in any competent court in the Cayman Islands, Hong Kong,
the People’s Republic of China and/or the
United States, or, by having such disputes referred to and finally resolved by an arbitration
either in New York, New York or in Hong Kong, subject to
certain exceptions solely related to the aspects of such claims that are related
to U.S. federal securities law, in which case the resolution of such aspects
may, at the option of such registered holder of the ADSs,
remain in state or federal court in New York, New York. 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-American Depositary Shares” for more information.
 
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 ordinary shares provides that, to the fullest extent permitted by applicable law, ADSs
holders waive the right to a jury trial of
any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the
deposit agreement, including
any claim under the U.S. federal securities laws. The waiver to right to a jury trial of the deposit agreement is not intended to
be deemed
a waiver by any holder or beneficial owner of ADSs of our or the depositary’s compliance with the U.S. federal securities laws and
the rules and
regulations promulgated thereunder.
 
If we or the depositary opposed a jury trial demand
based on the waiver, the court would determine whether the waiver was enforceable based on the
facts and circumstances of that case in
accordance with the applicable state and federal law. The enforceability of a contractual pre-dispute jury trial waiver
in connection
with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we
believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of
New York, which govern
the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision,
courts will generally consider whether a
party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that
this is the case with respect to the deposit agreement and the
ADSs. It is advisable that you consult legal counsel regarding the jury
waiver provision before investing in the ADSs.
 
50

 
If you or any other holders or beneficial owners
of ADSs bring 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 a different outcome than a trial by jury would have
had, including results that could be less
favorable to the plaintiff(s) in any such action.
 
Certain judgments obtained against us by our
shareholders may not be enforceable.
 
We are a Cayman Islands exempted company with
limited liability and substantially all of our assets are located outside of the United States.
Substantially all of our current operations
are conducted in China. In addition, most of our current directors and officers are nationals and residents of
countries other than the
United States. Substantially all of the assets of these persons are located outside the United States. Further, our directors and
officers
are located outside of the Cayman Islands. Service of court documents on a Cayman Islands company can be effected by serving the documents
at
the Company’s registered office and it may be possible to enforce foreign judgments in the Cayman Islands against a Cayman Islands
company, subject to
some exceptions. However, if investors wish to serve documents on and/or enforce foreign judgments against our directors
and officers, they will need to
ensure that they comply with the rules of the jurisdiction where the directors and officers are located.
As a result, it may be difficult or impossible for you to
bring an action against us or against these individuals in the United States
in the event that you believe that your rights have been infringed under the U.S.
federal securities laws or otherwise. Even if you are
successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render
you unable to enforce a judgment
against our assets or the assets of our directors and officers, depending on where the directors and officers are located.
 
Walkers (Hong Kong), our counsel as to Cayman
Islands law, has informed us that there is no guarantee that the courts of the Cayman Islands will
automatically allow shareholders of
our company to originate actions in the Cayman Islands based upon securities laws of the United States. In addition,
there is no guarantee
with regard to Cayman Islands law that a judgment obtained from the U.S. courts under civil liability provisions of U.S. securities
laws
will be determined by the courts of the Cayman Islands as fiscal, penal or punitive in nature. If such a determination is made, the courts
of the Cayman
Islands will not recognize or enforce a judgment predicated upon the civil liability provisions of the federal securities
laws of the United States or any state,
so far as the liabilities imposed by those provisions are taxes, fiscal, fines or penal in nature,
or otherwise contrary to public policy, including punitive
damages. Walkers (Hong Kong) has further informed us that although there is
no statutory enforcement in the Cayman Islands of judgments obtained in the
federal or state courts of the United States (and the Cayman
Islands are not a party to any treaties for the reciprocal enforcement or recognition of such
judgments), a judgment obtained in such
jurisdiction will be recognized and enforced in the courts of the Cayman Islands at common law, without any
reexamination of the merits
of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands,
provided such
judgment (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor a liability to pay a liquidated
sum for
which the judgment has been given, (c) is final and conclusive, (d) is not in respect of taxes, a fine or a penalty or similar
fiscal or revenue obligations, and
was not obtained by fraud or in a manner and is not of a kind the enforcement of which is contrary
to natural justice or the public policy of the Cayman
Islands. A Cayman Islands court may impose civil liability on us or our directors
or officers in a suit brought in the Grand Court of the Cayman Islands
against us or these persons with respect to a violation of U.S.
federal securities laws, provided that the facts surrounding any violation constitute or give
rise to a cause of action under Cayman Islands
law.
 
Our PRC legal advisor, Global Law Office,
advises us that there is uncertainty as to whether the courts of the PRC would enforce judgments of United
States courts or Cayman
courts obtained against us or these persons predicated upon the civil liability provisions of the United States federal and state
securities laws. Our PRC legal advisor further advises us that the recognition and enforcement of foreign judgments are provided for
under PRC Civil
Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC
Civil Procedures Law based either
on treaties between China and the country where the judgment is made or on reciprocity between
jurisdictions. China does not have any treaties or other
form of reciprocity with the United States or the Cayman Islands that
provides for the reciprocal recognition and enforcement of foreign judgments. In
addition, according to the PRC Civil Procedures
Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they
decide that the judgment
violates the basic principles of PRC law or national sovereignty, security or public interest. As a result, it is uncertain whether
and
on what basis a PRC court would enforce a judgment rendered by a court in the United States or in the Cayman Islands.
 
51

 
The voting rights of holders of ADSs are limited
by the terms of the deposit agreement, and you may not be able to exercise your right to direct the
voting of your ordinary shares underling
your ADSs.
 
Holders of ADSs do not have the same rights as
our registered shareholders. As a holder of our ADSs, you will not have any direct right to attend
general meetings of our shareholders
or to cast any votes at such meetings. You will only be able to exercise the voting rights which attach to the ordinary
shares underlying
your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under
the deposit agreement, you may vote only by giving voting instructions to the depositary, as holder of the ordinary shares underlying
your ADSs. Upon
receipt of your voting instructions, the depositary may try to vote the ordinary shares underlying your ADSs in accordance
with your instructions. If we ask
for your instructions, then upon receipt of your voting instructions, the depositary will try to vote
the underlying ordinary shares in accordance with those
instructions. If we do not instruct the depositary to ask for your instructions,
the depositary may still vote in accordance with instructions you give, but it is
not required to do so. You will not be able to directly
exercise any right to vote with respect to the underlying ordinary shares unless you withdraw the
shares and become the registered holder
of such shares prior to the record date for the general meeting. When a general meeting is convened, you may not
receive sufficient advance
notice of the meeting to enable you to withdraw the shares underlying your ADSs and become the registered holder of such
shares prior
to the record date for the general meeting to allow you to attend the general meeting and to vote directly with respect to any specific
matter or
resolution to be considered and voted upon at the general meeting. In addition, under our post-offering articles of association,
for the purposes of
determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close
our register of members and/or fix in
advance a record date for such meeting, and such closure of our register of members or the setting
of such a record date may prevent you from withdrawing
the ordinary shares underlying your ADSs and becoming the registered holder of
such shares prior to the record date, so that you would not be able to
attend the general meeting or to vote directly. Where any matter
is to be put to a vote at a general meeting, the depositary will notify you of the upcoming
vote and to deliver our voting materials to
you. We cannot assure you that you will receive the voting material in time to ensure you can direct the
depositary to vote your shares.
In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of
carrying
out your voting instructions. This means that you may not be able to exercise your right to direct how the shares underlying your ADSs
are voted
and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.
 
You may experience dilution of your holdings
due to the inability to participate in rights offerings.
 
We may, from time to time, distribute rights to
our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will
not distribute rights to holders
of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from
registration
under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary
may,
but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be
unable to establish an
exemption from registration under the Securities Act, and we are under no obligation to file a registration statement
with respect to these rights or
underlying securities or to endeavor to have a registration statement declared effective. Accordingly,
holders of ADSs may be unable to participate in our
rights offerings and may experience dilution of their holdings as a result.
 
You may be subject to limitations on the transfer
of your ADSs.
 
Your ADSs are transferable on the books of
the depositary. However, the depositary may close its books at any time or from time to time when it
deems it expedient in
connection with the performance of its duties. The depositary may close its books in emergencies, and on weekends and public
holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the
books of the depositary
are closed, or at any time if we or the depositary thinks it is 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.
 
52

 
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 United States that are applicable
to U.S. domestic issuers, including:
 
●
the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;
 
●
the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered
under the
Exchange Act;
 
●
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
 
●
the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
 
We will be 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 our
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. 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.
 
As an exempted 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 New York Stock Exchange corporate governance listing standards. These practices may afford less
protection to shareholders than
they would enjoy if we complied fully with the New York Stock Exchange corporate governance listing standards.
 
As a Cayman Islands exempted company listed on
the New York Stock Exchange, we are subject to New York Stock Exchange corporate governance
listing standards. However, New York Stock
Exchange 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 New York Stock
Exchange corporate
governance listing standards. To the extent we choose to follow home country practice in the future, our shareholders may be afforded
less protection than they otherwise would enjoy under New York Stock Exchange corporate governance listing standards applicable to U.S.
domestic
issuers.
 
Although
the matter is not entirely clear, we were likely a passive foreign investment company (a “PFIC”) for our 2024 taxable year,
and we will likely
be a PFIC for 2025 and our future taxable years, which could result in adverse U.S. federal income tax consequences
to U.S. taxpayers.
 
In general, a non-U.S. corporation will be a PFIC
for U.S. federal income tax purposes for any taxable year in which (i) 75% or more of its gross
income consists of passive income or (ii)
50% or more of the average value of its assets (generally determined on a quarterly basis) consists of assets that
produce, or are held
for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns
at
least 25% by value of the equity interests of another corporation or partnership is treated as if it held its proportionate share of
the assets of the other
corporation or partnership and received directly its proportionate share of the income of the other corporation
of partnership. Passive income generally
includes interest, income equivalent to interest, rents, dividends, royalties and gains from
financial investments.
 
53

 
It is not entirely clear how the PFIC rules should
apply to a company with a business such as ours. For example, although the loans issued through our
trust plans are shown in their entirety
as our assets on our consolidated balance sheet, it is not clear whether for purposes of the PFIC rules we should be
treated as owning
only our subordinated interests in the trusts plans, and earning only the portion of the trust plans’ interest income attributable
thereto. If
we are treated as owning only the subordinated units and the portion of the trust plans’ loans attributable thereto,
our PFIC status for any taxable year may
depend on the relative values of the loans we are treated as owning and our other passive assets
on the one hand, and the value of our goodwill and other
intangible assets (to the extent attributable to the services we provide) and
fee receivables on the other hand. The value of our goodwill and other intangible
assets, and the extent to which our goodwill and other
intangible assets should be treated as active assets, are not entirely clear. Moreover, the value of our
goodwill and other intangible
assets may be determined by reference to our market capitalization, which has declined in recent years and may continue to
decline or
be volatile. In addition, we provide loan facilitation, loan administration and other services in connection with the loans issued by
our trust plans
and we charge our trust plans service fees that are eliminated in, and therefore not shown on, our consolidated income
statement. Therefore, our PFIC status
for any taxable year may depend on the relative amounts of our fee and interest income (which as
discussed above may be less than the amount of interest
income shown on our income statement, if we are treated as owning only a portion
of the trusts’ loans). Furthermore, it is not entirely clear whether a
portion of the interest income earned by the trust plans
could be treated as payable in part for services to the borrowers. Although our PFIC status for any
taxable year is not entirely clear,
based on the composition of our income and assets and the manner in which we currently operate our business, we were
likely a PFIC for
our 2024 and prior taxable years, and will likely be a PFIC for our 2025 taxable year and future taxable years, subject to the discussion
in
the subsequent paragraph regarding the Active Financing Exception, as defined below. U.S. taxpayers should consult their tax advisers
regarding the proper
application of the PFIC rules to us and our PFIC status for any taxable year.
 
For purposes of the PFIC rules “passive
income” is defined by way of a cross-reference to Section 954(c) of the Internal Revenue Code of 1986, as
amended (the “Code”),
which applies for purposes of the Code’s “controlled foreign corporation” (“CFC”) rules. A different provision
under the CFC rules
(namely Section 954(h) of the Code) sets forth an exception for interest income derived by “eligible CFCs”
that are “predominantly engaged” in the active
conduct of a financing or similar business (the “Active Financing Exception”).
Because the Active Financing Exception addresses eligible CFCs, there has
been uncertainty as to whether it could apply to determine the
PFIC status of companies that are not CFCs, such as our company. Proposed Treasury
regulations promulgated in 2019 (the “2019 Proposed
Regulations”) provided that the Active Financing Exception could apply to determine the PFIC status
of such companies. However,
in 2020 these regulations were finalized (the “2020 Final Regulations”) without addressing the Active Financing Exception.
Although the 2020 Final Regulations are silent on the availability of the Active Financing Exception to companies like us, in the preamble
to the 2020
Final Regulations Treasury expressed its position that under current law the Active Financing Exception does not apply in
determining the PFIC status of a
company that is neither a CFC nor a bank. The 2020 Final Regulations apply to taxable years of shareholders
beginning on or after January 14, 2021.
Treasury indicated in the preamble to the 2020 Final Regulations that taxpayers can rely on the
2019 Proposed Regulations to apply the Active Financing
Exception for any open taxable year ending on or before December 31, 2020. Concurrently
with the issuance of the 2020 Final Regulations, Treasury
issued proposed regulations (the “2020 Proposed Regulations”) that
would state explicitly that the Active Financing Exception is available only if the tested
non-U.S. corporation is a bank. The 2020 Proposed
Regulations have not been finalized yet. Based on the foregoing, our ADS holders and shareholders (i)
generally are permitted to apply
the Active Financing Exception for a taxable year ending on or before December 31, 2020 (provided that we in fact
satisfied the exception’s
conditions for the relevant year), (ii) should expect that the Internal Revenue Service will not agree with a return position that
applies
the Active Financing Exception for any subsequent taxable year, and (iii) should be aware that if the 2020 Proposed Regulations are finalized
in
their current form they generally will not be able to take the position that the Active Financing Exception applies for any taxable
year to which the
regulations will apply. If we were “predominantly engaged” in the active conduct of a financing or similar
business (as defined for purposes of the Active
Financing Exception) and met all of the exception’s requirements, then we would
not be a PFIC for any taxable year with respect to which taxpayers
validly applied the Active Financing Exception, if applicable. U.S.
owners of our ADSs or ordinary shares should be aware that we have not determined
whether these requirements were in fact satisfied. Moreover,
if any of our trust plans is treated as a partnership for U.S. federal income tax purposes, and if
such trust’s senior unit holders
are treated as owning interests in such partnership other than as creditors, the characterization of our interest income as
active under
the Active Financing Exception may also depend, in part, on whether we owned 25% or more
of the value of such trust for the relevant taxable
years. U.S. owners of our ADSs or ordinary shares should consult their tax advisers
as to whether the Active Financing Exception could apply to us with
respect to any taxable year prior to the finalization of the 2020
Proposed Regulations, and whether it is advisable to take this position in light of Treasury’s
views, as described above.
 
54

 
A U.S. taxpayer that owns our ADSs or ordinary
shares during any year in which we are a PFIC will generally be subject to adverse U.S. federal
income tax consequences. See “Item
10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Considerations—Passive Foreign
Investment Company”
in this annual report. U.S. taxpayers should consult their tax advisers regarding our PFIC status for any taxable year and the tax
considerations
relevant to owning shares or ADSs of a PFIC.
 
Item 4. Information On The Company
 
4.A. History and Development of the Company
 
We started our operations in 1999 through Fanhua
Chuang Li Information Technology (Shenzhen) Co., Ltd., which became our onshore holding
company of the main operating subsidiaries in
the PRC. In 2000, we formed our wholly owned Hong Kong subsidiary, China Financial Services Group
Limited (“CFSGL”), as the
offshore holding company of our PRC subsidiaries. In 2006, we were spun off from Fanhua Inc., a company listed on
NASDAQ (symbol: FANH),
and formed Sincere Fame International Limited (“SFIL”) under the laws of British Virgin Islands as the holding company of
CFSGL. In January 2014, CNFinance Holdings Limited was incorporated under the laws of Cayman Islands. CNFinance Holdings Limited became
our
holding company through share exchanges with the shareholders of SFIL in March 2018. We conduct our business in the PRC primarily
through Shenzhen
Fanhua United Investment Group Co., Ltd., Guangzhou Heze Information Technology Co., Ltd., and their subsidiaries and
consolidated affiliated entities.
 
In November 2018, we completed an initial public
offering of 7,060,460 ADSs (including the ADSs sold upon the exercise of the over-allotment
option granted to the underwriters), representing
141,209,200 of our ordinary shares. On November 7, 2018, our ADSs were listed on the New York Stock
Exchange under the symbol “CNF.”
In November 2024, we changed our corporate name from “CNFinance Holdings Limited 泛華金融控股有限公司”
to
“CNFinance Holdings Limited 深泛联控股有限公司”.
 
Our principal executive offices of our main operations
are located 22/F, South Finance Center, No. 6 Wuheng Road Tianhe District, Guangzhou City,
Guangdong Province, People’s Republic
of China. Our telephone number at this address is +86 (020) 6231-6688. Our registered office in the Cayman
Islands is located at the offices
of Walkers Corporate Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9008, Cayman Islands. SEC
maintains an internet site that
contains reports, proxy and information statements, and other information regarding issuers that file electronically with the
SEC on www.sec.gov.
You can also find information on our website, http://ir.cashchina.cn/.
 
4.B. Business Overview
 
Overview
 
We are a leading home equity loan service provider
in China. We, through our operating subsidiaries in China, conduct business by connecting
demands and supplies through collaborating with
sales partners and trust companies as well as commercial banks. Our sales partners are responsible for
recommending micro- and small-enterprise
(“MSE”) owners with financing needs to us and we introduce eligible borrowers to licensed financial
institutions with sufficient
funding sources including trust companies and commercial banks who will then conduct their own risk assessments and make
credit decisions.
We have established a national network of 52 branches and sub-branches in over 50 cities in China. In 2022, 2023 and 2024, we originated
home equity loans with an aggregate principal amount of RMB14.7 billion, RMB17.3 billion and RMB9.8 billion, representing a decrease of
33.3% and
43.4% as compared to 2022 and 2023, respectively.
 
Our primary target borrower segment is MSE owners
who own real properties in Tier 1 and Tier 2 and other major cities in China. We originated home
equity loans for 23,923, 23,910 and 12,912
(including 1,566 under the commercial bank partnership model) borrowers in 2022, 2023 and 2024,
respectively. These MSE owners typically have quick cash flow turnover from their business operations with high demand for working capital.
Their
financing needs are often unpredictable, time-sensitive and frequent. We believe our target borrowers are underserved by traditional
financial institutions
due to various reasons. Traditional financial institutions often impose stringent and inflexible loan application
requirements designed for large corporations,
making it difficult for MSE owners to meet such requirements. In addition, time-consuming
and cumbersome requirements often limit MSE owners’ ability
to meet their imminent financing needs. Moreover, unlike in the United
States where home equity loans commonly serve as a financing alternative,
traditional lenders in China, such as large commercial banks,
typically do not grant loans secured by second lien interests and are generally less
incentivized to introduce innovative home equity
loan products.
 
55

 
We aim to serve our target borrowers by facilitating
home equity loans and providing tailored services. Our standardized and integrated online and
offline credit application and assessment
process shorten the time of loan disbursement, providing expeditious financing solutions to MSE owners. We offer
home equity loans to
MSE owners that allow them to repay only the interests by installments and repay the full principal amount when due. In addition, we
also
facilitate home equity loans to MSE owners in the form of installment loans with a tenor typically ranging from one to three years, assisting
borrowers’ short-term and long-term business planning. In 2022, 2023 and 2024, the average tenor of the home equity loans we originated
was 12, 12 and
12 months with the weighted average effective interest rate (inclusive of interests and financing service fees, if applicable,
payable by the borrowers) of
17.2%, 16.9% and 16.6% per annum, respectively. Such loan products are secured by first or second lien interests
on real properties. 60.6%, 62.9% and
57.1%, of our total home equity loan origination volume in 2022, 2023 and 2024, respectively, was
secured by second lien interests. Depending on the
value of the collateral and the creditworthiness of the borrower, we offer flexible
loan principal typically ranging from RMB100,000 to RMB5,000,000.
 
Our risk mitigation mechanism is embedded in the
design of our loan products, supported by an integrated online and offline process focusing on risks
of both borrowers and collateral
and further enhanced by effective post-loan management procedures. Our business infrastructure supports our operations
by providing various
offline services, such as on-site visits, interaction with local real property bureau and debt collection. Collateral for loans we facilitate
is geographically dispersed in Tier 1 and Tier 2 and other major cities in China. We offer home equity loan products that allow borrowers
to repay only the
interests by installments and repay the full principal amount when due. In addition, we also provide home equity loan
products that require monthly
payments comprising principal and interests repayments, which permits us to assist our trust company partners
to monitor borrowers’ credit status. Our
practical risk assessment focuses on both credit risks of borrowers and quality of the
collateral. We have also established strict guidelines on the
characteristics and quality of collateral, including, among others, an LTV
ratio capped at 70%.
 
Through trust lending model we collaborate with
our trust company partners, who are well-established trust funds in China with sufficient funding
sources and have licenses to engage
in lending business nationwide. This structure provides us with stable funding sources. Under the trust lending model,
our trust company
partners set up trust plans and acquire funding from their investors. Trust plans are typical investment vehicles in which investors
participate
by subscribing to trust units and receive a return as set out in subscription agreements. Each trust plan issues multiple trust products
which are
funded with senior and subordinated units at a pre-determined ratio with a term of one to three years. The loans funded by the
trust products, however, have
terms typically ranging from one to three years. For details of matching our funding sources and loans we
facilitate, please refer to “Item 4. Information on
the Company—B. Business Overview—Our Products—Matching of
Terms of Funding Sources and Loans.” The contractual ratio of the senior units and
subordinated units of trust plans or products
is determined pursuant to our collaboration agreements with our trust company partners, which set the upper
limit to such ratio at a range
of no higher than 3:1. For details, please refer to “Item 4. Information on the Company—B. Business Overview—Our Products
—Terms
of the Trust Plans” and “Item 4. Information on the Company—B. Business Overview—Our Products—Trust Lending—Funding
Partners.” As
part of the collaboration we have with our trust company partners, we are required to subscribe to all of the subordinated
units under most trust plans. By
subscribing to subordinated units, we are entitled to the residual value from trust plans after certain
payments to senior unit holders, trust company partners
and third-party service providers. Payments to senior unit holders consist of
expected investment returns which are usually paid quarterly and principal
amounts which are repaid upon borrowers’ payments of
underlying loans. We as subordinated unit holders are paid each quarter after the quarterly payment
of interest returns to senior unit
holders and upon maturity after the payment of principal amounts to senior unit holders. Our financing costs for the senior
units, excluding
the trust administrative fees, ranged from 6.9% to 8.7% per annum of the issuance number of senior units in 2024, and our financing costs
for subordinated units under repurchase arrangements with financial institutions was 8.0% to 13.8% per annum of the transfer prices for
such subordinated
units in 2024. Our cost of the subordinated units as measured by the investment amount was RMB2,627.4 million, RMB2,377.2
million and RMB1776.2
million (US$246.2 million), as of December 31, 2022, 2023 and 2024, respectively. Our investment return from the
subordinated units was RMB381.3
million, RMB495.9 million and RMB478.1 million (US$66.3 million) in 2022, 2023 and 2024, respectively.
We are designated as the service provider and
provide post-loan services such as payment monitoring, debt collection and release of collateral
as the need arises. We receive a performance-based service
fee up to 5% per annum of the size of the trust plan charged to the trust plans
for the services we provide.
 
56

 
In December 2018, we introduced our collaboration
model to optimize our collaboration with trust companies. Sales partners recommend borrowers to
us by direct cooperation with us or joining
limited partnerships. By contributing an amount equal to 5% to 25% of the loans issued to the borrowers
introduced by them, sales partners
receive incentive fees upon a pre-agreed schedule and other conditions. For details, please refer to “Item 4. Information
on the
Company—B. Business Overview—Our Products—Collaboration Model.” As of the date of this annual report, we have
over 2,100 contracted sales
partners in total, among which around 1,480 are effective sales partners.
 
In order to diversify our financing channels to
better serve the demands of MSE owners with credible funding sources, we started to collaborate with
commercial banks in 2021. Under this
commercial bank partnership model, we recommend borrowers to commercial banks who are responsible for
reviewing and approving the loan.
We provide loan facilitation services including introducing borrowers, initial credit assessment, facilitating loans from
the banks to
borrowers, and providing technical assistance, and assist commercial banks with post-loan managements. We charge a service fee equal to
a
pre-agreed percentage of each loan we introduce for our afore-mentioned loan facilitation services. We provide guarantees against the
potential defaults and
such contractual guarantee arrangement is underwritten by the guarantor company to which we provide back-to-back
guarantee at request. For details,
please refer to “Item 4. Information on the Company—B. Business Overview—Our Products—Commercial
Bank Partnership.”
 
We acquire our borrowers primarily through our
sales partners. Through our sales partners and our established network and branch offices, we reach
prospective MSE borrowers and assess
their creditworthiness and value of collaterals, and if these borrowers meet our requirements, we refer them to our
trust company and
commercial bank partners who make their own independent credit assessment and decisions before directly lending to qualified
borrowers.
We help trust companies and commercial banks sign loan agreements with borrowers directly, and assist borrowers in pledging collateral
for the
benefit of trust companies and commercial banks.
 
In 2022, 2023 and 2024, over 95.0% of our borrowers
were introduced to us by our sales partners under the trust lending model. For details, please
refer to “Item 4. Information on
the Company—B. Business Overview—Our Products—Collaboration Model.” In 2022, 100.0% of borrowers introduced
to
commercial banks were acquired through local channel partners including corporate and individual offline channels and telemarketing companies.
In
2023, we started to introduce sales partners under the commercial bank partnership model. As the result, 99.1% of borrowers introduced
to commercial
banks were acquired through sales partners, and 0.9% of borrowers introduced to commercial banks were acquired through local
channel partners in 2024.
 
To a lesser extent, we also had a direct lending
model through which we lend directly under our small loan licenses to borrowers with our own funding
or funding we acquire from transfer
of rights to earnings in loans principal, interest and financing service fee receivables to third parties with a repurchase
arrangement.
 
For details of our repurchase agreements with
third parties under both the trust lending and direct lending models, please refer to “Item 4. Information
on the Company—B.
Business Overview—Our Products—Funding Sources” and “Item 4. Information on the Company—B. Business Overview—Our
Products—Small Loan Direct Lending.” We generally rely on and will continue to rely primarily
on our trust lending model and commercial bank
partnership model, which are supplemented with our direct lending model.
 
57

 
Our Borrowers
 
Borrower Base
 
We strategically target MSE owners who own properties
in Tier 1 and Tier 2 and other major cities in China. These MSE owners typically have quick
cash flow turnover from their business operations
with high demand for working capital. MSE owners often also have financing needs that are
unpredictable, time-sensitive and frequent.
We believe target borrowers are underserved by traditional financial institutions, whose often stringent and
inflexible loan application
requirements that are designed for large corporations make it difficult for MSE owners to fulfill. In addition, time-consuming
and cumbersome
requirements often limit MSE owners’ ability to meet their imminent financing need.
 
In addition, unlike in the United States where
home equity loans serve as a common financing alternative, traditional lenders in China such as many
large commercial banks typically
do not grant loans secured by second lien interests. Providing second lien home equity loans or title loans is limited for
commercial
banks in China, given the high level of regulatory supervision from relevant regulatory authorities. These products have instead been
developed by non-traditional financial institutions like trust companies or some small commercial banks in cooperation with us, to fulfill
the unserved
demand.
 
We originated home equity loans for 23,923, 23,910
and 12,912 (including 1,566 under the commercial bank partnership) borrowers in 2022, 2023 and
2024, respectively. Our borrowers have
presence in over 50 Tier 1 and Tier 2 and other major cities in China and are geographically dispersed.
 
Borrower Acquisition
 
Under the Collaboration Model, we acquire our
borrowers primarily through our sales partners. In 2022, 2023 and 2024, over 95.0% of our borrowers
were introduced to us by our sales
partners under the trust lending model. For details, please refer to “Item 4. Information on the Company—B. Business
Overview—Our
Products——Collaboration Model.”
 
Under our partnership with commercial banks, we
have diversified our borrowers’ profiles with more competitive pricing and efficiency. In 2023, we
started to introduce sales partners
under the commercial bank partnership model as well. Around 99.1% of borrowers introduced to commercial banks were
acquired through sales
partners, and 0.9% of borrowers introduced to commercial banks were acquired through local channel partners in 2024. Borrowers
are engaged
through our local offices and word-of-mouth marketing. Our local staff works with various local channel partners including corporate and
individual offline channels and telemarketing companies. We align the incentive of our local staff by offering a commission equal to a
pre-determined fixed
rate of the loan origination amount.
 
Our Products
 
The home equity loans we facilitate permit borrowers
to borrow relatively large amounts up to 70% LTV ratio. Our weighted average LTV ratio was
60.0%, 62.0% and 60.5%, for home equity loans
originated in 2022, 2023 and 2024, respectively. In 2022, 2023 and 2024, we originated home equity loans
for trust companies of RMB12.2
billion, RMB12.3 billion and RMB8.6 billion (US$1.2 billion), respectively. And we introduced loans of RMB 2.5 billion,
RMB5.0 billion
and RMB1.0 billion to commercial banks in 2022, 2023 and 2024, respectively.
 
The home equity loans we facilitate are typically
secured by apartments, houses or commercial properties owned by borrowers. Unlike most traditional
financial institutions, the home equity
loans we facilitate can be secured with second lien interests on top of the first lien interests with banks, offering
additional financing
to MSE owners not otherwise readily available to them.
 
58

 
We facilitate home equity loans with flexible
tenors typically ranging from one to three years enabling borrowers’ short-term and long-term business
planning. In 2022, 2023 and
2024, the average tenor of the home equity loans we originated remained unchanged at 12 months.
 
The home equity loans we originate under trust
lending model are also competitively priced, with a weighted average effective interest rate of 17.2%,
16.9% and 16.6% per annum in 2022,
2023 and 2024, respectively. The interest rates of our loan product under commercial bank partnership model ranged
from 7% to 16%, which
had attracted more borrowers with higher credit record. We offer home equity loan products that allow borrowers to repay only the
interests
by installments and repay the full principal amount when due. In addition, we also provide home equity loan products that require monthly
payments comprising principal and interests repayments, making it easier for borrowers to manage their cash flow and for us to timely
monitor borrowers’
creditworthiness. Borrowers are obligated to pay directly to the trust plans in full the principal amount plus
interest when due. We offer a flexible
repayment schedule for installment loans, including but not limited to (i) an equal monthly installment
comprising principal and interests evenly distributed
throughout the life of the loan, (ii) a monthly installment comprising principal
and interests in accordance with a pre-agreed step-down schedule, where a
borrower starts with a higher equal monthly installment that
decreases after a defined period and (iii) a monthly installment of interests only and full
repayment of loan principal when due.
 
To foster our home equity loan business, we also
provide bridge loan products, which are generally unsecured short-term loans, to pay off borrowers’
existing loans secured by real
property. As a result, such real property will be released from existing loans and can be used as collateral for the home equity
loans
we facilitate. Once borrowers obtain home equity loans facilitated by us, the bridge loans granted by us will be repaid in full. We granted
bridge loans
of RMB99.64 million, RMB7.8 million and RMB11.2 million (US$1.5 million) in 2022, 2023 and 2024, respectively. We may continue
to originate bridge
loans going forward as the need arises.
 
Trust Lending
 
In July 2014, we began cooperating with trust
companies to fund loans to borrowers through trust plans established in collaboration with these trust
companies. In December 2018, we
have started to explore the collaboration model under which we collaborate with sales partners who introduce borrowers
and receive incentives.
 
Terms of the Trust Plans
 
Pursuant to our collaboration agreements, our
trust company partners establish long-term trust plans which issue multiple trust products, ranging from
one to three years. Investors
in these trust plans can subscribe to the trust units, which provides them with returns as provided in the subscription
agreements. Once
borrowers’ loan applications submitted through us are approved by trust company partners, they enter into loan agreements with
borrowers
and trust plans disburse loan proceeds to borrowers directly. Borrowers are required to repay the principal, interest and other fees,
if applicable,
directly to the account of the trust plan, and the trust company partner as trustee of the trust plan distributes the funds
to unit holders according to the trust
agreements. We are designated as the service provider for these trust plans, and in this role we
assist our trust company partners acquire and screen
borrowers and perform credit assessment pursuant to collaboration agreements with
our trust company partners. We are also responsible for providing loan
facilitation and post-loan management services for service fees
charged directly to the trust plans.
 
Each trust product issued under the long-term
trust plan is funded with senior and subordinated units at a predetermined contractual structural leverage
ratio with the upper limit
of no higher than 3:1. For details, please refer to “Item 4. Information on the Company—B. Business Overview—Our Products—
Trust
Lending—Funding Partners.”
 
As part of the collaboration we have with our
trust company partners, we are required to subscribe to all of the subordinated units of each trust product
issued under most long-term
trust plans. Our cost of the subordinated units as measured by the investment amount was RMB2,627.4 million, RMB2,377.2
million and RMB1,776.2
million (US$246.2 million), as of December 31, 2022, 2023 and 2024, respectively. The trust plans typically pay senior unit
holders an
amount that equals (i) an expected rate of investment return, which is usually paid quarterly, plus (ii) the principal amount invested,
which is the
prompt repayment to trust companies after borrowers made payments for the underlying loans. The expected rate of investment
return is provided in the
subscription agreements of the senior units, to which we are not a party. Such rate of investment return is
usually determined by our trust company partners
based on market conditions and presented as an estimate. If the expected rate of investment
return is not met, our trust company partners are not under any
contractual obligation to top up for any shortfalls while we as the subordinated
unit holders are required to manage the underlying NPLs to make up the
shortfalls pursuant to our credit strengthening services. For details,
please refer to “Item 4. Information on the Company—B. Business Overview—Our
Products—Credit Strengthening Services.”
We as subordinated unit holders are paid each quarter after the quarterly payment of investment returns to senior
unit holders and upon
maturity after the payment of principal amounts to senior unit holders. The trust company partner is responsible for administering the
trust plan and is paid a trust administrative fee.
 
59

 
We are responsible for maintaining the asset quality
and receive a performance-based service fee of up to 5% per annum of the size of the trust plan for
the services we provide, which decreases
with the growth of percentage of NPLs in the amount of loans we facilitated. We as the subordinated unit holder
also retain any residual
value in trust plans after deducting (i) repayment of principal amount invested by senior unit holders, (ii) financing costs for the
senior
units, which primarily consist of the expected rate of return to the senior unit holders, (iii) administrative fee payments to trust companies
and certain
fee payments to third-party service providers (mainly depositary fees charged by the banks) and (iv) a performance-based service
fee to us as service
provider of up to 5% per annum of the size of the trust plan. Our financing costs for the senior units, excluding
the trust administrative fees, ranged from
6.0% to 8.7% per annum of the issuance number of senior units in 2024.
 
We received performance-based fee payments of
RMB446.0 million, RMB409.0 million and RMB300.2 million (US$42.0 million) in 2022, 2023 and
2024, respectively. Our investment return
from the subordinated units was RMB381.3 million, RMB495.9 million and RMB478.1 million (US$66.3
million) for the same periods.
 
Credit Strengthening Services
 
We have been working with FOTIC to implement the
2018 FOTIC Funding Arrangements and implementing our credit strengthening services since
2018. Under the 2018 FOTIC Funding Arrangements,
when there is an NPL under a trust product, we, as the subordinated unit holder, are required to adopt
one of the following measures to
ensure sufficient capital to repay the principal amount and the agreed financing costs for the senior units, which primarily
consist of
expected rate of investment return to the senior unit holders:
 
●
purchase NPLs funded with senior units in an amount equal to the outstanding loan principal and interests;
 
●
purchase additional subordinated units in an amount sufficient to cover the outstanding loan principal and interests of the NPLs;
or
 
●
replace such NPLs with non-delinquent loans or equal amount funded with our subordinated units.
 
Under the 2018 FOTIC Service Fee Structure, our
service fee charged to a trust plan is performance-based and up to 8% per annum of the size of the
trust plan decreases with the growth
of the NPLs in the loans we facilitated.
 
Funding Partners
 
As of the date of this annual report, we have
formed partnerships with well-established trust companies under our trust lending model, including
FOTIC, COFCO Trust, Zhonghai Trust,
, Shaanxi International Trust, Bohai Trust, and National Trust. Through these collaborative partnerships, we have
access to flexible funding
of RMB5.8 billion sourced from the senior unit holders as of December 31, 2024. 62.3%, 55.8% and 37.9%, of the loans we
originated in
2022, 2023 and 2024, respectively, were funded through FOTIC, mainly due to our familiarity and long-standing relationship with FOTIC.
We also work with other leading trust partners to diversify our funding sources.
 
Funding Sources
 
Our trust company partners have developed various
trust plans to provide home equity loans to borrowers we acquire and recommend. For the years
ended December 31, 2022, 2023 and 2024,
home equity loans we facilitated under the trust lending model amounted to RMB12.2 billion, RMB12.3 billion
and RMB8.6 billion (US$1.2
billion), respectively. Each trust plan issues multiple trust products which are funded with senior and subordinated units at a
predetermined
ratio. The trust company partners may also transfer the underlying loans of trust products with repurchase arrangements to third parties
at a
specified annual rate of return when the original trust products become due. We subscribe to subordinated units in the trust plans
through our wholly owned
subsidiaries. Our financing costs for the senior units, excluding the trust administrative fees, ranged from
6.0% to 8.7% per annum of the issuance number
of senior units in 2024.
 
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Each trust plan sets a predetermined contractual
structural leverage ratio between senior units and subordinated units. We may be required to subscribe
to additional subordinated units
upon request of the trustee to maintain the contractual structural leverage ratio. To date, we have not been obligated to
purchase additional
subordinated units under this requirement. Other than our obligation to maintain the contractual structural leverage ratio or provide
credit strengthening services, which is discussed in more details under “Item 4. Information on the Company—B. Business Overview—Our
Products—
Credit Strengthening Services,” we are not contractually obligated to provide additional funding. There are no exceptions
or reliefs available to the
aforementioned additional funding obligation.
 
We fund our subscription of the subordinated units
with (i) cash on hand and (ii) proceeds received through repurchase agreements with third parties
with respect to subordinated units.
Pursuant to such agreements, we transfer to third parties our rights to earnings in subordinated units up to an agreed
investment return
for a transfer price and are obligated to repurchase such right at a fixed repurchase price. Under such agreements, we continue to bear
the
risk of loss on the subordinated units and enjoy the upside on any return above the agreed investment return. The terms of our repurchase
agreements may
vary, such as obligating us to pay an expected investment return each quarter and the principal amount on or before the
maturity date or requiring us to pay
a lump sum amount within a specified period of time (generally within 360 days). In 2022, 2023 and
2024, we transferred our rights to earnings in
subordinated units to a private equity fund and to certain third parties.
 
We utilize multiple funding sources to support
our business, some of which may be subject to challenges by regulatory authorities from time to time
under the evolving legal environment.
For details, please refer to “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Some of
our
funding sources are highly regulated and are subject to the changing regulatory environment. If any of the funding sources is deemed to
violate the
PRC laws and regulations, we may need to secure new funding, failure of which may result in a material and adverse impact
on our business, financial
condition, results of operations and prospects.”
 
Matching of Terms of Funding Sources and Loans
 
We forecast our cash flows each month to determine
our use and need of cash for the next month and take into account the amount of loans becoming
due, amount of trust products becoming
due and target size of loan products to be facilitated. When our monthly cash flow forecasts indicate a need for
additional funding to
ensure the matching of terms of funding sources and loans, we coordinate with our trust company partners to acquire additional
funding
through the transfer of loans with repurchase arrangements or through other permitted means, such as bridge loans. Under our trust lending
model,
once a trust product matures, the trustee strives to repay the expected rate of investment return and principal to the senior unit
holders. Under our previous
credit strengthening services, we were required to make up for any shortfalls if the proceeds from loans were
less than the principal amount invested by the
senior unit holders and the agreed financing costs for the senior units, which primarily
consist of the expected rate of investment return to the senior unit
holders. We ceased to provide such credit strengthening services
since March 2018. The trust products set up under long-term trust plans usually have a
term of one to three years. The loans we facilitate
have tenors typically ranging from one to three years. Historically, majority of the loans we facilitated
were repaid within the first
two years.
 
Our trust company partners have also
implemented the pass-through repayment method in certain of the trust plans to help avoid the duration
mismatch. Under the
pass-through repayment method, loan repayment proceeds are usually distributed to the senior unit holders on a monthly basis to
repay both the financing costs for the senior units and the principal amount invested by the senior unit holders after deducting
relevant fees. Under the pass-
through repayment method, the principal amount invested in the trust products
is repaid as the underlying loans are repaid. As a result, terms of the
underlying trust funding matched tenor of all loans we facilitated
in 2022, 2023 and 2024.
 
61

 
Collaboration Model
 
We have switched to a collaboration business model
to optimize the trust lending model since December 2018 to broaden our prospective borrower
bases. Under the collaboration model, we generally
require sales partners to contribute from a range of 5% to 25% of the loan principal they introduced
(such contribution, the “CRMP”).
The percentage of loan principal as the CRMP charged to sales partners is mainly determined based on the sales partner’s
business
scale, risk control capabilities and liquidity of funds investigated by us through market research and multiple negotiations with the
local loan
practitioners’ association in various cities in China, including four Tier 1 cities, key cities in the Pearl River Delta
and the Yangtze River Delta. As of the
date of this annual report, we have over 2,100 contracted sales partners in total, among which
around 1,480 are effective sales partners. Under such
collaboration model, we will pay incentive fees, or collaboration cost, to each
sales partner upon a pre-agreed schedule and conditions, which will be re-
distributed to the sales partners. The collaboration cost we
pay to sales partners is an agreed percentage of the loan principal amount, calculated by
subtracting the project cost from interest and
fees income received from borrowers. For each loan, the project cost is agreed between us and sales partners.
The project cost is typically
between 7.5%-9.5% of the loan principal, and the percentage varies based on different collaboration model types and the terms
of the loan.
The project cost in the loan agreement will not change once determined. The collaboration cost is settled monthly as agreed in the collaboration
agreement. We only pay the incentive fee to the sales partner according to the pre-agreed schedule when the borrower repays the loan on
time, in which
case the sales partner is not obligated to return such incentive fee, and the collaboration costs are not subject to reimbursement.
The following chart
illustrates a typical arrangement among sales partners, borrowers, trust plans, trust plan investors and us.
 
 
We provide a convenient and user-friendly transaction
process, which is implemented through our standardized home equity loan application
procedures across our local offices. Our standardized
transaction process under trust lending model is illustrated as below.
 
Step 1: Sales partners recommend borrowers for loan
application
 
The transaction process begins with the submission
of a loan application by a prospective borrower introduced by a sales partner either online or at one
of our local offices. The application
asks for information such as the borrower’s identity card information, contact, business and prospective collateral. The
applicant
typically also consents to access to his or her credit report generated by third parties while submitting the application.
 
62

 
Step 2: Risk assessment
 
After an application is submitted, our proprietary
risk management system collects credit and valuation data from a number of internal and external
sources. We and our sales partners then
proceed with our risk assessment involving both online and offline processes focusing on both the creditworthiness
of borrowers and quality
of collateral. For details, please refer to “Item 4. Information of the Company—B. Business Overview—Risk Management—Dual
—factor
risk assessment with integrated online and offline processes.”
 
Step 3: Credit decision
 
Once we have performed rigorous risk assessments
on both applicant and collateral, we recommend qualified applicants with suggested loan principal
amount to our trust company partners
who proactively conduct their own independent credit assessment and make credit decisions on the loan applications
we recommend. Specifically,
our trust company partners are independently responsible for, reviewing loan applications and verifying applicants’ personal,
business
and collateral information collected by us through various procedures. Our trust company partners are responsible for approving the loan
application.
 
Step 4: Credit extension
 
Our trust company partners will make the credit
decision based on its own credit assessment. We will notify the applicants once we receive approvals
from our trust company partners.
We then assist the borrowers in signing loan agreements with the trust companies.
 
Step 5: Collateral pledge and CRMP collection
 
As part of our services, we help the trust companies
set up security interests on the collateral by assisting with relevant documentation and registering
security interests with local real
property bureau. Once the process of collateral pledge is completed, sales partners will need to submit CRMP for
underlying loans.
 
Step 6: Loan disbursement
 
Our trust company partners sign loan agreements
and confirm receipt of relevant title documents and perfected security interests before disbursement
of loan proceeds to the borrowers’
bank accounts. Funding occurs promptly after the documentary conditions precedent to the settlement are fulfilled.
 
Step 7: Post-loan management process
 
We are also designated as the service provider
and provide post-loan management services to our trust company partners, including assisting them in
monitoring repayment activities and
collateral status and performing debt collection in an event of default on behalf of the trust companies. For details,
please refer to
“Item 4. Information of the Company—B. Business Overview—Risk Management—Effective post-loan management procedures.”
Once the
loans are fully paid off, we assist the trust company partners release the collateral.
 
Sales Partners
 
In the event of loans issued to the borrowers
acquired under such collaboration model are in default, the respective sales partners who introduced such
borrowers will share the credit
risks with us by choosing from the following options, including (i)(1) full repayment to us for the total unpaid principal and
accrued
and overdue interests under the respective loan agreement and acquiring respective credit rights, (i)(2) repayment in installments to
us for the total
unpaid principal and accrued and overdue interests under the respective loan agreement, and a payment of fund possession
fee to us following a pre-
determined schedule and acquiring respective credit rights under each installments; (ii) repayment to us
for the unpaid principal and accrued and overdue
interests under the respective loan agreement on behalf of the borrower, and if the borrower
pays the payments under the loan agreement, the repayment by
the sales partner on behalf of the borrower will be refunded to the sales
partner; or (iii) relinquishing the respective CRMPs for such loan. Upon
relinquishing its CRMPs, the sales partner is deemed to
be released from its repayment obligations under the collaboration agreement.
 
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When a loan defaults, we will inform the sales
partner the overdue status of the loan through the mobile app and require the sales partners to choose
among the above-mentioned options
to perform its repayment obligations within an agreed timetable. When the sales partner selects option (i)(1), we
receive the payment
for purchasing the outstanding defaulted loan including all outstanding principal and the accrued and overdue interests, and we will
refund
the outstanding CRMPs to the sales partner. When the sales partner selects option (i)(2), it repurchases the delinquent loan by installments
with the
purpose to repurchase the entire outstanding principal and the accrued and overdue interests in the future. CRMPs will be refunded
after entire amount of
the overdue loan principal and interests are settled. When the sales partner selects option (ii), it repays the
overdue loan principal and interests for the
borrower according to the borrower’s repayment schedule. If borrower repays in the
subsequent period, we need to return the payment from borrower to the
sales partner according to the collaboration agreement. If the sales
partner chooses to fulfill the repayment obligation according to option (i)(1), (i)(2) or (ii)
above, it still maintains the rights to
claim the collaboration cost (incentive fees) for the current period.
 
When the sales partner refuses to fulfill its
repayment obligation according to option (i)(1), (i)(2) or (ii) above, and selects option (iii), CRMPs related
to the defaulted loan (or
all CRMPs related to the specific sales partner if the CRMPs it provides can be shared in all loans introduced under the
collaboration
agreement as described below) are surrendered to us. Upon the confiscation of CRMPs, the sales partner is deemed to be released from its
repayment obligations under the collaboration agreement, and the sales partner can no longer claim the outstanding collaboration cost
(incentive fees) of
the referred loan.
 
As described above, the percentage of loan principal
as the CRMP charged to sales partners is mainly determined based on the sales partner’s business
scale, risk control capabilities
and liquidity of funds, as elaborated below.
 
Sales partners who pay 10% of the loan principal
as the CRMP are mainly loan service providers with strong risk control and management capabilities
in Tier 1 and Tier 2 cities. The sales
partners are required to pay a minimum CRMP upfront and the CRMP put up by these sales partners can be shared in
all loans introduced,
meaning that the CRMP can be used to offset all defaulting loans introduced by the sales partner. In third- and lower-tier cities, the
percentage of loan principal as the CRMP charged to this type of sales partners will be raised to 15%.
 
Sales partners who pay 20% of the loan principal
as the CRMP are mainly individual and smaller-scale loan service providers in Tier 1 and Tier 2
cities. Each CRMP put up by these sales
partners can only be used to offset a specific loan in default. In third- and lower-tier cities, the percentage of loan
principal as the
CRMP charged to this type of sales partners will be raised to 25%.
 
Sales partners enter into strategic cooperation
directly with us and contribute the CRMP directly to a designated account, which is fully refundable
upon repayment of the loan that the
CRMP is associated with. If at any time the balance of CRMP provided by sales partners is lower than the agreed
percentage of the principal
amount of the loans it introduced, the sales partner is required to make up the balance to reach the agreed CRMP percentage.
 
As of December 31, 2024, the percentage of options
(i)(1), (i)(2), (ii) and (iii) selected by the sales partners on defaulting loans accounted for 9.2%,
84.9%, 2.0% and 3.9% respectively.
As of December 31, 2023, the above percentage of options accounted for 0.6%, 81.8%, 0.1% and 17.5% respectively.
The percentage of the
option selected is calculated based on the total loans principal amount (excluding any accrued interests) under each option selected
by
the sales partners divided by the total loans principal amount (excluding any accrued interests) under all options selected by the sales
partners. The
Company allow more sales partners to select option (i)(2) to help increase their liquidity. The percentage of loans on which
sales partner refused to fulfill
its repayment obligation accounted for only 0.9% and 1.8% of the outstanding loan principal including
loans held for sale as of December 31, 2023 and
2024 respectively.
 
We believe such collaboration model will decrease
our risk exposure. Since in the event that loans issued under the collaboration model are in default,
the respective sales partners will
share the credit risks with us by choosing from the above-mentioned options. Besides, the CRMPs from sales partners, by
their nature,
will also mitigate our exposure to credit losses.
 
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Commercial Bank Partnership
 
In order to diversify our financing channels to
better serve the demands of MSE owners with credible funding sources, we started to collaborate with
commercial banks in 2021, under which
our commercial bank partners are responsible for reviewing and approving the loan while we charge a service fee
for loan facilitation
services including introducing borrowers, initial credit assessment, facilitating loans from the banks to borrowers, and providing
technical
assistance, and assist commercial banks with post-loan managements. Under this commercial bank partnership model, we work with a guarantor
company and provide matching services to our commercial bank partners for small and micro enterprises borrowers who seek business loans
in exchange
for real estate properties as collateral. The borrowers are obliged to mortgage their real estate properties to the commercial
bank partner as collateral, while
the guarantor is obliged to provide the guarantee deposit and assist us with preliminary review of the
borrower, other pre-loan inspections and forward
transfer services of past due loans as credit strengthening. Before making any decision,
each of our commercial bank partner, the guarantor and ourselves
will conduct a risk assessment of the borrower and the commercial bank
partner holds the ultimate power to approve or reject a borrower. Once the loan is
successfully granted by the commercial bank, we will
receive a service fee and the guarantor company will receive a guarantee fee based on a pre-
determined schedule. We provide guarantees
against the potential defaults and such contractual guarantee arrangement is underwritten by the guarantor
company to which we provide
back-to-back guarantee at request. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If
we
are unable to achieve low delinquency ratio for loans originated by us, our business and results of operations may be materially and
adversely affected.”
and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If our or
our trust company partners’ or our commercial bank partners’
risk management system fails to perform effectively, such failure
may materially and adversely impact our operating results.”
 
The loan origination volume in 2024 under the
commercial bank partnership model was RMB966.2million and the outstanding
loan principal recorded
at the end of 2024 was RMB2.4 billion. The Company offers loan facilitation services to the borrowers who have
credit needs and the commercial banks
who originate loans directly, with the Company continuing to provide post-origination services to
the borrowers over the term of the loan agreement. As the
Company is not the legal lender or borrower in the loan origination and repayment
process, we do not record loans principal, interest and financing service
fee receivables arising from these loans nor interest-bearing
borrowings to the third-party commercial banks.
 
In 2023, the Company started to introduce sales
partners under the commercial bank partnership model, where we require the sales partners to
contribute the CRMP from a range of 5% to
10% of the loan principal they introduced. 99.1% of borrowers introduced to commercial banks were acquired
through sales partners in 2024.
As different from the CRMP under the collaboration model in trust lending, the CRMP under the commercial bank
partnership model can be
used to offset all defaulting loans introduced by the contributing sales partner. We will pay incentive fees, or collaboration cost, to
each sales partner upon pre-agreed schedule and conditions, which will be re-distributed to the sales partners. The collaboration cost
we pay to sales
partners is an agreed percentage of the loan principal amount, calculated by subtracting the project cost from interest
and fees income received from
borrowers. The project cost under commercial bank partnership is typically between 3.5%-13.3% of the loan
principal, and the percentage varies based on
different collaboration model types and the terms of the loan.
 
Our standardized transaction process under the
commercial bank partnership model is illustrated below.
 
Step 1: Borrower assessment
 
We reach out to borrowers through local sales
channels or sales partners. After obtaining the list of qualified borrowers, we first perform due diligence
on such borrowers and then
share those customers’ information with the guarantor company we work with for its own risk assessment.
 
65

 
Step 2: Loan application referral
 
After passing the guarantor’s risk assessment,
the borrower will be introduced to our commercial bank partner. Such commercial bank partner will
perform its own risk assessment and
the borrower may be rejected even if the borrower passed the previous risk assessment by the guarantor.
 
Step 3: Credit decision
 
The commercial bank will inform the guarantor
and us whether the loan recommended is approved or rejected for further actions and services.
 
Step 4: Guarantee Agreement
 
If the commercial bank partner decides to grant
a loan, it will inform the guarantor to issue a guarantee agreement indicating that the guarantor is
obliged to provide post-origination
services and take legal responsibilities of any accidents that may happen relating to the borrower, including default
risks. Additionally,
for security purposes, the guarantor is obliged to provide a guarantee deposit as illustrated in Step 7 below.
 
Step 5: Pledging collaterals
 
Before releasing the loan to the borrower, the
commercial bank partner entrusts the guarantor to assist the borrower completing the process of
mortgaging their real estate properties,
notarizing the loan contracts and obtaining encumbrance certificates. The guarantor is then obliged to send these
documents directly back
to the commercial bank partner.
 
Step 6: Loan agreement
 
After receiving the documents mentioned in Step
5, the commercial bank partner will proceed to the contract-signing process with the borrower.
 
Step 7: Guarantee deposit
 
After receiving all the required legal documents
and signing the loan agreement, the commercial bank partner releases the loan to the borrower. For
security purposes, the guarantor is
obliged to pay a fixed percentage of total remaining loan balance as guarantee deposit to the commercial bank partner.
We provide back-to-back
guarantee to the guarantor at request.
 
Step 8: Service fee
 
We will receive facilitation service fee for our
loan facilitation services. Under different collaboration arrangements, the borrower could pay such
service fee directly to us on the
due date of each installment or submit both the service fee and installment to the commercial bank and the commercial
bank will disburse
such service fee to us.
 
Step 9: Repayment of loan principal and interest
and post-loan management process
 
The borrower repays all principal and interest
directly to the commercial bank partner. After the borrower settles the principal and interest of the loan
in advance or at maturity,
the commercial bank partner will issue a settlement report, and the borrower can apply for collateral release with the assistance
from
the guarantor. The guarantor can confirm this information with the commercial bank partner and the commercial bank partner will issue
the required
documents to release the collateral. These legal documents will be delivered to us within 3 business days from the date when
the borrower applies to release
the collateral, and the guarantor and we are responsible for the releasing process. In the event of loans
issued to the borrowers referred by the sales partners
are in default, the respective sales partners who introduced such borrowers will
share the credit risks with us by choosing from the following options,
including (i)(1) full repayment to us for the total unpaid principal
and accrued and overdue interests under the respective loan agreement and acquiring
respective credit rights, (i)(2) repayment in installments
to us for the total unpaid principal and accrued and overdue interests under the respective loan
agreement, and a payment of fund possession fee to us following a pre-determined schedule
and acquiring respective credit rights under each installments;
(ii) repayment to us for the unpaid principal and accrued and overdue
interests under the respective loan agreement on behalf of the borrower, and if the
borrower pays the payments under the loan agreement,
the repayment by the sales partner on behalf of the borrower will be refunded to the sales partner; or
(iii) relinquishing the respective
CRMPs for such loan. Upon relinquishing its CRMPs, the sales partner is deemed to be released from its repayment
obligations under the
collaboration agreement.
 
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Small Loan Direct Lending
 
Historically, we supplemented our trust lending
model with direct lending by our small loan subsidiaries in Beijing, Shenzhen and Chongqing. Our
subsidiaries typically entered into loan
agreements that are secured by real property and had similar terms to home equity loans we facilitate under the trust
lending model. We
entered into loan agreements with borrowers directly. We financed our direct lending business with our own funds or funds we received
from third parties by transferring our rights in the loans together with a repurchase arrangement.
 
Small loan direct lending business in China requires
a license granted by local regulatory authorities and is subject to leverage constraints. Our three
small loan subsidiaries in Beijing,
Shenzhen and Chongqing have relevant licenses to conduct direct lending business since 2012, 2012 and 2011,
respectively. Subject to various
regulations, some of our direct lending business is limited to certain regions for which we have a license to engage in such
business.
Due to regulatory financing/net capital ratio constraints and for liquidity reasons, we expect that direct lending will remain a fairly
limited and
immaterial part of our business in the near future. For the years ended December 31, 2022, 2023 and 2024, our loan origination
volume through direct
lending was RMB15 million, RMB48 million and RMB28 million, respectively. The balances of the borrowings that were
funded by third parties for the
small loan direct lending business were nil, nil and nil, as of December 31, 2022, 2023 and 2024, respectively.
 
Our Funding Model
 
We have explored various funding sources and have
focused on collaboration with our trust company partners starting in 2014. To a lesser extent, we
historically utilized a direct lending
model through our small loan subsidiaries. In 2021, we launched a new funding model in cooperation with commercial
banks to expand our
financing channels. In 2022, 2023 and 2024, 82.7%, 70.7% and 87.3% of the total home equity loan origination volume was originated
under
the trust lending model, respectively. In 2024, loan origination volume originated under the commercial bank partnership accounted for
9.8% of our
total loan origination volume.
 
The following table illustrates the breakdown
of the home equity loan origination volume by funding sources in the periods indicated.
 
 
 
For the Year Ended December 31,
 
 
 
2022
 
 
2023
 
 
2024
 
 
 
Amount
(RMB in
millions)
   
% of total
 
 
Amount
(RMB in
millions)
   
% of total
 
 
Amount
(RMB in
millions)
   
% of total
 
Loan origination volume by funding
model
 
    
  
 
    
  
 
    
  
Trust lending
   
12,163     
82.7%    
12,222     
70.7%    
8,567     
87.3%
Bank lending
   
2,533     
17.2%    
5,017     
29.0%    
966     
9.8%
Direct lending
   
15     
0.1%    
56     
0.3%    
277     
2.8%
Total
   
14,712     
100.0%   
17,295     
100.0%   
9,810     
100.0%
 
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The following table illustrates our funding capital
from different sources as of December 31, 2022, 2023 and 2024, respectively.
 
 
 
As of December 31,
 
 
 
2022
   
2023
   
2024
 
 
 
Amount
(RMB in
millions)
   
% of total
   
Amount
(RMB in
millions)
   
% of total
   
Amount
(RMB in
millions)
   
% of total
 
Funding capital by sources
 
    
  
 
    
  
 
    
  
Trust lending
 
    
  
 
    
  
 
    
  
Senior tranche
   
7,667     
59.8%    
8,107     
53.0%    
5,814     
60.4%
Subordinated tranche
   
      
  
   
      
  
   
      
  
Own funds
   
2,515     
19.5%    
2,377     
15.5%    
1,176     
12.2%
Transferred to third parties
   
112     
1.0%    
682     
4.5%    
1,663     
17.3%
Bank lending
   
      
  
   
      
  
   
      
  
Commercial banks
   
2,533     
19.7%    
4,128     
27.0%    
966     
10.0%
Total
   
12,827     
100.0%   
15,294     
100.0%   
9,619     
100.0%
 
Business Infrastructure
 
Since our inception, we have strategically developed
a network of branches and sub-branches in over 50 cities in China. We prioritize expanding into
cities that have stable housing market
synergetic to our established network. We have carefully selected the geographic location of our offices and had 120
branches and sub-branches
in China, with the majority located in Tier 1 or Tier 2 cities.
 
In practice, regulatory regime on property-backed
loans and mortgages may differ from region to region. Experiences of interacting with regulatory
authorities in different regions need
to be acquired through long-time business practice. Under the current regulatory framework, it is crucial for home
equity loan service
providers to have local knowledge and resources. Benefiting from our extensive network, we have developed deep local knowledge and
resources
throughout the loan service process from loan origination to security interest perfection, and to debt collection. Our local team works
closely with
local authorities and has gained recognition for our business operations and established good working relationships with
them.
 
We have also developed a cooperative relationship
with our experienced sales partners who work with local real estate brokers and banks who cannot
accommodate second lien collateral to
acquire high-quality borrowers.
 
Risk Management
 
As a core component of our sustainable business
model, we have developed a rigorous and robust risk management system. We focus on assessing
both credit risks of borrowers and quality
of collateral with our integrated online and offline processes. We refer borrowers who match the target profiles of
trust companies and
commercial banks, and share our risk assessment results before they perform their own independent credit assessment and make credit
decisions.
As of December 31, 2024, we had 403 employees in our risk management team. We impose strict guidelines on loan approvals and separation
of
loan approval and risk management. The loans we originated are divided into different categories by amount and are reviewed by various
levels of
seniority.
 
Our risk management is based on our institutional
knowledge and is well tested and evidenced by historical performance and based on our product
design, dual-factor risk assessment and
effective post-loan management procedures.
 
Credit risk mitigation embedded in product design
 
The home equity loans we facilitate primarily
take real properties located in Tier 1 and Tier 2 and other major cities as collateral. Our loan portfolio
spreads over 50 cities across
China. We believe that such geographic diversification better protects us against deterioration of local housing and economic
conditions.
To further limit credit risk, we devoted to control home equity loans up to 70% LTV ratio with weighted average LTV ratio of 60.0%, 62.0%
and 60.5% for home equity loans originated in 2022, 2023 and 2024, respectively, to ensure recovery in the event of borrower default.
The LTV ratio varies
for different types of real properties and is also adjusted pursuant to a borrower’s credit history and quality
of the collateral and may be lowered in the event
of a past default.
 
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We offer home equity loan products that allow
borrowers to repay only the interests by installments and repay the full principal amount when due.
 
In addition, we also provide home equity loan
products that require monthly payments comprising principal and interests repayments. This strategic
design allows us to timely monitor
borrowers’ creditworthiness and initiate collection process at an early stage. We review a borrower’s monthly cash flow
to
determine the tenor of the loan. Borrowers with stronger cash flow will have the option of shorter tenors, which may require larger payment
on each
installment. Borrowers with weaker cash flow are usually encouraged to take loans of longer tenor, so as to lower the amount of
each installment. We may
also require deposit payment for borrowers with past default. In addition, the maximum tenor of the loan is determined
by the term of the relevant trust
plan.
 
Dual-factor risk assessment with integrated
online and offline process
 
We perform rigorous risk assessment on prospective
borrowers and collateral in the following order:
 
Step 1: Collecting data on loan applicants
 
The first step of our borrower risk assessment
process is to collect data on applicants upon approval by the borrower. This is typically done through
information directly provided by
applicants in our standardized application package, and information we aggregate from a number of sources, including
various databases
and the Credit Reference Center of the People’s Bank of China.
 
Step 2: Verification of information collected on
loan applicants
 
The second step of our borrower risk assessment
process is to verify the information collected in Step 1. This is done through our offline identity
authentication procedures conducted
by local office staff together with corresponding sales partners, which typically consist of site visits to applicants’
residences
and business premises.
 
Step 3: Valuation of proposed collateral
 
We also perform risk assessment on the proposed
real property collateral. The proposed real property collateral is appraised by independent leading
online property appraisers and refined
by us on specifics such as liquidity value, location, neighborhood, type, facing direction, floor plan and size.
 
Step 4: Verification of collateral condition
 
We also take measures to verify the condition
of proposed collateral. Local office staff together with sales partners visit the property that a loan
applicant intends to pledge. As
part of the collateral assessment, we cross-check the preliminary valuation provided by our appraisal company partners with
local real
estate agents and bank mortgage documents.
 
After obtaining the authorization from the loan
applicant, we check its credit report and determine its outstanding first lien loan amount and the
identity of lender to the first lien
loan.
 
If our verification procedure on either a loan
applicant or collateral reveals significant discrepancies from the information provided by such applicant,
we will not recommend such
applicant to our trust company partners.
 
We determine the loan amount permitted to grant
the loan applicant based on the applicant’s credit status and collateral value. If both our trust partner
and the loan applicant
agree to the loan amount we advised, we will facilitate the signing of loan agreements and pledge agreement between them.
 
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Step 5: Perfection of collateral
 
The last step of our collateral risk assessment
process is to register the pledge over real properties under the names of trust company partners with the
local real property bureau.
 
Immediately before the pledge of collateral is
processed, we conduct a final lien search on the property to confirm if its lien status remains the same as
previously reviewed. In the
case that the lien status has not changed, we assist the borrower to pledge the collateral under the trust partner’s name. A
representative
from our company submits both the loan agreement and the pledge agreement to the local Housing Administration Bureau for the collateral
pledge, specifying that such collateral is exclusively pledged for protection of such loan. The Housing Administration Bureau will issue
a warrant that
clearly states the lender and the amount of the mortgage.
 
After successfully receiving the “deposit
receipt” issued by the Housing Administration Bureau, we transfer the receipt to our trust partner and inform
the trust partner
to release the loan to the borrower. Borrowers are obligated to return loan proceeds if the pledge is not successfully registered under
extreme circumstances.
 
Judicial
foreclosure of the collateral
 
We usually suggest our trust partners pursue foreclosure for loans
more than 90 days past due. According to the loan agreement, when a loan defaults,
our trust partners are entitled to the full recovery of the delinquent principal, delinquent interest and penalties if any. If the proceeds
from judicial disposal
of the collateral are sufficient to cover the aforementioned full recovery amounts, we will obtain the amount of
which may exceed the principal of the
delinquent loan.
 
When calculating the impairment loss, we consider
various expenses that may be incurred during the debt collection process, such as litigation fees,
attorney fees, and other costs directly
related to the collection process. The collection process to settle a past due loan generally takes one and a half to two
years.
 
In 2024, the amount of loans where the Company
abandoned the foreclosure process was RMB2.6 million. We abandon foreclosure when the
defaulting borrower has regenerated ability to
repay its debt by financing efforts or selling the collateral on its own and seeks to settle with the Company.
 
Effective
post-loan management procedures
 
Under the agreements with our trust company partners,
we are responsible for assisting our trust company partners in monitoring collection of overdue
principal and interest, and are authorized
by our trust company partners to oversee the collection process.
 
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Monitoring repayments. We help our trust
company partners closely monitor loan repayments, and help our sales partners closely monitor the real-time
repayment status by posting
them on the mobile app. Our system generates automatic payment reminders through SMSs one week before the due date.
Collaborating with
multiple sources of credit reference agencies, we help our trust company partners closely monitor if borrowers are involved in any new
litigations.
 
Monitoring collateral status. We help our
trust company partners selectively conduct searches against real property collateral depending on principal
amount outstanding and nature
and location of collateral. Such searches are supplemented with online revaluation of collateral through our appraisal
company partners
and the search results will be shared real-time with sales partners through the mobile app.
 
Debt collection. In an event of default,
we help our trust company partners utilize different collection measures with our integrated online and offline
process, and with the
assistance of our sales partners.
 
●
Within three to five business days past due, we and our sales partners will contact defaulting borrowers through SMSs or by phone
to understand
reasons for the nonpayment and inform them of past-due penalties.
 
●
After a loan is past due for over six days, we and our sales partners will arrange a site visit to further assess the situation. If
agreeable with the
defaulting borrower, we will arrange for quick disposal plans, or disposal of collateral voluntarily by the borrower
and repay the defaulted loans
with the proceeds. Meanwhile, we will conduct an online judgment search against the defaulting borrowers
and a lien search against the collateral.
Once payment is 20 days past due, we will assist the trust partner to start preparing documents
and materials for arbitration. Once payment is 30
days past due, we will assist the trust partner to initiate judicial proceedings against
the defaulting borrower and inform the relevant sales partners
of the situation. Once payment is 30 to 90 days past due, we and our sales
partners will continue the collecting efforts, including initiating private
negotiations with the borrower and requesting the borrower
to repay the loan through self-raising of money or voluntary sale of the collateral,
transferring the defaulted loans to the third parties,
and move forward with the arbitration process.
 
●
Typically, when payment is over 60 days past due, we will keep the sales partners informed and the sales partners shall choose from
the following
options, including (i)(1) full repayment to us for the total unpaid principal and accrued and overdue interests under the
respective loan agreement
on behalf of the borrower and acquiring respective credit rights, (i)(2) repayment in installments to us for
the total unpaid principal and accrued
and overdue interests under the respective loan agreement on behalf of the borrower and acquiring
respective credit rights under each installments;
(ii) repayment to us for the unpaid principal and accrued and overdue interests under
the respective loan agreement on behalf of the borrower, and
if the borrower pays the payments under the loan agreement, the repayment
by the sales partner on behalf of the borrower will be refunded to the
sales partner; or (iii) relinquishing the respective CRMPs for
such loan. If the sales partners do not choose to fully repay us as mentioned in (i) and
(ii) above, we will confiscate the CRMP corresponding
to the loan in default. Meanwhile, we will continue the collecting efforts and move
forward with the judicial process or quick disposal
plans. As of December 31, 2024, for all of the loans with payment over 60 days past due, our
sales partners have either fulfilled or are
in the process of fulfilling their obligations under our agreements with them.
 
We have implemented detailed debt collection guidance and code of conduct
for our local staff to ensure our debt collection methods are ethical and in
compliance with laws and regulations, and we share such materials
with our sales partners for them to adjust their debt collection procedures accordingly.
We recovered loan principal, interest and penalties
which equal to 105.2%, 106.9% and 109.1% of the actual outstanding loan principal of these delinquent
loans in 2022, 2023 and 2024, respectively.
 
Transferring default loans to third parties is
one of our loan recovery methods. If sales partners choose to fulfill their obligations to provide guarantee
for the loans they introduced
by repurchasing the delinquent loans according to the collaboration agreements signed between us and the sales partners, we
would assist
the trust partner to fully transfer the outstanding loan and related rights to the collateral to the sales partners at current market
fair value.
 
71

 
Under the circumstances of selling delinquent loans to local investment
asset management companies, experienced law firms or other entities, our
post-loan department conducts a final check to determine the
probability of recovering those loans by other collecting methods in shorter time before
making the final decision on whether to sell
those loans to a third party.
 
Collateral
 
The borrowers pledge their real properties to
our trust company partners in the case of trust lending, to the guarantee companies in case of commercial
bank partnership, and to our
small loan subsidiaries in case of direct lending. We have developed detailed guidelines for real property collateral. The LTV
ratios
are also adjusted based on the type of property (residential or commercial), floor plan, age and credit history of property owners. As
of December 31,
2024, the updated LTV as of the most recent balance sheet date was 60.5%, with 54.2% for the first lien loans and 65.2%
for the second lien loans, which is
calculated by the percentage of outstanding loan principal of the re-appraised collateral value as
of December 31, 2024. In the circumstances where we are
facilitating the second lien loans, we have to obtain a prior authorization from
the borrower before it checks the borrower’s credit status for the updated first
lien balance, which is not practical in daily operation.
Therefore, we use outstanding first lien balance at origination in the above calculation.
 
The following table illustrates the weighted average
LTV ratio of on-balance sheet home equity loans (excluding loans held for sale) under trust
lending model we originated for the periods
or as of the dates indicated, and a breakdown by collateral type.
 
 
 
For the Year Ended December 31,
 
 
 
2022
 
 
2023
 
 
2024
 
Weighted average LTV ratio by collateral type
 
  
 
  
 
  
First lien
 
  
 
  
 
  
Apartment
   
56.6%    
56.4%    
54.8%
House
   
41.0%    
44.7%    
37.6%
Commercial property
   
21.9%    
46.0%    
46.3%
Total
   
55.5%   
56.0%   
54.2%
Second lien
   
  
   
  
   
  
Apartment
   
63.6%    
66.6%    
66.6%
House
   
48.3%    
50.8%    
52.8%
Commercial property
   
28.5%    
–%    
–%
Total
   
62.9%   
66.0%   
65.2%
Total
   
60.0%   
62.0%   
60.5%
 
On- and off-Balance Sheet Loans
 
For loans disbursed indirectly through trusts
plans per the request of our funding partners, we have determined that we are the primary beneficiary of
the trusts plans. We therefore
consolidate the trusts plans and record the loans funded through these trusts plans on our balance sheet. On-balance-sheet
loans are recorded
at amortized costs. Revenues from these loans are accounted as interest income, and we recorded allowance for loan loss.
 
Off-balance sheet loans refer to loans funded
and disbursed directly by commercial banks and not consolidated on our balance sheet. For the off-
balance-sheet loans, we provide loan
facilitation and post-facilitation services and also guarantee the repayment through third-party guarantee company. As
a result, we incur
guarantee liabilities and take credit risks. Services provided in connection with this portion of loans are categorized under commercial
bank partnership model.
 
72

 
 
 
As of December 31,
 
 
 
2022
 
 
2023
 
 
2024
 
 
 
Outstanding
loan principal
(RMB in
millions)
   
% of total
 
 
Outstanding
loan principal
(RMB in
millions)
   
% of total
 
 
Outstanding
loan principal
(RMB in
millions)
   
% of total
 
On-balance sheet loan
   
8,991     
78.4%   
11,828     
74.1%   
10,212     
81.1%
Trust lending model
   
8,976     
78.3%    
11,784     
73.9%    
9,933     
78.8%
Direct lending
   
15     
0.1%    
44     
0.2%    
279     
2.2%
Off-balance sheet loan
   
2,470     
21.6 
   
4,128     
25.9%   
2,386     
18.9%
Commercial bank partnership model
   
2,470     
21.6%    
4,128     
25.9%    
2,386     
18.9%
Total
   
11,461     
100.0%   
15,956     
100.0%   
12,598     
100.0%
 
The following table illustrates distribution of
our outstanding on-balance sheet loan principal (excluding loans held for sale) by city tier as of
December 31, 2022, 2023 and 2024, respectively.
 
 
 
As of December 31,
 
 
 
2022
 
 
2023
 
 
2024
 
 
 
Amount
(RMB in
millions)
   
% of total
 
 
Amount
(RMB in
millions)
   
% of total
 
 
Amount
(RMB in
millions)
   
% of total
 
Outstanding loan principal (excluding
loans held for sale) by collateral city
tier
 
    
  
 
    
  
 
    
  
Tier 1
   
3,110     
34.6%    
4,479     
48.7%    
3,149     
48.5%
Tier 2
   
5,497     
61.1%    
4,453     
48.5%    
2,595     
40.0%
Others
   
384     
4.3%    
256     
2.8%    
752     
11.6%
Total
   
8,991     
100.0%   
9,188     
100.0%   
6,496     
100.0%
 
The process for updating collateral values during
the period the loan is held includes the following: (i) regular review and reappraisal of collateral
value based on the data from multiple
external online appraisal firms; (ii) if the difference between the reappraised value and the value at origination
exceeds 20%, we will
determine whether such difference is due to regional market fluctuations and accept such reappraised value if the difference is
determined
to result from regional market fluctuations, and (iii) if the value difference is determined to be isolated from regional market fluctuations,
we
will check with recognized housing agent companies for the latest market sales price for properties with similar conditions such as
locations, floorplans and
ages, and use the average value of such similar properties as the ultimate reappraised value of the collateral.
 
The following table illustrates the breakdown
of our home equity loan origination volume originated by first lien and second lien in the periods
indicated.
 
 
 
For the Year Ended December 31,
 
 
 
2022
 
 
2023
 
 
2024
 
 
 
Amount
   
% of total
 
 
Amount
   
% of total
 
 
Amount
   
% of total
 
 
 
(RMB in millions)
 
Loan origination volume by first/second
lien
 
    
  
 
    
  
 
    
  
First lien
   
5,790     
39.4%    
6,412     
37.1%    
4,051     
41.3%
Second lien
   
8,922     
60.6%    
10,883     
62.9%    
5,759     
58.7%
Total
   
14,712     
100.0%   
17,295     
100.0%   
9,810     
100.0%
 
73

 
The following table illustrates distribution of
our outstanding on-balance sheet loan principal (excluding loans held for sale) generated by first lien and
second lien in the periods
indicated.
 
 
 
As of December 31,
 
 
 
2022
 
 
2023
 
 
2024
 
 
 
Amount
   
% of total
 
 
Amount
   
% of total
 
 
Amount
   
% of total
 
 
 
(RMB in millions)
 
Outstanding loan principal (excluding
loans held for sale) by first/second lien
 
    
  
 
    
  
 
    
  
First lien
   
3,360     
37.4%    
3,477     
37.8%    
2,470     
38.0%
Second lien
   
5,631     
62.6%    
5,711     
62.2%    
4,026     
62.0%
Total
   
8,991     
100.0%   
9,188     
100.0%   
6,496     
100.0%
 
 
 
As of
December 31, 
2024*
 
Loans principal (excluding loans held for sale)
 
Total
 
 
 
(RMB in
thousands)  
First lien
   
  
Apartment
   
2,354,773 
House
   
100,584 
Commercial property
   
14,806 
Total
   
2,470,163 
Second lien
   
  
Apartment
   
3,721,312 
House
   
304,534 
Commercial property
   
- 
Total
   
4,025,846 
Total
   
6,496,009 
 
 
 
As of
December 31,
2023*
 
Loans principal (excluding loans held for sale)
 
Total
 
 
 
(RMB in
thousands)  
First lien
 
  
Apartment
   
3,337,223 
House
   
125,227 
Commercial property
   
14,253 
Total
   
3,476,703 
Second lien
   
  
Apartment
   
5,499,286 
House
   
212,233 
Commercial property
   
75 
Total
   
5,711,594 
Total
   
9,188,297 
 
74

 
 
 
As of December 31, 2022
 
Loans principal (excluding loans held for sale)
 
The
traditional
facilitation
model
   
The
collaboration
model
   
Total
 
 
 
(RMB in thousands)
 
First lien
Apartment
   
5,299     
3,220,281     
3,225,580 
House
   
–     
89,732     
89,732 
Commercial property
   
–     
44,223     
44,223 
Total
   
5,299     
3,354,236     
3,359,535 
Second lien
   
      
      
  
Apartment
   
47,334     
5,387,583     
5,434,918 
House
   
–     
164,852     
164,852 
Commercial property
   
–     
32,146     
32,146 
Total
   
47,334     
5,584,581     
5,631,916 
Total
   
52,633     
8,938,817     
8,991,451 
 
 
*
As of December 31, 2024, we ceased calculating and providing
outstanding loan principal under the traditional facilitation model separately because
the balance of outstanding loan principal under
the traditional facilitation model was small and immaterial to the overall loan portfolio.
 
Technology
 
Our technology departments is composed of three
employees as of December 31, 2024. We utilize our home equity loan information technology
system to support our standardized credit application
process. Through our information technology system, we are able to connect with third-party service
providers’ systems, including
credit risk evaluation systems and leading property appraisers, to automatically collect data generated from their systems. In
addition,
our local staff uploads information collected during the due diligence process on a timely basis to supplement external credit data and
ensure
efficient approval process. Furthermore, we exchange loan application and approval information through our information technology
system with our trust
company partners’ systems. Our sales partners could acquire borrowers, upload due diligence files, track risk
assessment processes and check their
incentives online using this system.
 
We collect and store user personal information,
including names, phone numbers, addresses, identification information and financial information for
the sole purpose of individual credit
assessment. We retrieve such information with consent and have safeguards designed to protect such information. We
store our data in encrypted
form, which offers an additional layer of protection. We also verify data interchange with our funding partners using digital
signatures,
which enhances the security of such interchange. We also limit employees’ access to such information and monitor authorized access.
 
Sales and Marketing
 
We acquire borrowers primarily through our sales
partners. In 2022, 2023 and 2024, over 95.0% of our borrowers were introduced to us by our sales
partners under the trust lending model.
In 2023, we started to introduce sales partners under the commercial bank partnership model. In 2024, 99.1% of
borrowers introduced to
commercial banks were acquired through our sales partners, and 0.9% of borrowers introduced to commercial banks were acquired
through
local channel partners including corporate and individual offline channels and telemarketing companies. For details, please refer to “Item
4.
Information on the Company—B. Business Overview—Our Borrower—Borrower Acquisition.”
 
75

 
Intellectual Property
 
We rely on a combination of patent, copyright,
trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights.
We have registered 17 software
copyrights in China, including our proprietary loan management software and financial data analytics software. We have
registered our
domain name, cashchina.cn. As of December 31, 2024, we had 46 registered trademarks, including our “CNFH” and company logo.
 
Despite our efforts to protect our intellectual
property rights, unauthorized parties may attempt to obtain and use our intellectual property. Monitoring
unauthorized use of our intellectual
property is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation of
our intellectual
property. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial
costs and diversion of our resources. In addition, third parties may initiate litigation against us alleging infringement of their proprietary
rights or declaring
their non-infringement of our intellectual property rights. In the event of a successful claim of infringement and
our failure or inability to develop non-
infringing technology or license the infringed or similar technology on a timely basis, our business
could be harmed. Even if we are able to license the
infringed or similar technology, license fees could be substantial and may adversely
affect our results of operations. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Our Business—Any
failure to protect our own intellectual property rights could impair our brand, negatively impact our
business or both” and “Item
3. Key Information—D. Risk Factors—Risks Related to Our Business—We may be sued by third parties for alleged
infringement
of their proprietary rights, which could harm our business.”
 
Data Policy
 
We have adopted a strict internal data policy
relating to confidential information of our borrowers and business partners, as well as our own
confidential information. This policy
establishes day-to-day data protection and use requirements, data and information classification, backup requirements,
approval procedures
and user control. This policy also specifies the manner in which data must be stored. We require each of our employees to agree in
writing
to abide by the data policy and protect the confidentiality of our data.
 
Competition
 
As a leader in China’s home equity loan
service industry, we face competition from other national or regional home equity loan providers and home
equity loan service providers,
as well as from commercial banks and other traditional financial institutions. As our business continues to grow, we also face
significant
competition for highly skilled personnel, including management, marketing team and risk management personnel. The success of our growth
strategy depends in part on our ability to retain existing personnel and recruit additional highly skilled employees.
 
Insurance
 
We provide social security insurance including
pension insurance, unemployment insurance, work-related injury insurance and medical insurance for
our employees. We also purchased employer’s
liability insurance and additional commercial health insurance to increase insurance coverage of our
employees. We do not maintain property
insurance to protect our equipment and other properties essential to our business operation against risks and
unexpected events. We do
not maintain business interruption insurance or general third-party liability insurance, nor do we maintain product liability
insurance
or key-man insurance. We consider our insurance coverage sufficient and in line with market practice for our business operations in China.
 
Regulation
 
This section sets forth a summary of the most
significant rules and regulations affecting our business that we operate in China.
 
As a home equity loan service provider, we facilitate
loans by connecting borrowers with our trust company partners, and, to a lesser extent, we also
lend directly to borrowers through our
small loan subsidiaries. We have established three small loan subsidiaries in Beijing, Chongqing and
Shenzhen that
are permitted to operate small loan businesses.
 
76

 
Regulations Relating to Foreign Investment
 
The establishment, operation and management of
companies in China is governed by the PRC Company Law, as amended in 2005, 2013, 2018, and
2023. According to the PRC Company Law, companies
established in the PRC are either limited liability companies or joint stock limited liability
companies. The establishment procedures,
organizational form, organizational structure and rules of conduct of a wholly foreign-owned enterprise are
subject to PRC Foreign Investment
Law and its Implementing Regulations, that came into effect on January 1, 2020, which provide that foreign investors
shall not invest
in the fields or industries prohibited for foreign investment access listed in the negative list, and shall comply with the conditions
or
requirements when investing in the restricted fields listed in the negative list, and foreign investors investing in the fields and
industries not listed in the
negative list are treated equally with the domestic investors. The organizational form, organizational structure,
and rules of conduct of foreign-invested
enterprises shall be governed by the PRC Company Law, the PRC Partnership Enterprise Law and
other applicable laws.
 
On December 29, 2023, the Standing Committee of
the 14th National People’s Congress (the “Congress”) issued the Amendment to the PRC
Company Law, to be effective on
July 1, 2024, which expands the scope of capital contributions to include equity and creditor’s rights. The draft improves
the provisions
of duties of loyalty and diligence for directors, supervisors, and senior managers, and tighten their responsibilities to maintain the
Company’s capital. The draft increases the reporting obligations of related party transactions and expands the scope of related
parties to include family
relatives of directors, senior management and supervisors as well as units or individuals associated with them.
 
On December 30, 2019, the MOFCOM and the State
Administration for Market Regulation (“SAMR”) jointly issued the Measures for the Reporting
of Foreign Investment Information
(“Measures”), which came into effect on January 1, 2020, replacing the Interim Measures for the Administration of the
Establishment
and Change of Foreign-Invested Enterprises. The Measures provides that in terms of investing directly or indirectly in the PRC, foreign
investors or foreign-invested enterprises shall submit investment information to the competent commercial authority in accordance with
the Measures. The
competent commercial authority shall supervise and inspect the fulfillment of information reporting obligations of foreign
investors and foreign-invested
enterprises. If investment information is not filed in accordance with the Measures, foreign-invested enterprises
may be required to make corrections or be
subject to fines.
 
Special Administrative Measures for Access of Foreign
Investment (Negative List) (2024 Version)
 
The Negative List uniformly lists special administrative
measures on foreign investment access such as requirements on equity interest and
management. Foreign investors investing in the fields
and industries not listed in the negative list are treated equally with the domestic investors. The
Negative List lists the transitional
period for removing or relaxing access restrictions in certain fields and industries. After the transitional period, the
investment access
restrictions will be cancelled or relaxed. Our business is currently not listed in the Negative List (2024 Version). According to Measures
for Security Review of Foreign Investment, which was promulgated by the NDRC and the Ministry of Commerce in December 2020 and has been
come
into effect in January 2021, the Foreign Investment Security Review Mechanism, or the Security Review mechanism, in charge of organization,
coordination and guidance of foreign investment security review is thereunder established. A working mechanism office shall be established
under the
NDRC and led by the NDRC and the Ministry of Commerce to undertake routine work on the security review of foreign investment.
According to the
Security Review Mechanism, foreign investment activities falling in the scope such as important cultural products and
services, important information
technologies and internet products and services, important financial services, key technologies and other
important fields that concern state security while
obtaining the actual control over the enterprises invested in, a foreign investor or
a party concerned in the PRC shall take the initiative to make a
declaration to the working mechanism office prior to making the investment.
 
77

 
Regulations Relating to Small Loan
 
Under the Guiding Opinions of the CBRC and the
PBOC on the Pilot Operation of Small Loan Companies which was promulgated by the CBRC and
the PBOC on May 4, 2008, or the Guiding Opinions
on Small Loan Companies, a small loan company is a company that specializes in operating a small
loan business with investments from natural
persons, legal entities or other social organizations, and which does not accept public deposits. The
establishment of a small loan company
is subject to the approval of the competent government authority at the provincial level. The major sources of funds
for a small loan
company are limited to capital paid by shareholders, donated capital and capital borrowed from up to two financial institutions.
Furthermore,
the balance of the capital borrowed by a small loan company from financial institutions must not exceed 50% of the net capital of such
small
loan company, and the interest rate and term of the borrowed capital are required to be determined by us with the banking financial
institutions upon
consultation, and the interest rate on the borrowed capital must be determined by using the Shanghai Interbank Offered
Rate as the base rate. With respect
to the grant of credit, small loan companies are required to adhere to the principle of “small
sum and decentralization.” The outstanding balance of the
loans granted by a small loan company to one borrower cannot exceed 5%
of the net capital of such company. The interest ceiling used by a small loan
company may be determined by such companies, but in no circumstance
shall it exceed the restrictions prescribed by the judicatory authority, and the
interest floor is 0.9 times the base interest rate published
by the PBOC. Small loan companies have the flexibility to determine the specific interest rate
within the range depending on market conditions.
In addition, according to the Guiding Opinions on Small Loan Companies, small loan companies are
required to establish and improve their
corporate governance structures, the loan management systems, the financial accounting systems, the asset
classification systems, the
provision systems for accurate asset classification and their information disclosure systems, and such companies are required to
make
adequate provision for impairment losses and are required to accept public scrutiny supervision and are prohibited from carrying out illegal
fund-
raising in any form.
 
On September 7, 2020, China Banking and Insurance
Regulatory Commission issued the Circular of General Office of the China Banking and
Insurance Regulatory Commission on Strengthening
the Supervision and Administration of Micro-loan Companies, namely the Circular on Microloan
Companies. Circular on Micro-loan Companies
aims to promote the regulated and healthy development of micro-loan industry, and notifies the relevant
matters as follows: (1) regulating
business operations and improving service capabilities, (2) improving business management and promoting healthy
development, (3) strengthening
supervision and administration and rectifying the order of the industry, and (4) increasing support and creating a good
environment. Accordingly,
micro-loan companies are required to adhere to the principle of small amounts and dispersion, monitor the loan purposes,
standardizing
debt collection, etc. Furthermore, Circular on Micro-loan Companies endows the regulatory authorities the power to increase penalties
upon
violations of relevant laws and regulations. If the relevant laws and regulations do not contain penalty provisions or the micro-loan
company in violation of
laws and regulations does not reach the penalty standards, the regulatory authorities may take such regulatory
measures as conducting a regulatory
interview, issuing a warning letter, ordering the Company to make rectifications, circulating a notice
of criticism, and recording the violations of laws and
regulations into the information database of illegal business behavior. Circular
141 outlines general requirements on the “cash loan” business conducted by
network small loan companies, banking financial
institutions and online lending information intermediaries.
 
On January 17, 2025, China’s National Financial
Regulatory Administration (NFRA) issued the Interim Measures for the Supervision and
Administration of Micro-Loan Companies (“Measures”),
which came into force on the same day and replaces the 2020 the Circular on Microloan
Companies. The Measures introduce stricter geographic
restrictions, prohibiting traditional micro-loan companies from operating across provincial
boundaries, while online micro-lenders must
adhere to region-specific licensing requirements. Loan limits are tightened, with individual consumer loans
capped at RMB200,000 per
borrower and business loans at RMB1 million, alongside stricter concentration rules that restrict loans to a single borrower to
10% of
a company’s net assets (15% for related parties). To curb excessive leverage, external financing is confined to a “1+4”
model, limiting non-
standardized and standardized financing to 1x and 4x net assets, respectively. The Measures explicitly ban high-risk
practices such as license leasing, public
deposit-taking, and misleading marketing tactics like promoting “low-interest” or
“high-limit” loans. The Measures required mandating micro-loan
companies to classify loans overdue for 90 days as non-performing
and adopt segregated accounts for fund management. Online lenders must digitize their
entire lending process and meet stringent cybersecurity
standards. Consumer safeguards are bolstered through enhanced transparency rules, requiring full
disclosure of product risks, and
strict data privacy measures that prohibit lending to minors or individuals without repayment capacity. Provincial regulators
are tasked
with primary oversight, supported by the NFRA’s unified rules and a new supervisory rating system to enforce risk-based, tiered
regulation.
 
78

 
Circular 141 requires network small loan companies
to cautiously manage their funding sources and shall not (1) engage in any illegal fundraising or
absorbing public deposits, (2) sell,
transfer or substantively transfer its credit assets through internet platform or any kind of local financial exchange, and
(3) raise
any funds through the Peer-to-Peer Lending Information Intermediaries.
 
Funds raised by the transferring of credit assets
and asset securitization shall be calculated in a consolidation manner within the balance sheet, and the
ratio of total amount of fundraising
and net capital shall be executed temporarily according to the local ratio. The local authorities shall not further relax the
ratio of
fundraising by the small loan companies.
 
Any violation of Circular 141 may result in penalties,
including but not limited to suspension of operation, orders to make rectification, condemnation,
revocation of license, order to cease
business operation and criminal liabilities.
 
Our small loan subsidiaries are not network small
loan companies, and we are not subject to the restrictions under the aforesaid regulation. But whether
the relevant regulatory authorities
will have a more limited explanation or make further restrictions on small loan businesses remains uncertain at this stage.
 
Interim Administrative Measures of Small Loan Companies
in Shenzhen
 
The Interim Administrative Measures of the Pilot
Small Loan Companies of Shenzhen was issued by the People’s Government of Shenzhen
Municipality on September 3, 2011. The Notice
on Further Reinforcement and Regulation on Interim Guidance on Pilot Entry and Approval of the Small
Loan Companies was issued by the
Finance Development Service Office of Shenzhen Municipality on April 3, 2013. The Notice on the Pilot Business of
Financing Innovation
for Small Loan Companies in Shenzhen was issued by the People’s Government of Shenzhen Municipality Financing Development
Service
Office on February 20, 2014. The key regulations of small loan companies in Shenzhen are as follows:
 
●
if a small loan company is a limited liability company, its registered capital must be at least RMB300 million; if it is a company
limited by shares,
its registered capital must be at least RMB400 million;
 
●
the balance of funds obtained by a small loan company from external legitimate channels may not exceed 200% of its net capital the
previous
year;
 
●
the main promoter of a small loan company shall (1) have net assets no less than RMB200 million and an asset-liability ratio of no
more than
65%, and, in principle, the long-term investment amount after investing in this project shall be no more than 60% of net assets
(on a consolidated
financial statements basis); and (2) have continuous positive earnings for three years with a total net profit of no
less than RMB60 million, and the
total tax contribution shall be no less than RMB18 million (on a consolidated financial statements basis);
 
●
enterprise, social organization or economic organization as other contributors shall be divided into two categories: (1) if the ratio
of investments is
30% or more, it shall be subject to the approval process as the main promoter; and (2) if the ratio of investments is
no more than 30%, it shall be
subject to the following conditions: having been incorporated for more than three years with net assets
no less than RMB100 million and an asset-
liability ratio no more than 65%, and, in principle, the long-term investment amount after investing
on this project shall be no more than 60% of
net assets, having continuous positive earnings for two years with a total net profit of
no less than RMB20 million, and the total tax contribution
shall be no less than RMB6 million (on a consolidated financial statement basis);
 
●
if a foreign financial institution or small loan credit company (or other similar entity) is the main promoter, it shall be subject
to the following
conditions: (1) having total assets no less than RMB2 billion (on a consolidated financial statement basis); (2) having been
engaged in financial
business and continuously operating for no less than 10 years with sufficient analysis and research on the small
loan market in China; and (3) shall
obtain the approval of the financial regulation authorities as a bank financing institution;
 
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●
the key management personnel may hold no more than 5% of shares of the small loan company, and, as a temporary restriction, no other
social
natural person may contribute to the small loan company;
 
●
the main promoter shall contribute no less than 30% of the total registered capital and shall control the Company relatively, other
contribution by
other entities shall be no less than 5% of the total registered capital; and
 
●
the equity interests of a small loan company may be transferred, but no transfer or pledge is allowed in the first three years following
the
incorporation of the small loan company. Equity interests held by the directors or senior managers of the small loan company shall
not be
transferred during the term of office. As the time expires, the transferee shall have qualifications as the transferor, and the
transferee shall not
transfer its shares within three years following the date of change of registration of shares.
 
Guidance on Small Loan Companies in Chongqing
 
Guidance on Chongqing’s Promotion of Pilot
Operation of Small Loan Companies was issued by the People’s Government of Chongqing Municipality
on August 1, 2008. The Notice
on Issues Concerning the Adjustment of Interim Measures of Chongqing Municipality for the Administration of Pilot
Operation of Small Loan
Companies was issued by the People’s Government of Chongqing Municipality on April 27, 2009. The Notice on Further
Promoting the
Development of Small Loan Companies was issued by the People’s Government of Chongqing Municipality on April 12, 2011. The Notice
on Interim Supervision Regulations on Chongqing Small Loan Companies Financing Supervision was issued by Chongqing Financing Business
Office on
June 4, 2012. The Guidelines for the Supervision of the Establishment and Change of Chongqing Small Loan Company (Trial Implementation)
was issued
by the Chongqing Finance Office, and implemented on July 1st, 2013. The Notice on Adjusting Regulations of Chongqing Small
Loan Company was
issued by the Chongqing Finance Office on October 27, 2016. On November 15, 2019, Chongqing Local Financial Supervision
Administration (CQLFSA)
issued the Guideline for Disclosure of Service Information of Chongqing Small Loan Companies. On November 26,
2019, CQLFSA issued the Notice on
Guiding Small Loan Companies to Reduce Loan Interest Rates. On February 17, 2020, CQLFSA issued the
Notice on Guiding Small Loan Companies to
Support Epidemic Prevention and Control to Provide Financial Services for the Real Economy,
which was effective until June 30, 2020. The key
regulations of small loan companies in Chongqing are as follows:
 
●
if a small loan company is a foreign investment company, its registered capital must be at least US$30 million, and the shareholding
of the foreign
investor must be more than 50%;
 
●
for small loan companies with sound corporate management and strong risk management ability, the balance of the capital borrowed from
banking
financial institutions can be 100% of its net capital;
 
●
the balance of loans granted to a single borrower by a small loan company must not exceed 10% of the net capital of the Company and
the balance
of credit limit granted to a single client as a group enterprise must not exceed 15% of the net capital of the small loan
company;
 
●
support qualified small loan companies to increase their capital and shares, as well as mergers and acquisitions to enhance their
capital strength;
and
 
●
support small loan companies to list on domestic and overseas capital markets, and make good use of cross-border financing channels
such as
cross-border loans and overseas bond issuance under the China-Singapore (Chongqing) Strategic Interconnection Demonstration Project
to obtain
low-cost and long-term overseas funds.
 
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Regulations Relating to Loan Facilitator
 
Circular 141 imposes several requirements on financial
institutions engaged in the “cash loan” business. With respect to the loan business conducted in
cooperation with third-party
entities, such financial institutions must not outsource their core business function (including credit assessment and risk
control) and
must not accept any credit enhancement services, whether or not in a disguised form (including the commitment to taking default risks)
provided by any third-party entities that lack the qualification to provide guarantee services. Such financial institutions must require
and ensure that such
third-party entities do not charge any interest or fees from the borrowers. We historically provided credit enhancement
to our trust company partners, but all
the remaining loans under such arrangement had been transferred in 2021 and substantially all of
such remaining loans had been paid off in 2022. We
historically charged a financing service fee from the borrower under our trust lending
model and small loan direct lending model, but we ceased charging
such financing service fee starting from August 2017.
 
Regulations Relating to Loans and the Interest
Rate
 
Part III Contracts of Civil Code of People’s
Republic of China, which became effective in January 2021, or the Contract Part, governs the formation,
validity, performance, enforcement
and assignment of contracts. To further clarify the specific application relating to the Contract Part, the PRC Supreme
People’s
Court promulgated the Judicial Interpretation of Several Issues Concerning the Application of Contract Part of the Civil Code of the People’s
Republic of China, which came into force on December 5, 2023. The Contract Part requires that the interest rates charged under a loan
agreement must not
violate the applicable provisions of the PRC laws and regulations. In accordance with the Decision of the Supreme People’s
Court on Revising the
Provisions on Several Issues concerning the Application of Law in the Trial of Private Lending Cases (2nd Revisions
in the year of 2020) issued by the
PRC Supreme People’s Court in December 2020 and effective since January 2021, or the Revised
Private Lending Judicial Interpretations, private lending
refers to the act of financing among natural persons, legal persons and unincorporated
organizations.
 
The revised Private Lending Judicial Interpretations
required to reduce the maximum annual interest rate allowed on private lending to four times of
the one-year loan prime rate (LPR). The
one-year LPR refers to the one-year loan market quoted interest rate issued by the National Bank Interbank
Funding Center, which was authorized
by the PBOC, on the 20th of each month since August 20, 2019.
 
According to the Official Reply of the Supreme
People’s Court to the Issues concerning the Scope of Application of the New Judicial Interpretation on
Private Lending, The Revised
Private Lending Judicial Interpretations on private lending shall not apply to disputes arising from engagement in relevant
financial
business by small loan companies.
 
Regulations Relating to Financing Guarantee
 
In March 2010, CBRC, NDRC, MIIT, MOFCOM, PBOC,
SAIC and the Ministry of Finance of PRC promulgated the Tentative Administrative
Measures for Financing Guarantee Companies. The Tentative
Administrative Measures for Financing Guarantee Companies requires an entity or individual
to obtain a prior approval from the relevant
regulatory body to engage in the financing guarantee business and defines “financing guarantee” as an activity
whereby the
guarantor and the creditor, such as a financial institution in the banking sector, agree that the guarantor shall bear the guarantee obligations
in
the event that the secured party fails to perform its financing debt owed to the creditor.
 
In August 2017, the State Council promulgated
the Regulations on the Supervision and Administration of Financing Guarantee Companies, or the
Financing Guarantee Regulations, which
became effective on October 1, 2017. The Financing Guarantee Regulations define “financing guarantee” as a
guarantee provided
for debt financing (including but not limited to the extension of loans or issuance of bonds) and set out that the establishment of a
financing guarantee company or engagement in the financing guarantee business without approval may result in several penalties, including
but not limited
to banning, an order to cease business operation, confiscation of illegal gains, fines of up to RMB1,000,000 and criminal
liabilities. The Financing
Guarantee Regulations also set forth that the outstanding guarantee liabilities of a financing guarantee company
shall not exceed 10 times its net assets and
that the outstanding guarantee liabilities of a financing guarantee compacities of 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 in respect of the same guaranteed party and its
affiliated parties
shall not exceed 15% of its net assets.
 
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The Supplementary Provisions stipulate that any
institution, which provides services such as customer recommendation and credit evaluation for
different kinds of lending institutions,
shall not provide any financing guarantee services directly or in a disguised way, without approval. As for an
institution which has no
business license for financing guarantee business but actually engages in the financing guarantee business, the competent
supervision
and administration department shall ban it in accordance with the Regulation on Financing Guarantee Companies and order it to properly
settle
the stock business. If the institution intends to continue to engage in the financing guarantee business, it shall establish a
financing guarantee company
pursuant to the Regulation on Financing Guarantee Companies.
 
The Circular of the China Banking and Insurance
Regulatory Commission on Issuing the Procedures for the Off-site Supervision of Financing
Guarantee Companies (the Off-site Supervision
Circular) was promulgated on July 14, 2020 and took effect on September 1, 2020. The Off-site
Supervision Circular stipulates that financing
guarantee companies should establish and implement an off-site supervision information filing system, and
file the off-site supervision
data and non-data information according to the requirement of regulatory authorities in time. If the financing guarantee
companies do
not comply with the requirement of regulatory authorities, regulatory authorities can exert penalties in compliance with relevant laws
and
regulations.
 
Regulations Relating to Illegal Fundraising
 
Raising funds by entities or individuals from
the general public must be conducted in strict compliance with applicable PRC laws and regulations to
avoid administrative and criminal
liabilities. The Notice on Relevant Issues Concerning the Penalty on Illegal Fundraising issued by the General Office of
the State Council
in July 2007 explicitly prohibit illegal public fundraising. The main features of illegal public fundraising include: (i) illegally soliciting
and raising funds from the general public by means of issuing stocks, bonds, lotteries or other securities without obtaining the approval
of relevant
authorities, (ii) promising a return of interest or profits or investment returns in cash, properties or other forms within
a specified period of time and (iii)
using a legitimate form to disguise an unlawful purpose.
 
To further clarify the criminal charges and punishments
relating to illegal public fundraising, the Supreme People’s Court promulgated the Judicial
Interpretations to Issues Concerning
Applications of Laws for Trial of Criminal Cases on Illegal Fundraising, or the Illegal Fundraising Judicial
Interpretations, which came
into force in January 2011. Decision of the Supreme People’s Court on Revising the Interpretations of the Supreme People’s
Court on Certain Issues Concerning the Specific Application of Law in the Trial of Criminal Cases Involving Illegal Fund Raising came
into force on
March 1, 2022. The Illegal Fundraising Judicial Interpretations provides that a public fundraising will constitute a criminal
offense related to “illegally
soliciting deposits from the public” under the PRC Criminal Law if it meets all the following
four criteria: (i) taking in funds without license of the relevant
authority or under the disguise of lawful business operations; (ii)
publicizing by means of Internet, media, recommendation fairs, leaflets or mobile phone
text messages, or other means; (iii) promising
to repay the principal and interests or make payments in forms such as currency, real objects or equities,
within a certain time limit;
and (iv) absorbing funds from the general public, namely unspecified people. An illegal fundraising activity can incur a fine or
prosecution
in the event it constitutes a criminal offense. Pursuant to the Illegal Fundraising Judicial Interpretations, an offender that is an entity
will be
subject to criminal liabilities if it illegally solicits deposits from the general public or illegally solicits deposits in disguised
form (i) with the amount of
deposits involved exceeding RMB1,000,000, (ii) with over 150 fundraising targets involved, (iii) with direct
economic loss caused to fundraising targets
exceeding RMB500,000, or (iv) the illegal fundraising activities have caused baneful influences
to the public or have led to other severe consequences. In
addition, any entity that, while knowingly aware that another party deceptively
issues securities, illegally accepts deposits from the general public, issues
stocks and corporate bonds without permission, practice
fund-raising fraud, or carry out fund-raising criminal activities such as organizing and leading
pyramid sales activities, provides publicity
such as advertising to such party, shall be convicted and punished as an accomplice for committing the relevant
crime. In accordance with
the Opinions of the Supreme People’s Court, the Supreme People’s Procurator and the Ministry of Public Security on Several
Issues concerning the Application of Law in the Illegal Fundraising Criminal Cases, the
administrative proceeding for determining the nature of illegal
fundraising activities is not a prerequisite procedure for the initiation
of criminal proceedings concerning the crime of illegal fundraising, and the
administrative departments’ failure in determining
the nature of illegal fundraising activities does not affect the investigation, prosecution and trial of cases
concerning the crime of
illegal fundraising. According to “the Notice of the Supreme People’s Court, the Supreme People’s Procuratorate and
the Ministry
of Public Security on the Promulgation of Opinions on Several Issues in Handling Criminal Cases of Illegal Fundraising”
issued in January 2019, the
determination of the “illegality” of fundraising shall be based on the laws and regulations of
the national financial management. If there are only general
stipulations in the laws and regulations of the national financial management,
the “illegality” could be determined in accordance with the spirit of laws and
regulations and the provisions on regulatory
documents such as regulations, measures, and implementation rules of the People’s Bank of China, the China
Insurance Regulatory
Commission, the China Securities Regulatory Commission.
 
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According to Regulations on Preventing and Dealing
with Illegal Fundraising, which came into effect in May 2021, illegal fundraising involves
collecting funds from non-specific targets
with promised principal and interest or other investment returns, without lawful permission from the State
Council’s financial management
departments or in violation of China’s financial management rules. Provincial-level governments should have overall
responsibility
for anti-illegal fundraising efforts within their respective administrative regions, and local governments should build necessary work
mechanisms. Financial and non-banking payment institutions should report large-value and suspicious transactions as required, and analyze
and identify
related accounts having suspected association with illegal fundraising.
 
Regulations Relating to Mortgage
 
The principal regulations governing mortgage include
the Part II Property Rights (including Security Rights) of Civil Code of the PRC and their
respective Interpretations of the Supreme People’s
Court. Under these laws and regulations, in order to create a legal and executable mortgage, the parties
concerned shall conclude a written
mortgage contract and complete the mortgage registration formalities with applicable real estate registration authorities.
Mortgage interests
shall be created at the time of registration.
 
Under the Part II Property Rights of Civil Code
of the PRC, a mortgage contract shall include, amongst others, the following terms: (1) type and
amount of the secured debt; (2) term
for performance of debt obligations by the debtor; (3) mortgaged property’s description, quality, quantity, condition,
location,
ownership or ownership of the right to use the mortgaged property; and (4) scope of the guarantee. In March 2019, the PRC Ministry of
Land and
Resources revised the Implementation Regulations for the Provisional Regulations on Real Estate Registration, according to which
the mortgage contract is
one of the required registration materials to be submitted to the real estate registration authorities.
 
Anti-money Laundering Regulations
 
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
nonfinancial 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 records and reports on
large
transactions and suspicious transactions.
 
In November, 2024, the Standing Committee of NPC
amended the PRC Anti-Money Laundering Law, which came into effect on January 1,2025.
According to the amendment, predicate acts of money
laundering include not only criminal activities, but also newly include illegal activities. The
amendment also includes in the scope of
Anti-money Laundering monitoring activities that conceal the nature of the proceeds of illegal activities and the
source of their proceeds.Where
a financial institution relies on a third party to conduct customer due diligence, the third party shall provide the financial
institution
with the necessary customer due diligence information and cooperate with the financial institution to continuously conduct customer due
diligence.
 
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The Measures for Supervision and Administration
of Anti-Money Laundering and Anti-Terrorism Financing of Financial Institutions, or the Anti-
Money Laundering Measures for Financial Institutions,
which became effective in April 2021, clarified that the following financial institutions duly
established within the PRC territory are subjected to fulfill anti-money laundering related obligations: (a) developmental financial institution,
policy banks,
commercial banks, rural cooperative banks, rural credit cooperatives and village/township banks; (b) securities companies,
futures companies and fund
management companies; (c) insurance companies and insurance asset management companies; (d) trust companies,
financial asset management companies,
finance companies of enterprise groups, financial leasing companies, auto finance companies, consumer
finance companies, currency brokerage companies
and wealth management subsidiaries of commercial banks; and (e) other financial institutions.
Besides, such obligations also apply to the non-bank
payment institutions, banks card organization, fund clearing center, microcredit
companies engaging in the internet microcredit lending business and the
institutions engaging exchange business, funds sales business,
insurance agency and brokers business. The PBOC and its branches shall carry out the
supervision and administration of the financial institutions’
work with regard to the antimoney laundering and anti-terrorism financing pursuant to the
relevant laws and regulations. The Anti-Money
Laundering Measures for Financial Institutions require the financial institutions to draft and improve the
anti-money laundering and anti-terrorism
financing internal control policy, evaluate the anti-money laundering and anti-terrorism financing risks, establish
the risks management
mechanism according to its risks conditions and operation scale, construct anti-money laundering information system, and set up or
appoint
institutions equipped with qualified staff, to perform its anti-money laundering and anti-terrorism financing obligations.
 
Regulations Relating to Internet Information
Security and Privacy Protection
 
Internet content in China is regulated and restricted
from a state security standpoint. On December 28, 2000, the Standing Committee of the PRC
National People’s Congress introduced
and enacted the Decisions on Maintaining Internet Security, which was amended on August 27, 2009 and may
subject violators to criminal
punishment in China for any effort to: (i) use the internet to market fake and substandard products or carry out false publicity
for any
commodity or service; (ii) use the internet for the purpose of damaging the commercial goodwill and product reputation of any other person;
(iii)
use the internet for the purpose of infringing on the intellectual property of any person; (iv) use the internet for the purpose
of fabricating and spreading
false information that affects the trading of securities and futures or otherwise jeopardizes the financial
order; or (v) create any pornographic website or
webpage on the internet, providing links to pornographic websites, or disseminating pornographic
books and magazines, movies, audiovisual products or
images. 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
and require internet service providers to take proper measures, including anti-virus, data backup
and other related measures, and keep
records of certain information about the users (including user registration information, log-in and log-out time, IP
address, content
and time of posts by users) for at least 60 days, and detect illegal information, stop transmission of such information and keep relevant
records. If an internet 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.
 
PRC government authorities have enacted laws and
regulations on internet use to protect personal information from any unauthorized disclosure. In
December 2012, the Standing Committee
of the PRC National People’s Congress promulgated the Decision on Strengthening Network Information
Protection to enhance the legal
protection of information security and privacy on the internet. In July 2013, the MIIT promulgated the Provisions on
Protection of Personal
Information of Telecommunication and Internet Users to regulate the collection and use of users’ personal information in the
provision
of telecommunication services and internet information services in China. Telecommunication business operators and internet service providers
are required to establish their own rules for collecting and use of users’ information and cannot collect or use users’ information
without their consent.
Telecommunication business operators and internet service providers are prohibited from disclosing, tampering with,
damaging, selling or illegally
providing others with, collected personal information.
 
On November 7, 2016, the Standing Committee of
the PRC National People’s Congress published Cyber Security Law of the PRC, which took effect
on June 1, 2017 and requires network
operators to perform certain functions related to cybersecurity protection and the strengthening of network
information management. For
instance, under the Cyber Security Law, network operators of key information infrastructures shall store within the territory
of the PRC
all the personal information and important data collected and produced within the territory of the PRC, and their purchase of network
products
and services that may affect national securities shall be subject to national cybersecurity review. On 14 September, 2022, the Cyberspace
Administration of
China released the Draft Amendment of the Cyber Security Law for public consultation. The Draft Amendments have significantly
increased penalties for
breaches, introducing a fine up to 5% of its annual turnover in the previous year. The draft also applies with
the individuals directly liable subject to a fine
up to RMB1 million and/or a ban on taking on managerial positions in China.
 
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On April 13, 2020, the Cyberspace Administration
of China issued Measures for Cybersecurity Review, which took effect on June 1, 2020, to provide
more detailed rules regarding cybersecurity
review requirements.
 
In addition, the Guidelines to Promote the Health
Growth of the Internet Finance, or the Internet Finance Guidelines, requires internet finance service
providers, including online finance
platforms, among other things, to improve technology security standards and safeguard customer and transaction
information. The State
Council, the PBOC and other relevant regulatory authorities will jointly adopt the implementing rules and technology security
standards.
 
On November 28, 2019, the Secretary Bureau of
the State Internet Information Office, the General Office of the MIIT, the General Office of the
Ministry of Public Security, and the
General Office of the SAMR issued the Identification Methods for Collection and Use of Personal Information in
Violation of Laws by Applications,
which enumerates the conducts to be including those with no published rules, no explicit purpose, method and scope
when collecting and
using personal information, collection and use of personal information without user consent, violation of “necessary principle”,
collection of personal information unrelated to the services provided, and provision of personal information to others without consent,
failure to provide the
function of deleting or correcting personal information as required by law, or no published information for complaints
and reporting methods.
 
On May 28, 2020, the National People’s Congress
adopted the Civil Code, which came into effect on January 1, 2021. According to the Civil Code, the
personal information of a natural
person shall be protected by the law. Any organization or individual shall legally obtain such personal information of
others when necessary
and ensure the safety of such information, and shall not illegally collect, use, process or transmit personal information of others, or
illegally purchase or sell, provide, or disclose personal information of others.
 
On June 10, 2021, the Standing Committee of the
National People’s Congress adopted the Data Security Law, which took effect on September 1, 2021.
The Data Security Law mainly sets
forth specific provisions regarding establishing basic systems for data security management, including data
classification management
system, risk assessment system, monitoring and early warning system, and emergency disposal system. In addition, the Data
Security Law
clarifies the data security protection obligations of organizations and individuals carrying out data-related activities and implementing
data
security protection responsibility.
 
In August 2021, The Personal Information Protection
Law was passed by the Standing Committee of the National People’s Congress and was effective
from 1 November 2021.
 
The Personal Information Protection Law is the
first piece of legislation in China dedicated to the protection of personal information. It establishes
individuals’ consents as
the principal legal basis for processing personal information. It requires that the processing of personal information shall abide by
the principles of legality, fairness, good faith, minimum necessity, openness, and transparency. There shall also be specific and reasonable
purposes of
processing. Individuals shall have the right to access and obtain a copy of their personal information from the processors
of personal information.
Individuals can also request the processors of personal information to rectify or delete their personal information,
as well as to provide them with means to
transfer their personal information to other processors. Processors of personal information which
need to transfer personal information out of the Mainland
China shall obtain separate consent from individuals, and meet certain requirements,
such as passing the security assessment made by the state cyberspace
authorities, obtaining the required certification, or entering into
a standard contract as prescribed by the state cyberspace authorities.
 
The Personal Information Protection Law contains
provisions on extraterritorial application. Foreign organizations which process personal information
of individuals in PRC for the purposes
of offering products or services to them, or analyzing and assessing their behaviors, shall be subject to this law.
These foreign organizations
shall also establish designated agencies or appoint representatives in PRC. A processor of personal information which
contravenes the requirements under the Personal Information Protection
Law is liable to a maximum fine of RMB50,000,000 or 5% of its annual turnover
of the preceding year. Other penalties may include suspension
of operation for rectification, cancellation of business permits or licenses, etc.
 
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On August 3, 2023, the CAC issued the draft of
Administrative Measures of Compliance Audit on Personal Information Protection, which requires any
personal information processor in China
to conduct a regular compliance audit on its personal information processing activities. In addition, CAC may
require a personal information
processor to conduct compliance audit, if it finds out that the personal information processor’s processing activities have
relatively
high risks or there is a security incident. A personal information processor that fails to conduct the compliance audit may be subject
to
administrative penalties under the Personal Information Protection Law or even criminal liabilities if it constitutes a criminal offense.
 
On September 24, 2024, the State Council issued
the Regulations on Network Data Security Management (the “Regulation”), which came into effect
on January 1, 2025. The Regulation
clarifies the requirements for the content and form of privacy policies, and specify the requirements that should be
complied with when
processing personal information based on individual consent. It also clarify the requirements for exercising rights such as access to,
copying of, correction of, supplementation of, and deletion of personal information, and detail the specific conditions for the transfer
of personal
information. In addition, the Regulation requires network data processors whose data processing activities affect or potentially
affect national security to
undergo a cybersecurity review in accordance with relevant regulations. However, the Regulation do not explicitly
define actions that constitute “affecting
or potentially affecting national security”.
 
On December 27, 2024, China’s National Financial
Regulatory Administration (NFRA) issued the Administrative Measures for Data Security of
Banks and Insurance Institutions (“Measures”).
The Measures require that banking and trust institutions shall strengthen the access control and security
management of suppliers when
sensitive or higher-level data are involved in supply chain services. Banking and trust institutions shall formulate
centralized approval
management systems for external data procurement and cooperative introduction, incorporate them into the outsourcing risk
management system
for overall management, and comprehensively establish management mechanisms for data requirements, security assessment,
collection and
introduction, data operation and maintenance, registration and filing, and supervision and evaluation. Banking and trust institutions
shall
investigate the authenticity and legality of data sources, assess the security guarantee capabilities and data security risks of
data providers, and clarify the
data security responsibilities and obligations of both parties.
 
Regulations Relating to Credit Reporting Business
 
The Measures for Credit Reporting Business (“Measures”)
was issued by the PBOC in September 2021 and was promulgated in January 2022. The
Measures define “credit information” as
information that “serves the financial and other activities and is used to determine individuals and enterprises
credit status,
and information originated from analysis and evaluation of individuals and enterprises’ credit status based on the foregoing information”.
It
applies to entities that carry out credit reporting business and “activities relating to credit reporting business” in
China as well as such activities carried out
outside China but targeting Chinese residents. It provides rules on credit reporting business
and credit reporting agencies, requiring that any institution shall
obtain the permission for a personal credit reporting agency from
the People’s Bank of China in accordance with the law to engage in personal credit
reporting business; handle the record-filing
of a corporate credit reporting agency in accordance with the law to engage in corporate credit reporting
business; or handle the record-filing
of a credit rating agency in accordance with the law to engage in credit rating business. The Measures require financial
institutions
to be prohibited from cooperating with unauthorized institutions. If relevant institutions have already cooperated with unauthorized institutions,
they should complete compliance rectification within 18 months from January 1, 2022.
 
Regulations on Intellectual Property Rights
 
The PRC has adopted comprehensive legislation
governing intellectual property rights, including copyrights, patents, trademarks and domain names.
 
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Copyright and Software Products
 
The National People’s Congress adopted the
Copyright Law in 1990 and amended it in 2001, 2010 and 2020 respectively. The amended Copyright
Law extends copyright protection to internet
activities, products disseminated over the internet and software products. In addition, there is a voluntary
registration system administered
by the China Copyright Protection Center.
 
In order to further implement the Computer Software
Protection Regulations promulgated by the State Council on December 20, 2001 and amended on
January 30, 2013, the State Copyright Bureau
issued the Computer Software Copyright Registration Procedures on February 20, 2002, which applies to
software copyright registration,
license contract registration and transfer contract registration.
 
Trademarks
 
Trademarks are protected by the PRC Trademark
Law adopted in 1982 and subsequently amended in 1993, 2001, 2013, and 2019 as well as the
Implementation Regulation of the PRC Trademark
Law adopted by the State Council in 2002 and amended on April 29, 2014. The Trademark Office under
the SAIC handles trademark registrations
and grants a term of 10 years to registered trademarks and another 10 years if requested upon expiry of the first or
any renewed 10-year
term. Trademark license agreements must be filed with the Trademark Office for record. The PRC Trademark Law has adopted a
“first-to-file”
principle with respect to trademark registrations. Any malicious application for trademark registration not for the purpose of use shall
be
rejected. Where a trademark for which a registration has been made is identical or similar to another trademark which has already been
registered or been
subject to a preliminary examination and approval for use on the same kind of or similar commodities or services, the
application for registration of such
trademark may be rejected. Any person applying for the registration of a trademark may not prejudice
the existing right first obtained by others nor may
any person register in advance a trademark that has already been used by another party
and has already gained a “sufficient degree of reputation” through
such party’s use. Trademark license agreements should
be filed with the Trademark Office or its regional offices.
 
Domain Names
 
Internet domain name registration and related
matters are primarily regulated by the Measures on the Administration of Domain Names for the Chinese
Internet, issued by the MIIT on
November 5, 2004 and effective as of December 20, 2004, which was replaced by the Measures on Administration of
Internet Domain Names
issued by the MIIT as of November 1, 2017 and the Implementing Rules on Registration of National Top-level Domain Names
issued by China
Internet Network Information Center in June, 2019. Domain name registrations are handled through domain name service agencies
established
under the relevant regulations, and the applicants become domain name holders upon successful registration.
 
Regulations Relating to Employment
 
Pursuant to the Labor Law of PRC, promulgated
by the NPC in July 1994, and most recently amended on December 29, 2018, or the Labor Law, and
the Labor Contract Law of PRC, promulgated
by the Standing Committee of the NPC in June 2007 and amended in December 2012, or the Labor Contract
Law, employers must execute written
employment contracts with full-time employees. If an employer fails to enter into a written employment contract with
an employee within
one year from the date on which the employment relationship is established, the employer must rectify the situation by entering into a
written employment contract with the employee and pay the employee twice the employee’s salary for the period from the day following
the lapse of one
month from the date of establishment of the employment relationship to the day prior to the execution of the written
employment contract. All employers
must compensate their employees with wages equal to at least the local minimum wage standards. Violations
of the PRC Labor Law and the Labor
Contract Law may result in the imposition of fines and other administrative sanctions, and serious
violations may result in criminal liabilities.
 
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Enterprises in China are required by the Social Insurance Law of
PRC promulgated by the Standing Committee of the NPC in October 2010, which
became effective in July 2011, as most recently amended
on December 29, 2018, or the Social Insurance Law, the Regulations on Management of Housing
Provident Fund released by the State
Council in March 2002, and most recently amended on March 24, 2019 and other related rules and regulations, to
participate in
certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment
insurance plan, a work-related injury insurance plan and a maternity insurance plan and a housing provident fund, and contribute to
the plans or funds in
amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as
specified by the local government from time to
time at locations where they operate their businesses or where they are located.
Failure to make adequate contributions to various employee benefit plans
may be subject to fines and other administrative sanctions.
According to the Social Insurance Law, an employer that fails to make social insurance
contributions may be ordered to rectify the
noncompliance and pay the required contributions within a stipulated deadline and be subject to a late fee of
0.05% per day, as the
case may be. If the employer still fails to rectify the failure to make social insurance contributions within the deadline, it may
be
subject to a fine ranging from one to three times the amount overdue. According to the Regulations on Management of Housing Fund,
an enterprise that
fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required
contributions within a stipulated deadline;
otherwise, an application may be made to a local court for compulsory enforcement.
 
We have not made adequate contributions to employee
benefit plans as required by applicable PRC laws and regulations. See “Item 3. Key Information
—D. Risk Factors—Risks
Related to Doing Business in China—Failure to make adequate contributions to various employee benefit plans as required by
PRC regulations
may subject us to penalties.”
 
Regulations Relating to Tax
 
Enterprise Income Tax
 
PRC enterprise income tax is calculated based
on taxable income, which is determined under (i) the PRC Enterprise Income Tax Law, or the EIT Law,
promulgated by the NPC and implemented
in January 2008, and most recently amended on December 29, 2018, and (ii) the implementation rules to the
EIT Law promulgated by the
State Council, effective since January 2008, amended on April 23, 2019, and most recently amended on January 20, 2025.
The EIT Law imposes
a uniform enterprise income tax rate of 25% on all resident enterprises in the PRC, including foreign-invested enterprises and
domestic
enterprises, unless they are qualified for certain exceptions. According to the EIT Law and its implementation rules, the income tax
rate of an
enterprise that has been determined to be a high and new technology enterprise may be reduced to 15% with the approval of
relevant tax authorities.
 
In addition, according to the EIT Law, enterprises
registered in countries or regions outside the PRC but have their “de facto management bodies”
located within China may be
considered as PRC resident enterprises and are therefore subject to PRC enterprise income tax at the rate of 25% on their
worldwide income.
Though the implementation rules of the EIT Law define “de facto management bodies” as “establishments that carry out
substantial and
overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc.,
of an enterprise,” the only detailed
guidance currently available for the definition of “de facto management body”
as well as the determination and administration of tax residency status of
offshore incorporated enterprises are set forth in the Notice
Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC
Tax Resident Enterprises on the Basis of De
Facto Management Bodies, or the Circular 82, promulgated by the State Administration of Taxation (the
“SAT”) in April 2009,
and the Administrative Measures for Enterprise Income Tax of Chinese-Controlled Overseas Incorporated Resident Enterprises
(Trial Version)
issued by the SAT in July 2011, or Bulletin No. 45, which provides guidance on the administration as well as the determination of the
tax
residency status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the
law of a foreign country or
territory and that has a PRC company or PRC corporate group as its primary controlling shareholder.
 
According to Circular 82, a Chinese-controlled
offshore-incorporated enterprise will be regarded as a PRC resident enterprise by virtue of having its
“de facto management body”
in China and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met:
 
●
the primary location of the day-to-day operational management and the places where they perform their duties are in the PRC;
 
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●
decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval of organizations
or personnel in the
PRC;
 
●
the enterprise’s primary assets, accounting books and records, company seals and board and shareholder resolutions are located
or maintained in
the PRC; and
 
●
50% or more of voting board members or senior executives habitually reside in the PRC.
 
Bulletin No. 45 further clarifies certain issues
related to the determination of tax resident status and competent tax authorities. It also specifies that
when provided with a copy of
Recognition of Residential Status from a resident Chinese-controlled offshore incorporated enterprise, a payer does not need
to withhold
income tax when paying certain PRC-sourced income such as dividends, interest and royalties to such Chinese-controlled offshore-
incorporated
enterprise.
 
Value-Added Tax and Business Tax
 
According to the Provisional Regulations on Value-added
Tax (“Provisional Regulations”), which was promulgated by the PRC State Council on
December 13, 1993 and amended in November
2008, February 2016 and November 2017, and the Implementing Rules of the Provisional Regulations on
Value-added Tax, which were promulgated
by the MOF on December 18, 2008 and subsequently amended by the MOF and the SAT on October 28, 2011,
all taxpayers selling goods, providing
processing, repairing or replacement services or importing goods within the PRC must pay value-added tax.
 
Since January 1, 2012, the MOF and the SAT have
implemented the VAT Pilot Plan, which imposes VAT in lieu of business tax for certain “modern
service industries.” According
to the implementation circulars released by the MOF and the SAT on the VAT Pilot Plan, the “modern service industries”
include
research, development and technology services, information technology services, cultural innovation services, logistics support, lease
of corporeal
properties, attestation and consulting services. According to the Notice of the Ministry of Finance and the SAT on Implementing
the Pilot Program of
Replacing Business Tax with Value-Added Tax in an All-round Manner which became effective on May 1, 2016, as subsequently
amended on March 20
2019, entities and individuals engaged in the sale of services, intangible assets or fixed assets within the PRC territory
are required to pay value-added tax
instead of business tax. Following the implementation of the VAT Pilot Plan, most of our PRC subsidiaries
and affiliates have been subject to VAT, instead
of business tax. From April 1, 2019, according to “The Notice on Policies for Deepening
the Value-Added Tax Reform” issued by the Ministry of Finance
and the State Taxation Administration and the General Administration
of Customs in March 2019 and “The Notice on Adjusting the Value-Added Tax
Rate” issued by the Ministry of Finance and the
State Taxation Administration in April 2018, most of our Chinese companies and subsidiaries used to pay a
Value-Added Tax rate of 3% or
6%.
 
On December 25, 2024, the Standing Committee of
the 14th National People’s Congress of China enacted the Value-Added Tax Law of the People’s
Republic of China (“VAT
Law”), which will take effect on January 1, 2026, replacing the existing Provisional Regulations on Value-Added Tax. The VAT
Law
maintains the current tax regime framework and tax burden level, while further clarifying the scope within which the State Council is
authorized to
develop special preferential policies. Compared with the current regulations, the VAT Law provides a different list of non-taxable
transactions, including
services provided by employees to their employers, administrative fees and government funds, compensation for
expropriation, and interest income from
deposits. Additionally, the VAT Law has updated the scope of non-creditable input VAT by removing
the input VAT arising from loan services and adding
the restrictive conditions to non-creditable input VAT arising from catering services,
life services and entertainment services.
 
Stamp Tax
 
As regulated in the Stamp Tax Law, which will
come into effect on July 1, 2022, the taxable items include contracts, documents of transfer of property
rights, and business account
books, and the transfer of stocks and depositary receipts issued based on stocks that are traded on stock exchanges legally
formed and
other national securities trading venues approved by the State Council. The effect of this law will have an impact on our tax situation.
 
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Regulations Relating 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. On February 13, 2015, the 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 will be required to apply for such foreign exchange
registrations from qualified banks. The qualified banks, under the
supervision of the SAFE, will directly examine the applications and
conduct the registration.
 
In August 2008, SAFE issued 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, regulating the conversion by a foreign-invested enterprise
of foreign currency-registered
capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142 provides that the RMB capital
converted from foreign
currency-registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by
the applicable
government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow
and use of the RMB capital converted from foreign currency-registered capital of foreign-invested enterprises. The use of such RMB capital
may not be
changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds
of such loans have not been
used. Violations may result in severe monetary or other penalties. In March 2015, SAFE issued the Notice of
the State Administration of Foreign Exchange
on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested
Enterprises, or SAFE Circular 19, which became effective
in June 2015 and was amended in 2019 and 2023. SAFE Circular 19 made certain
adjustments to some regulatory requirements on the settlement of foreign
exchange capital of foreign-invested enterprises. It also annulled
the SAFE Circular 142, and lifted some foreign exchange restrictions under SAFE
Circular 142. However, SAFE Circular 19 continues to prohibit
foreign-invested enterprises from, among other things, using a Renminbi fund converted
from its foreign exchange capitals for expenditure
beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises.
 
In November 2012, SAFE promulgated the Circular
of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct
Investment(amended in 2015, 2018 and 2019),
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 requires 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 of the State
Administration of Foreign Exchange on Printing and Distributing the Administrative Provisions on Foreign Exchange
in Domestic Direct Investment by
Foreign Investors and Relevant Supporting Documents in May 2013(amended in 2018 and 2019), 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 June 9, 2016, the SAFE
promulgated Circular of the State Administration of Foreign Exchange
on Reforming and Regulating Policies on the Control over Foreign Exchange
Settlement of Capital Accounts(amended in 2023), or Circular
16, which expands the application scope from only the capital of the foreign-invested
enterprises to the capital, the foreign debt fund
and the fund from overseas public offerings. Circular 16 allows that the discretionary settlement of foreign
exchange
receipts under capital accounts refers to the case in which the foreign exchange receipts under capital accounts (including foreign exchange
capital, foreign debts, and repatriated funds raised through overseas listing) subject to discretionary settlement as expressly prescribed
in the relevant
policies may be settled with banks according to the actual need of domestic institutions for business operations. Where
the current regulations contain any
restrictive provisions on the foreign exchange settlement of foreign exchange receipts under capital
accounts of domestic institutions, such provisions shall
prevail. Domestic institutions may, at their discretion, settle up to 100% of
foreign exchange receipts under capital accounts for the time being. The SAFE
may adjust the above proportion in due time according to
balance of payments. In addition, Circular 16 specifies the use of foreign exchange receipts under
capital accounts of a domestic institution
and the RMB funds obtained thereby from foreign exchange settlement shall be subject to the following
provisions: (i) they shall not,
directly or indirectly, be used for expenditure beyond the enterprise’s business scope or expenditure prohibited by laws and
regulations
of the State; (ii) unless otherwise specified, they shall not, directly or indirectly, be used for investments in securities or other
investment than
banks’ principal-secured products; (iii) they shall not be used for the granting of loans to non-affiliated enterprises,
except where it is expressly permitted in
the business license; and (iv) they shall not be used for the construction or purchase of real
estate for purposes other than self-use (except for real estate
enterprises). Where there is any contractual stipulation on the use scope
of revenue under capital accounts between a domestic institution and other parties
concerned, the relevant funds shall not be used beyond
such scope. Unless otherwise specified, such stipulation shall not conflict with this Circular.
Moreover, Circular 16 allows the enterprises
to use their foreign exchange capitals under capital accounts allowed by the relevant laws and regulations.
 
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In January 2017, the 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 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 issued the Circular
on Further Promoting Cross-border Trade and Investment Facilitation, or SAFE Circular 28, which
was amended in 2023. Among others, SAFE
Circular 28 relaxes the prior restrictions and allows the foreign-invested enterprises without equity investment
as in their approved
business scope to use their capital obtained from foreign exchange settlement to make domestic equity investment as long as the
investments
are real and in compliance with the foreign investment-related laws and regulations. In addition, SAFE Circular 28 stipulates that qualified
enterprises in certain pilot areas may use their capital income from registered capital, foreign debt and overseas listing, for the purpose
of domestic
payments without providing authenticity certifications to the relevant banks in advance for those domestic payments. According
to the Circular on
Optimizing the Administration of Foreign Exchange to Support the Development of Foreign-related Business issued by
the SAFE on April 10, 2020,
eligible enterprises are allowed to make domestic payments using the income under their capital accounts generated
from their capital, foreign debt and
overseas listing, without providing materials for each transaction evidencing the authenticity in
advance, provided that the capital usage is authentic and
compliant with the current capital account income usage management regulations.
 
On December 4, 2023, SAFE issued the Circular
on Further Deepening the Reform to Facilitate Cross-border Trade and Investment, which facilitates
foreign-invested enterprises’
foreign exchange receipts and payments. The Circular allows the domestic equity transferor to directly receive the foreign
currency funds
for equity transfer consideration paid by domestic entities, as well as foreign exchange funds raised by domestic companies through
overseas
listing, into the capital account settlement account. Funds within the capital account settlement account can be freely converted and
used.
 
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Regulations on Foreign Exchange Registration of Overseas
Investment by PRC Residents
 
The SAFE issued the SAFE Circular on Relevant
Issues Relating to Domestic Resident’s Investment and Financing and Round Trip Investment
through Special Purpose Vehicles, or SAFE
Circular 37, that became effective in July 2014, replacing the previous 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, an 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 contributions
into an SPV, PRC residents or entities are required to complete the foreign
exchange registration with the SAFE or its local branch.
 
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 roundtrip 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.
 
In February 2015, the SAFE released the Notice
of the State Administration of Foreign Exchange on Further Simplifying and Improving the Policies
of Foreign Exchange Administration Applicable
to Direct Investment, or Circular 13, which has amended Circular 37 by requiring PRC residents or entities
to register with qualified
banks rather than the 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.
 
Share Option Rules
 
Pursuant to Circular 37, PRC residents who participate
in share incentive plans in overseas non-publicly listed companies may submit applications to
the SAFE or its local branches for the foreign
exchange registration with respect to offshore special purpose companies. In addition, under the Notice of the
State Administration of
Foreign Exchange on Issues Related to Foreign Exchange Administration in Domestic Individuals’ Participation in Equity
Incentive
Plans of Companies Listed Abroad issued by SAFE in February 2012, or the Share Option Rules, PRC residents who are granted shares or share
options by companies listed on overseas stock exchanges under share incentive plans are required to (i) register with the SAFE or its
local branches, (ii)
retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified institution
selected by the PRC
subsidiary, to conduct SAFE registration and other procedures with respect to the share incentive plans on behalf
of the participants, and (iii) retain an
overseas institution to handle matters in connection with their exercise of share options, purchase
and sale of shares or interests and funds transfers.
 
Regulations on Dividend Distribution
 
Under our current corporate structure, our Cayman
Islands holding company may rely on dividend payments from our PRC subsidiaries, which are
wholly foreign-owned enterprises incorporated
in China, to fund any cash and financing requirements we may have. The principal laws and regulations
governing the distribution of dividends
of foreign-invested enterprises include the PRC Foreign Investment Law and its Implementing Regulations, both of
which came into effect
on January 1, 2020, and other applicable laws, according to which a foreign investor may, in accordance with the law, freely transfer
into or out of the PRC its contributions, profits, capital earnings, income from asset disposal, intellectual property rights royalties
acquired, compensation
or indemnity legally obtained, income from liquidation, etc., made or derived within the territory
of the PRC in RMB or any foreign currency, subject to no
illegal restriction by any entity or individual in terms of the currency, amount,
frequency of such transfer into or out of the PRC, etc.
 
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Regulations on Overseas Listing
 
On August 8, 2006, six PRC regulatory agencies,
including the CSRC, adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises
by Foreign Investors (the “M&A
Rules”), which became effective on September 8, 2006 and were amended on June 22, 2009. Foreign investors shall
comply with the
M&A Rules when they purchase equity interests of a domestic company or subscribe to the increased capital of a domestic company and
thus change the nature of the domestic company into a foreign-invested enterprise; or when the foreign investors establish a foreign-invested
enterprise in
the PRC, purchase the assets of a domestic company and operate the assets; or when the foreign investors purchase the assets
of a domestic company,
establish a foreign-invested enterprise by injecting such assets and operate the assets. The M&A Rules purport,
among other things, to require offshore
special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic
companies and controlled by PRC companies or
individuals, to obtain approval from the CSRC prior to publicly listing their securities
on an overseas stock exchange.
 
On March 1, 2020, Securities Law of the People’s
Republic of China (Revised in 2019) became effective. It stipulates that any securities issuance and
trading activities outside the People’s
Republic of China that disrupt the domestic market order in the PRC and damage the legitimate rights and interests of
domestic investors
shall be investigated for legal liability in accordance with the relevant laws. This gives the China Securities Regulatory Commission,
public security organs and judicial organs “long-arm jurisdiction” over overseas securities market activities.
 
On July 6, 2021, certain PRC regulatory authorities
issued Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the
Law. These opinions call for strengthened
regulation over illegal securities activities and supervision on overseas listings by China-based companies and
propose to take effective
measures, such as promoting the development of relevant regulatory systems to deal with the risks and incidents faced by China-
based overseas-listed
companies. On February 17, 2023, the China Securities Regulatory Commission promulgated the Overseas Listing Trial Measures,
and five
supporting guidelines, which became effective on March 31, 2023. According to the Overseas Listing Trial Measures, PRC domestic companies
that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure
with the CSRC and
report relevant information. If a company fails to complete the filing procedure or conceals any material fact or falsifies
any major content in its filing
documents, it may be subject to administrative penalties, such as order to rectify, warnings, fines, and
its controlling shareholders, actual controllers, the
person directly in charge and other directly liable persons may also be subject
to administrative penalties, such as warnings and fines. The Overseas Listing
Trial Measures also provide that a company in mainland China
must file with the CSRC within three business days for its follow-on offering of securities
after it is listed in an overseas market.
On February 17, 2023, the CSRC also issued the Notice on Administration of the Filing of Overseas Offering and
Listing by Domestic Companies
and held a press conference for the release of the Overseas Listing Trial Measures, which, among others, clarified that the
companies
in mainland China that have been listed overseas before March 31, 2023 are not required to file with the CSRC immediately, but these
companies
should complete filing with the CSRC for their financing activities in accordance with the Overseas Listing Trial Measures. Based on the
foregoing, as an issuer that has been listed overseas before the effective date of the Overseas Listing Trial Measures, we are not required
to complete filing
with the CSRC for our offshore offerings prior to the effective date of the Overseas Listing Trial Measures, but we
may be subject to the filing requirements
for our financing activities under the Overseas Listing Trial Measures. Any securities offerings
and listings outside of mainland China by our Company
after the effective date of the Overseas Listing Trial Measures, including but not
limited to follow on offerings, secondary listings, and going private
transactions, will be subject to the filing requirements with the
CSRC under the Overseas Listing Trial Measures, and we cannot assure you that we will be
able to comply with such filing requirements
in a timely manner, or at all. Since the Overseas Listing Trial Measures was newly promulgated, the
interpretation, application and enforcement
of the Overseas Listing Trial Measures remain unclear. We cannot assure you that we will be able to complete
such filing in a timely manner
and fully comply with such rules to maintain the listing status of our ADSs and/or other securities, or to conduct any
securities offerings
in the future.
 
As of the date of this annual report, we have not received any inquiry,
notice, warning, sanctions or regulatory objection from the CSRC in connection
with requirements of obtaining prior approval for the listing
of our ADSs. However, since the Overseas Listing Trial Measures was newly promulgated, the
interpretation, application and enforcement
of the Overseas Listing Trial Measures remain unclear. We cannot assure you that we will be able to complete
any required filing in a
timely manner and fully comply with such rules to maintain the listing status of our ADSs and/or other securities, or to conduct any
securities
offerings in the future.
 
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On April 2, 2022, the CSRC released the revised
Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities
Offering and Listing by Domestic Companies
(Draft for Comments), or the Draft Archives Rules. On February 24, 2023, the CSRC, jointly with other
relevant governmental authorities,
issued the Provisions on Strengthening the Confidentiality and Archive Management Work Relating to the Overseas
Securities Offering and
Listing by Domestic Companies (the “Confidentiality Provisions”), which became effective on March 31, 2023. The
Confidentiality
Provisions requires, among others, that companies based in mainland China seeking to offer securities in overseas markets, either directly
or indirectly, shall establish the confidentiality and archives system, and shall complete approval and filing procedures with competent
authorities, if such
companies or their overseas listing entities provide or publicly disclose documents or materials involving state
secrets and work secrets of PRC government
agencies to relevant securities companies, securities service institutions, overseas regulatory
agencies and other entities and individuals. It further stipulates
that providing or publicly disclosing documents and materials which
may adversely affect national security or public interests, and accounting files or
copies shall be subject to corresponding procedures
in accordance with relevant laws and regulations. Given the Confidentiality Provisions were recently
promulgated, there remain substantial
uncertainties about how these provisions will be interpreted, or implemented and how it will affect our operations or
future securities
offerings.
 
As of the date of this annual report, we have not provided files or
copies of files outside China that involve national secrets, national security, vital
interests, or have important preservation value
to the nation and society. However, we cannot guarantee that relevant government agencies of China,
including the CSRC, will share the
same opinion as ours.
 
Summaries of the National Conference for the
Work of Courts in the Trial of Civil and Commercial Cases
 
Summaries of the National Conference for the Work
of Courts in the Trial of Civil and Commercial Cases circulated by the Supreme People’s Court
On November 8, 2019 (“Summaries”),
provides that, in the trust documents and relevant contracts, the beneficiaries are divided into different categories,
such as preferential
beneficiaries and inferior beneficiaries, and it is stipulated that the preferential beneficiaries will subscribe for trust plan shares
with
their asset, and after the trust expires, the inferior beneficiaries bear the obligation to make up the difference between the benefit
obtained from the trust
property by the preferential beneficiaries plus its investment principal and the agreed proceeds. The people’s
court shall legally support preferential
beneficiaries’ claims for the liability borne by inferior beneficiaries as agreed. The
agreement on the rights and obligations of different types of
beneficiaries in the trust documents will not affect the determination of
the legal trust relationship between the beneficiary and the trustee. In addition, the
Summaries provided for the nature of credit enhancement
documents, i.e., where any party which are not parties to the trust contract provides similar
commitment documents such as making up differences
by this third party, fulfillment of the repurchase obligations at maturity instead, and liquidity
support as credit enhancement measures,
the contents of which comply with the provisions of the law on guarantees, the people’s court shall determine that
a guarantee contractual
relationship is established among the parties. If the contents do not comply with the provisions of the law on guarantees, the
corresponding
rights and obligations shall be determined according to the specific content of the commitment document, and the corresponding civil
liability
shall be determined according to the facts of the case.
 
Notice on Further Regulating Financial Marketing
and Publicity Activities
 
The People’s Bank of China, the China Banking
Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State
Administration of Foreign Exchange have issued
notices on further regulating financial marketing and publicity activities on December 20, 2019, which
took effect on January 25, 2020.
It is stipulated that it is illegal to engage in financial business without a business license or beyond the permitted business
scope,
and market entities that fail to obtain relevant financial business qualifications shall not conduct marketing and publicity activities
relating to the
financial business, except that information release platforms and media entrusted by relevant financial business qualifications
carry out financial marketing
and publicity activities for them.
 
As this notice is relatively new, in the cooperation
agreements we signed with the trust companies, there is no specific agreement on the marketing and
publicity activities of financial products.
At present, we have started to communicate with the trust partners on financial product marketing and publicity
issues. We will improve
the cooperation model to ensure that marketing activities and those of our sales partners are legal and in compliance.
 
94

 
Administrative Measures for Online Marketing
of Financial Products (Draft for Comment)
 
The “Administrative Measures for Online
Marketing of Financial Products (Draft for Comment)” was published on December 31, 2021, requiring
financial institutions to conduct
online marketing of financial products on their own or entrust Internet platform companies to conduct online marketing of
financial products
within the scope of business permitted by the financial regulatory authorities. Any institution or individual is prohibited from providing
online marketing for illegal financial activities such as illegal fundraising.
 
Notice of the Ministry of Industry and Information
Technology on the Record filing of Mobile Internet Apps
 
On July 21, 2023, Ministry of Industry and Information
Technology of China issued the Notice of the Ministry of Industry and Information Technology
on the Record filing of Mobile Internet Apps.
The operator of Apps and mini-programs should complete filing procedures with the telecommunications
regulatory authorities. Existing
Apps and mini-programs should record filing procedures between September 2023 and March 2024. New Apps and mini-
programs cannot be put
into use unless and until the filing procedures have been successfully fulfilled. As of March 31, 2024, we had completed the filing
procedures
for all Apps and mini-programs that we operate.
 
4.C. Organizational Structure
 
The following diagram illustrates our corporate structure with material
subsidiaries as of the date of this annual report. For a complete list of our
subsidiaries, please refer to note 1 to our consolidated
financial statements as of and for the years ended December 31, 2022, 2023 and 2024 included
elsewhere in this annual report. We subscribe
to the subordinated units of the trust products issued under long-term trust plans through three of our wholly
owned subsidiaries, Guangzhou
Heze Information Technology Co., Ltd., Guangzhou Chengze Information Technology Co., Ltd., and Shenfanlian
Investment Group Co., Ltd.
(formerly known as Shenzhen Fanhua United Investment Group Co., Ltd). From an accounting perspective, we are exposed to
the risk and variability
of returns from activities of the trust plans and are therefore required to consolidate the financial results of the trust plans, including
the results related to the senior units. Financial data of a trust plan is consolidated as if the trust plan is a subsidiary. Income and
expenses of the trust plans
are consolidated on our consolidated statements of comprehensive income while assets and liabilities of the
trust plans are consolidated on our consolidated
balance sheet. We do not, however, have ownership interest in the trust plans from a
legal perspective other than in the subordinated units that account for
only a portion of the total outstanding amount of the trust plans.
For details of the contractual structural leverage ratio of each trust plan, please refer to
“Item 4. Information of the Company—B.
Business Overview—Our Funding Model.”
 
 
 
Notes:
 
(1) Guangzhou Chengze Information Technology Co., Ltd. is one of the entities through which we subscribe to subordinated units of trust
products.
 
(2) Shenzhen Fanhua United Investment Group Co., Ltd. operates our loan services business through various subsidiaries in the PRC and
operates our
small loan business through Beijing Fanhua Micro-credit Company Limited and Shenzhen Fanhua Micro-credit Co., Ltd.
 
95

 
4.D. Property, Plant and Equipment
 
Our corporate headquarters are located in Guangzhou,
China, where we own an office of 2,600 square meters. We also maintain leased properties
ranging from three square meters to 1,855 square
meters in over 100 cities. The lease term varies from three months to five years. We believe that our
existing facilities are generally
adequate to meet our current needs, but we expect to seek additional funding as needed to accommodate future growth.
 
Item 4A. Unresolved Staff Comments
 
None.
 
Item 5. Operating and Financial Review and Prospects
 
You should read the following discussion and analysis
of our financial condition and results of operations in conjunction with our consolidated
financial statements and the related notes included
elsewhere in this annual report. This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual
results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result
of various
factors, including those we describe under “Item 3.D. Risk Factors” and elsewhere in this annual report.
 
5.A. Operating Results
 
Overview
 
We are a leading home equity loan service provider
in China. We facilitate loans by connecting MSE owners with our funding partners. Our primary
target borrower segment is MSE owners who
own real properties in Tier 1 and Tier 2 and other major cities in China.
 
We have established a national network of 120
branches and sub-branches in over 50 cities in China. We acquire our borrowers primarily through our
sales partners under trust lending
model. In 2022, 2023 and 2024, over 95.0% of our borrowers who obtained loans from trust companies were introduced
to us by our sales
partners under the collaboration model. For details, please refer to “Item 4. Information on the Company—B. Business Overview—Our
Products—Collaboration Model.” Under trust lending model, we originated home equity loans with an aggregate principal amount
of RMB12.2 billion,
RMB12.2 billion and RMB8.6 billion (US$1.2 billion) in 2022, 2023 and 2024, respectively. The loan origination volume
in 2024 under the commercial
bank partnership was RMB1.0 billion (US$132.4 million) and the outstanding loan principal was RMB2,386 million
as of December 31, 2024. We
originated home equity loans for 23,923 borrowers in 2022. In 2023, we originated home equity loans for 23,910
(including 7,117 under the commercial
bank partnership) borrowers. In 2024, we originated home equity loans for 12,912 (including 1,566
under the commercial bank partnership) borrowers. In
2022, 2023 and 2024, the average tenor of the home equity loans we originated was
12, 12 and 12 months with the weighted average effective interest rate
(inclusive of interests and financing service fees, if applicable,
payable by the borrowers) of 17.2%, 16.9% and 16.6% per annum, respectively. The interest
rates of our loan products under commercial
bank partnership ranged from 7.0% to 16.2%.
 
Our practical risk assessment procedure focuses
on both credit risks of borrowers and quality of the collateral. We have also established guidelines on
characteristics and quality of
collateral, including, among others, an LTV ratio capped at 70%. The weighted average LTV ratio of the home equity loan
origination volume
was 60.0%, 62.0% and 60.5% in 2022, 2023 and 2024, respectively. As of December 31, 2022, 2023 and 2024, our NPL ratio
(including loans
held for sale) was 16.95%, 21.25% and 40.86%, respectively. Charge-off ratio in 2022, 2023 and 2024 was 0.43%, 0.82% and 2.09%,
respectively.
 
Our total operating income increased from RMB749.2
million in 2022 to RMB770.1 million in 2023, representing an increase of 2.8%, and decreased
to RMB553.3 million (US$75.8 million) in
2024. Our net income increased from RMB135.3 million in 2022 to RMB164.6 million in 2023, representing an
increase of 21.6%, and decreased
to RMB37.8 million (US$5.2 million).
 
Under the contractual arrangements with our trust
company partners, we subscribe to subordinated units of trust plans and provide services to trust
plans. As a result, we are entitled
to (i) the investment return payable to us as subordinated unit holder and (ii) a performance-based service fee up to 5%
per annum of
the size of trust plans payable to us for our services provided to trust plans. Our cost of the subordinated units as measured by the
investment
amount was RMB2,627.4 million, RMB2,377.2 million and RMB1776.2 million (US$243.3 million) as of December 31, 2022, 2023 and
2024,
respectively. Our investment return from the subordinated units was RMB381.3 million, RMB495.9 million and RMB478.1 million (US$65.5
million) in
2022, 2023 and 2024, respectively.
 
As a subordinated unit holder, we are exposed
to variability of returns from activities of trust plans and are therefore required to consolidate the
financial results of trust plans
on our consolidated financial statements, including those of the senior units. Therefore, the service fee charged to trust plans
is considered
inter-company transaction and is eliminated together with management service expenses of trust plans for accounting purposes. In 2022,
2023
and 2024, we generated service fees charged to trust plans of RMB505.9 million, RMB409.0 million and RMB300.2 million (US$41.1 million),
respectively.
 
96

 
Key Factors Affecting Our Results of Operations
 
Ability to maintain and expand borrower base
 
Due to the nature of our business, our ability
to increase our loan origination volume largely depends on our ability to acquire new borrowers for the
loans we facilitate. Since December
2018, we have been acquiring borrowers primarily through our sales partners under the collaboration model. For
details, please refer to
“Item 4. Information on the Company—B. Business Overview—Our Products—Collaboration Model.” Our sales partners
are
typically local loan facilitators who have their own sales and marketing teams, they use such teams to reach to qualified candidates
and recommend them to
our platform. In 2022, 2023 and 2024, over 95.0% of our borrowers were introduced to us by our sales partners under
trust lending model. We originated
home equity loans for 23,923, 23,910 and 12,912 (including 1,566 under the commercial bank partnership)
borrowers in 2022, 2023 and 2024, respectively.
Our results of operations and ability to sustain and increase loan volumes will depend
on our ability to maintain and expand borrower base.
 
Effective risk management
 
Our operating income and profitability are largely
affected by our and our trust company partners’ risk management capabilities. We are exposed to
credit risks under the trust lending
model as a result of subscription of subordinated units and credit strengthening services and being a lender under the
direct lending
model. As such, the ability of us and our trust company partners to accurately assess default risks through our and our trust company
partners’ credit analysis system directly affects our loan delinquency ratios and profitability. Any significant weakness in our
or our trust company partners’
risk management system will directly or indirectly result in an increase in delinquency of loans
originated by us or a failure of our loan servicing to recover
losses. For a detailed discussion of our risk management, please refer
to “Item 4. Information of the Company—B. Business Overview—Risk
Management.”
 
Relationship with our funding partners
 
Our collaborative relationships with our funding
partners are critical to our operations. We mainly collaborate with our trust company partners through
trust lending model. In 2022, 2023
and 2024, 82.7%, 70.7% and 90.2% of our total home equity loan origination volume was originated under trust lending
model, respectively.
The availability of funds from our funding partners affects our liquidity and the amount of loan transactions that we can facilitate,
which directly affects our profitability. Terms of our collaboration agreements with our funding partners generally set the financing
costs of our home
equity loan business. Our financing costs for senior units excluding the trust administrative fees, ranged from 6.0%
to 8.7% per annum of the issuance
number of senior units in 2024. The interest charged by trust company partners to our borrowers affects
our profitability. If we fail to maintain or deepen
our existing relationships with our trust company partners, our liquidity and profitability
may be adversely affected. A general deterioration of our
relationships with our funding partners will result in a significant decrease
in liquidity or in our service fees charged to trust plans, and we may not be able
to secure alternative financing on terms acceptable
to us or our borrowers, or at all. This may result in a decrease in the volume of loans we facilitate, which
has a material adverse impact
on our business and results of operations. For detailed discussion relating to our relationship with our funding partners, please
refer
to “Item 4. Information on the Company—B. Business Overview—Our Funding Model.”
 
China’s macroeconomic environment
 
Our business depends on the growth of MSE owners’
demand for home equity loan financing, which in turn depends on China’s macroeconomic
environment. General economic factors, including
the real estate prices, credit environment for MSEs, interest rate environment and unemployment rates,
may affect borrowers’ willingness
to seek home equity loans and/or repayment capability. For example, significant increase in interest rates could cause
prospective borrowers
to defer obtaining loans as they wait for interest rates to decrease. Additionally, a slowdown in the economy, resulting in a rise in
the
unemployment rate and/or a decrease in real income, may affect MSEs’ revenue. All these factors may affect borrowers’
repayment capability and their
willingness to seek loans, which may potentially affect delinquency ratios. For details, please see “Item
3.D. Key Information—Risk Factors—Risks
Related to Our Business—We face risks related to natural disasters,
health epidemics and other outbreaks of contagious diseases.”
 
97

 
Government regulations and policies
 
The regulatory environment for China’s financial
market is developing and evolving, creating both challenges and opportunities that could affect our
financial performance. We must adapt
to developments in regulations and policies and may have to adjust our business practices, funding structures and
product offerings from
time to time. For an overview of applicable laws and regulations and risks relating to our business, see the sections headed “Item
4.
Information of the Company—B. Business Overview—Regulation” and “Item 3. Key Information—D. Risk Factors.”
 
Loan Performance Data and Trend Analysis
 
Our operating results and financial condition
are directly affected by the performance of the loans we originate. We focus mainly on the NPL ratio as
home equity loans over 90 days
past-due are more difficult and time-consuming to recover.
 
 
 
As of and for the Year Ended December 31,
 
Loan performance metrics (including loans held for sale)
 
2022
   
2023
   
2024
 
Delinquency ratio(1)
   
33.22%   
34.36%   
55.29%
NPL ratio(2)
   
16.95%   
21.25%   
40.86%
Allowance ratio(3)
   
9.23%   
7.56%   
7.96%
NPL provision coverage ratio(4)
   
52.27%   
35.56%   
19.52%
 
 
 
As of and for the Year Ended December 31,
 
Loan performance metrics (excluding loans held for sale)
 
2022
   
2023
   
2024
 
Delinquency ratio(1)
   
18.26%   
15.54%   
29.72%
NPL ratio(2)
   
1.12%   
1.11%   
8.50%
Allowance ratio(3)
   
8.22%   
7.90%   
9.64%
NPL provision coverage ratio(4)
   
720.38%   
713.25%   
113.74%
 
 
Notes:
 
(1) Delinquency ratio represents total balance of outstanding loan principal for which any installment payment is one or more days past-due
as a
percentage of the outstanding loan principal as of the date.
 
(2) NPL ratio represents total balance of outstanding loan principal for which any installment payment is over 90 calendar days past-due
as a percentage of
the outstanding loan principal as of the date.
 
(3) Allowance ratio represents amount of allowance for loan principal, interest and financing service fee receivables as a percentage
of the outstanding
loan principal, interest and financing service fee receivables as of the date.
 
(4) NPL provision coverage ratio represents amount of allowance for loan principal, interest and financing service fee receivables as
a percentage of the
outstanding balance of NPL principal as of the date.
 
Our delinquency ratio (excluding loans held for sale) has decreased
from 18.26% as of December 31, 2022 to 15.54% as of December 31, 2023, and
subsequently increased to 29.72% as of December 31, 2024. The
increase in the delinquency ratio (excluding loans held for sale) from December 31, 2023
to December 31, 2024 was due to the fact that
the borrowers’ ability to service their debts was negatively affected by the economic uncertainties.
 
98

 
Our NPL ratio (excluding loans held for sale)
had remained relatively stable at 1.12% and 1.11% as of December 31, 2022 and 2023, respectively, and
increased to 8.50% as of December
31, 2024.
 
Our allowance ratio (excluding loans held for
sale) has decreased from 8.22% as of December 31, 2022 to 7.90% as of December 31, 2023, and
subsequently increased to 9.64% as of December
31, 2024.
 
In 2020, the Company revised its charge-off policy.
Upon the revision, the Company considers loans principal, interest and financial service fee
receivables of loans that are 180 days past
due uncollectable and the balance shall be charged down to net realizable value (fair value of collaterals, less
estimated cost to sell),
unless such loans are well-secured and already in the process of re-collection. The tables below illustrate the delinquency and NPL
ratios
for loans introduced under the collaboration model and the loans under the traditional facilitation model by first lien and second lien
as of December
2022, 2023 and 2024, respectively, presented based on the revised charge-off policy. Since 2023, we have ceased calculating
and providing delinquency
and NPL ratio under the traditional facilitation model separately because the balance of outstanding loan principal
under the traditional facilitation model
was small and immaterial to the overall loan portfolio.
 
 
 
As of
December 31,
2024*
 
(Including loans held for sale)
 
Total
 
First lien
 
  
Delinquency Ratio
   
57.10%
NPL Ratio
   
43.84%
Second lien
   
  
Delinquency Ratio
   
54.08%
NPL Ratio
   
38.89%
 
 
 
As of
December 31,
2024*
 
(Excluding loans held for sale)
 
Total
 
First lien
 
  
Delinquency Ratio
   
29.42%
NPL Ratio
   
9.05%
Second lien
   
  
Delinquency Ratio
   
29.90%
NPL Ratio
   
8.16%
 
 
 
As of
December 31, 
2023*
 
(Including loans held for sale)
 
Total
 
First lien
   
 
Delinquency Ratio
   
38.51%
NPL Ratio
   
24.90%
Second lien
   
  
Delinquency Ratio
   
31.65%
NPL Ratio
   
18.88%
 
99

 
 
 
As of
December 31,
2023*
 
(Excluding loans held for sale)
 
Total
 
First lien
 
  
Delinquency Ratio
   
17.41%
NPL Ratio
   
1.38%
Second lien
   
  
Delinquency Ratio
   
14.40%
NPL Ratio
   
0.94%
 
  
As of December 31, 2022
 
(Including loans held for sale)
 
The
traditional
facilitation
model
   
The
collaboration
model
   
Total
 
First lien
   
     
     
 
Delinquency Ratio
   
94.87%   
39.77%   
40.08%
NPL Ratio
   
87.44%   
21.15%   
21.59%
Second lien
   
      
      
  
Delinquency Ratio
   
36.43%   
30.92%   
30.98%
NPL Ratio
   
36.41%   
14.86%   
15.09%
 
  
As of December 31, 2022
 
(Excluding loans held for sale)
 
The
traditional
facilitation
model
   
The
collaboration
model
   
Total
 
First lien
 
    
    
  
Delinquency Ratio
   
71.82%   
21.83%   
21.84%
NPL Ratio
   
30.99%   
1.06%   
1.11%
Second lien
   
      
      
  
Delinquency Ratio
   
2.92%   
17.69%   
17.57%
NPL Ratio
   
2.89%   
1.14%   
1.16%
 
 
*
As of December 31, 2023, we ceased calculating and providing delinquency and NPL ratio under the traditional facilitation model separately
because
the balance of outstanding loan principal under the traditional facilitation model was small and immaterial to the overall loan
portfolio.
 
As of December 31, 2024, loans under the traditional
facilitation model are all transferred by third parties in installment and classified as loans held for
sale. The balance of outstanding
loan principal under the traditional facilitation model was relatively small and constitute an immaterial proportion to the
overall loan
portfolio. We believe such ratios do not accurately reflect the loan performance and could no longer be used as a measure of our risk
assessment and post-loan management abilities, as the result, we have ceased calculating and providing delinquency and NPL ratio under
the traditional
facilitation model separately in 2023.
 
100

 
The following tables illustrate the amount of
loans (excluding loans held for sale) we facilitate by collateral type for which we have an allowance
determined based on the fair value
of collateral, less cost to sell and the related allowance for credit losses for each applicable collateral category as of
December 31,
2022, 2023 and 2024, respectively.
 
 
 
As of December 31, 2024
 
 
 
Loan
   
Allowance
   
Allowance
Ratio
 
 
 
(RMB in thousands)
 
Apartment
   
542,842     
79,208     
14.6%
House
   
9,219     
-     
- 
Commercial Property
   
-     
-     
- 
Total
   
552,061     
79,208     
14.3%
 
 
 
As of December 31, 2023
 
 
 
Loan
   
Allowance
   
Allowance
Ratio
 
 
 
(RMB in thousands)
 
Apartment
   
93,325     
36,620     
39.2%
House
   
8,391     
3,294     
39.3%
Commercial Property
   
–     
–     
– 
Total
   
101,716     
39,914     
39.2%
 
 
 
As of December 31, 2022
 
 
 
Loan
   
Allowance
   
Allowance
Ratio
 
 
 
(RMB in thousands)
 
Apartment
   
86,717     
12,248     
14.1%
House
   
–     
–     
– 
Commercial Property
   
15,847     
–     
– 
Total
   
102,564     
12,248     
11.9%
 
We incur losses and charge-off loans when we determine
that the loan is uncollectable. We consider loans principal, interest and financing service fee
receivables meeting any of the following
conditions as uncollectible and the balance shall be written down to net realizable value (fair value of collaterals,
less estimated cost
sell):
 
(i)
death of the borrower;
 
(ii) identification of fraud, and the fraud is officially reported
to and filed with relevant law enforcement departments;
 
(iii) sales of loans to third parties;
 
(iv) settlement with the borrower, where the Company releases
irrecoverable loans through private negotiations with the borrower where the borrower
cannot repay the loan in full through self-funding
or voluntary sale of the collateral;
 
(v) disposal through legal proceedings, including but not limited
to online arbitrations, judicial auctions and court enforcements; or
 
(vi) loans are 180 days past due unless both well-secured and
in the process of collection.
 
The following table sets forth our charge-off
ratio for the periods indicated.
 
 
 
For the Year Ended December 31,
 
 
 
2022
   
2023
   
2024
 
Charge-off ratio
   
0.43%   
0.82%   
2.09%
 
101

 
Our charge-off ratio was 0.43%, 0.82% and 2.09%
in 2022, 2023 and 2024. We continue to dispose of collateral through judicial or arbitration
proceedings and utilize other quick disposal
plans available to manage NPLs. Meanwhile, we also transfer loans to third parties in exchange for proceeds
upfront to quickly recover
overdue loans, and the related gains or losses from such sale will be accounted for as other gains/(losses) in our consolidated
statements
of comprehensive income.
 
Selected Income Statement Items
 
Total operating income
 
Our total operating income represents the sum
of (i) net interest and fees income after collaboration cost and (ii) total non-interest income. Net interest
and fees income after collaboration
cost represents total interest and fees income netting of total interest and fees expenses and collaboration cost for sales
partners.
In 2022, 2023 and 2024, we generated net interest and fees income after collaboration cost of RMB683.3 million, RMB775.9 million and
RMB588.3
million (US$80.6 million), respectively. Total non-interest income/(losses) comprises of net gains/(losses) on sales of loans, net realized
gains
on sales of investments and other gains/(losses), net. In 2022, 2023 and 2024, we generated total non-interest income of RMB65.9
million, non-interest
losses of RMB5.8 million and non-interest losses of RMB35.0 million (US$4.8 million), respectively.
 
Under the contractual arrangements with our trust
company partners, we subscribe to subordinated units of the trust plans and also provide services to
trust plans. As a result, we are
entitled to (i) the investment return payable to us as subordinated holder and (ii) a performance-based service fee of up to 5%
per annum
of the size of trust plans payable to us for our services provided to trust plans. As subordinated unit holder, we are exposed to variability
of
returns from activities of trust plans and are therefore required to consolidate the financial results of trust plans. Therefore, the
service fee charged to trust
plans is considered inter-company transaction and is eliminated together with service expenses of trust plans
for accounting purposes. As a result, the total
payments to us under our trust lending model, together with the interest spread under
our small loan direct lending model and certain non-interest income,
is reflected on our consolidated financial statements as total operating
income. The following table sets forth a breakdown of our total operating income for
the periods indicated.
 
 
 
For the Year Ended December 31,
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
   
US$
 
Interest and fees income(1)
    1,731,352,575      1,754,595,020      1,538,620,115     
210,790,092 
Interest
and fees expenses(2)
    (784,776,537)     (723,081,286)     (794,518,514)     (108,848,590)
Net interest and fees income
   
946,576,038      1,031,513,734     
744,101,601     
101,941,501 
Net
revenue under the commercial bank partnership model(3)
   
57,551,005     
87,936,005     
97,127,306     
13,306,386 
Collaboration cost for sales partners
    (320,826,549)     (343,508,143)     (252,881,333)    
(34,644,601)
Net interest and fees income after collaboration cost
   
683,300,494     
775,941,596     
588,347,574     
80,603,287 
Non-interest income/(losses)
   
      
      
      
  
Realized gains/(losses) on sales of investments, net
   
20,566,672     
6,548,484     
(4,125,037)    
(565,128)
Net losses on sales of loans
   
(44,554,948)     (17,190,545).     
(6,497,731)    
(890,185)
Other
gains/(losses), net(1)(4)
   
89,914,038     
4,847,597     
(24,400,913)    
(3,342,911)
Total non-interest (losses)/income, net
   
65,925,762     
(5,794,464)    
(35,023,681)    
(4,798,225)
Total operating income
   
749,226,256     
770,147,132     
553,323,893     
75,805,063 
 
 
Note:
 
(1) Interest and fees income include (i) interest and financing service fees on loans, (ii) interest income on debt securities, (iii)
interest income charged to
sales partners, and (iv) interest on deposits with banks.
 
102

 
(2) Interest and fees expenses refer to interest expenses on interest-bearing borrowings.
 
(3) The Company has started to collaborate with commercial banks since 2021 and such collaboration grew and scaled in the second half
of 2022.
 
(4) Certain provision for guarantee liabilities in 2021 was immaterial and presented under “other gains/(losses), net”. Provision for guarantee liabilities has
been reclassified from “other gains/(losses), net” to “provision for credit losses” in 2022.
 
Interest and fees income
 
Interest and financing service fees on loans
 
Our interest and financing service fees on loans
represents interest payment from borrowers under our trust lending model and direct lending model,
and historical financing service fee
charged on borrowers for the loan services we provide. Financing service fee is deferred and amortized over the average
life of the related
loans using the effective interest method. Due to recent regulatory changes, we ceased charging such financing service fee starting from
August 2017.
 
Interest income on debt securities
 
Interest income on debt securities is calculated
by applying the effective interest rate to the gross carrying amount of debt securities to unrelated
companies plus any interest received
from corporate debt securities.
 
Interest income charged to sales partners
 
In the event of a loan defaults and the sales
partner chooses to repurchase such loan in installments, the Company charges certain percentage of the
loan as the interest income charged
to sales partners. Interest income charged to sales partners refers to the cost of and interest on the partner’s 40%
repayment and
instalment repurchase options under collaboration model.
 
Interest on deposits with banks
 
Our interest on deposits with banks represents
interest generated from our cash deposits with banks.
 
103

 
Interest and fees expenses
 
We recorded interest and fees expenses of RMB784.8
million, RMB723.1 million and RMB794.5 million (US$108.8 million) in 2022, 2023 and 2024,
respectively.
 
Our interest and fees expenses consists of interest
expenses on interest-bearing borrowings. In 2022, 2023 and 2024, the interest expenses on interest-
bearing borrowings was RMB784.8 million,
RMB723.1 million and RMB794.5 million (US$108.8 million), accounting for 100%, 100% and 100%,
respectively, of our total interest and
fees expenses for the same periods.
 
Interest expenses on interest-bearing borrowings
 
Interest expenses on interest-bearing borrowings
consists primarily of financing costs payable to (i) senior unit holders, (ii) third parties to whom we
transferred rights to earnings
in certain of our subordinated units in trust plans with a repurchase arrangement, and (iii) third parties to whom we transferred
certain
rights to earnings in loans principal, interest and financing service fee receivables with a repurchase arrangement.
 
Net revenue under the commercial bank partnership
model
 
Net revenue under the commercial bank partnership
model represents fees charged to commercial banks for services including introducing borrowers,
initial credit assessment, facilitating
loans from the banks to the borrower and providing technical assistance to the borrower and banks, net of fees paid to
third-party insurance
company.
 
Revenues from loan facilitation services (covering
matching of commercial banks to borrowers and facilitating the execution of loan agreement
between commercial banks and borrowers) are
recognized at the time a loan is originated, at which time the facilitation service is considered completed.
Revenues from post-origination
services (covering cash processing services and collection services) are recognized on a straight-line basis over the term of
the underlying
loans as the services are provided.
 
The Group provided guarantee services for its
off-balance sheet loans under the commercial bank partnership model. As a result, at inception of the
guarantee, the Group recognized
a stand-ready guarantee liability under ASC 460 at fair value with an associated guarantee receivable. Subsequently, the
stand-ready
guarantee is released into gains from guarantee liabilities on a straight-line basis over the term of the guarantee.
 
104

 
Collaboration cost for sales partners
 
Collaboration cost for sales partners represents
sales incentives paid to sales partners. It has decreased from RMB343.5 million in 2023 to RMB252.9
million (US$34.6 million), primarily
due to a decrease of daily average outstanding loan principal under the trust lending model in 2024 as compared to
2023.
 
Non-interest income/(losses)
 
Realized gains on sales of investments
 
Realized gains on sales of investments consist
of realized gains and losses from the disposal of investment securities, presented on a net basis.
 
Net gains/(losses) on sales of loans
 
Net gains/(losses) on sales of loans refer to
any gains and losses from the disposal of loans.
 
Other gains/(losses), net
 
Other gains/(losses), net mainly consists of gains
of confiscating CRMPs. Particularly, in the event of a loan defaults and the sales partner chooses to
repurchase such loan in installments,
the Company charges certain percentage of the loan as the interest income charged to sales partners. The interest
income charged to sales
partners was previously presented as “fund possession fee” under “other gains/(losses), net”, and is separately
listed as “interest
income charged to sales partners” since third quarter of 2022 due to an increase in its absolute amount.
 
Operating expenses
 
Our operating expenses consist of employee compensation
and benefits, share-based compensation expenses, taxes and surcharges, operating lease
cost, offering expenses and other expenses.
 
105

 
The following table sets forth our operating expenses,
in absolute amounts and as percentages of total operating income, for the periods indicated.
 
 
 
For the Year Ended December 31,
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
%
   
RMB
   
%
   
RMB
   
US$
   
%
 
Operating expenses
 
    
  
 
    
  
 
    
    
  
Employee compensation and benefits
    197,035,872     
26.3%     204,573,389     
26.6%     155,735,239      21,335,640     
28.1%
Share-based compensation expenses
   
5,774,266     
0.8%    
7,517,349     
1.0%    
14,898,534      2,041,091     
2.7%
Taxes and surcharges
   
35,890,761     
4.8%    
31,343,671     
4.1%    
26,168,730      3,585,101     
4.7%
Operating lease cost
   
13,966,943     
1.9%    
16,366,797     
2.1%    
15,693,697      2,150,028     
2.8%
Other expenses
   
85,889,497     
11.5%     121,520,772     
15.8%     187,322,734      25,663,109     
33.9%
Total operating expenses
    338,557,339     
45.2%    381,321,978     
49.5%    399,818,934      54,774,969     
72.2%
 
Other expenses primarily consist of (i) advertising
and promotion expenses; (ii) litigation fees; (iii) consulting fees; (iv) research and development
expenses; (v) office and commute
expenses, which mainly include expenses relating to office renovation, office facility expansion and daily commute; (vi)
attorney fees;
(vii) entertainment and traveling expenses, and (viii)post-loan management fee paid to third parties.
 
The following table sets forth breakdown of other
expenses in absolute amounts and as percentages of total operating income, for the periods indicated.
 
 
 
For the Year Ended December 31,
 
 
 
2022
 
 
2023
 
 
2024
 
 
 
RMB
   
%
 
 
RMB
   
%
 
 
RMB
   
US$
   
%
 
Other expenses
   
     
 
   
     
 
   
     
     
 
Advertising and promotion expenses
    32,412,727     
4.3%    
49,828,134     
6.5%    
13,653,838      1,870,568     
2.5%
Litigation fees and Attorney fees
    7,680,633     
1.0%    
1,714,117     
0.2%    
18,877,828      2,586,252     
0.5%
Entertainment and traveling expenses
    9,740,873     
1.3%    
15,252,790     
2.0%    
14,811,438      2,029,159     
2.7%
Office and commute expenses
    7,791,694     
1.0%    
10,792,783     
1.4%    
10,117,559      1,386,100     
1.8%
Consulting fees
    12,016,260     
1.6%    
17,480,308     
2.3%    
12,058,142      1,651,959     
2.2%
Communication expenses
    2,424,242     
0.3%    
2,826,369     
0.4%    
2,784,808     
381,517     
0.5%
Depreciation and amortization
    2,244,279     
0.3%    
1,753,032     
0.2%    
11,540,877      1,581,094     
2.1%
Directors and officers liability insurance
    3,474,151     
0.5%    
3,613,489     
0.5%    
919,443     
125,963     
0.2%
Research and development expenses
   
760,465     
0.1%    
1,791,754     
0.2%    
1,010,223     
138,400     
0.2%
Post-loan management fee
   
–     
– 
   
10,481,523     
1.4%    
99,368,411      13,613,416     
18.0%
Others
    7,344,173     
1.0%    
5,986,473     
0.8%    
2,180,167     
298,682     
0.4%
Total other expenses
    85,889,497     
11.5%    121,520,772     
15.8%    187,322,734      25,663,110     
31.1%
 
106

 
Taxation
 
Cayman Islands
 
We are incorporated in the Cayman Islands. Under
the current law of the Cayman Islands, we are not subject to income or capital gains tax. In addition,
dividend payments are not subject
to withholding tax in the Cayman Islands.
 
British Virgin Islands
 
Under the current laws of the British Virgin Islands,
our company is not subject to tax on income or capital gains. In addition, upon payments of
dividends by our British Virgin Islands subsidiaries
to their shareholders, no British Virgin Islands withholding tax will be imposed.
 
Hong Kong
 
Our wholly owned subsidiary, China Financial Services
Group Limited, is subject to Hong Kong profits tax on their activities conducted in Hong Kong
at a uniform tax rate of 16.5%. Payments
of dividends by our subsidiaries to us are not subject to withholding tax in Hong Kong.
 
PRC
 
Our subsidiaries and their subsidiaries in China
are companies incorporated under PRC law and, as such, are subject to PRC enterprise income tax on
their taxable income in accordance
with the relevant PRC income tax laws. Pursuant to the PRC Enterprise Income Tax Law (the “EIT Law”), which
became effective
on January 1, 2008, and most recently amended on December 29, 2018, a uniform 25% enterprise income tax rate is generally applicable
to
both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies. For example, enterprises
qualified as “High
and New Technology Enterprises” are entitled to a 15% enterprise income tax rate rather than the 25% uniform
statutory tax rate. The enterprise income tax
is calculated based on the entity’s global income as determined under PRC tax laws
and accounting standards. According to the Notice of the Ministry of
Finance and the SAT on Implementing the Pilot Program of Replacing
Business Tax with Value-Added Tax in an All-round Manner, which became
effective on May 1, 2016, as amended on March 20, 2019, entities
and individuals engaged in the sale of services, intangible assets or fixed assets within
the PRC territory are required to pay value-added
tax instead of business tax. Following the implementation of the Pilot Plan for Imposition of Value-
Added Tax to Replace Business Tax,
or the VAT Pilot Plan, most of our PRC subsidiaries and affiliates have been subject to VAT, at a rate of 3% or 6%,
instead of business
tax.
 
As a Cayman Islands holding company, we may receive
dividends from our PRC subsidiaries through China Financial Services Group Limited. The
PRC EIT Law and its implementing rules provide
that dividends paid by a PRC entity to a nonresident enterprise for income tax purposes is subject to PRC
withholding tax at a rate of
10%, subject to reduction by an applicable tax treaty with China. Pursuant to the Arrangement between Mainland China and the
Hong Kong
Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Hong Kong Tax Treaty, the
withholding
tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate
of
10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State Administration
of Taxation on the
Issues concerning the Application of the Dividend Clauses of Tax Agreements, or SAT Circular 81, a Hong Kong resident
enterprise must meet the
following conditions, among others, in order to apply the reduced withholding tax rate: (i) it must be a company;
(ii) it must directly own the required
percentage of equity interests and voting rights in the PRC resident enterprise; and (iii) it must
have directly owned such required percentage in the PRC
resident enterprise throughout the 12 months prior to receiving the dividends.
On January 1, 2020, the State Administration of Taxation issued the
Announcement of the State Taxation Administration on Issuing the Administrative
Measures for Entitlement to Treaty Benefits for Non-resident Taxpayers,
which replaced the Administrative Measures for Nonresident Taxpayers
to Enjoy Treatment under Tax Treaties, or SAT Circular 60. The Announcement
changed the reporting requirement into collecting, gathering
and retaining relevant materials for future reference in accordance with the provisions of these
Measures in order to accept the follow-up
administration of tax authorities. At the same time, the Announcement adjusts the definition of non-resident
taxpayer to make it more
accurate, which refers to taxpayers who shall be tax residents of the other contracting party in accordance with the provisions of
the clauses on residents of the tax treaties. The
SAT promulgated the Announcement on Certain Issues Concerning the Beneficial Owner in a Tax
Agreement, or Circular 9, on February 3, 2018,
effective as April 1, 2018, which provides guidance for determining whether a resident of a tax treaty
country is the “beneficial
owner” of income under China’s tax treaties and similar arrangements.
 
107

 
China Financial Services Group Limited may be
able to benefit from the 5% withholding tax rate for the dividends it receives from our PRC
subsidiaries if it satisfies the conditions
prescribed under SAT Circular 81 and other relevant tax rules and regulations. However, according to SAT Circular
81, if the relevant
tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the
relevant tax authorities may adjust the favorable withholding tax in the future. In addition, according to Circular 9, a beneficial owner
shall generally
engage in substantial business activities, and an agent shall not be considered a beneficial owner and, therefore, shall
not qualify for those benefits. It is
possible, however, under Circular 9, China Financial Services Group Limited would not be considered
the “beneficial owner” of any such dividends, and
that such dividends would as a result be subject to withholding tax at the
rate of 10% rather than the favorable 5% rate applicable under the Hong Kong Tax
Treaty.
 
If our holding company in the Cayman Islands or
any of our subsidiaries outside China were deemed to be a “resident enterprise” under the PRC EIT
Law, it would be subject
to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information—D. Risk Factors—Risks
Related to Doing Business in China—If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such
classification could
result in unfavorable tax consequences to us and our non-PRC shareholders and ADS holders.”
 
Critical Accounting Policies, Judgments and Estimates
 
We prepare our financial statements in accordance
with U.S. GAAP, which requires our management to make estimates and assumptions that affect the
reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and
expenses during the
reporting periods. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and
assessment
of current business and other conditions, our expectations regarding the future based on available information and assumptions that we
believe
to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources.
Since the use of
estimates is an integral component of the financial reporting process, our actual results could differ from those estimates.
Some of our accounting policies
require a higher degree of judgment than others in their application.
 
The selection of critical accounting policies,
the judgments and other uncertainties affecting application of those policies and the sensitivity of reported
results to changes in conditions
and assumptions are factors that should be considered when reviewing our financial statements. We believe the following
accounting policies
involve the most significant judgments and estimates used in the preparation of our financial statements. You should read the following
description of critical accounting policies, judgments and estimates in conjunction with our consolidated financial statements and other
disclosures included
in this annual report.
 
Our consolidated financial statements include
the results of the trust plans as the trust lending model creates exposure to variability of returns from the
activities of the trust
plans. All intercompany transactions and balances, including payment of service fees from trust plans to us, are eliminated in
consolidation.
 
Variable interest entities (“VIEs”)
 
An entity is a variable interest entity (VIE)
if it meets the criteria outlined in Accounting Standards Codification (ASC) Topic 810, Consolidation,
which are (i) the entity has equity
that is insufficient to permit the entity to finance its activities without additional subordinated financial support from
other parties;
or (ii) the entity has equity investors that cannot make significant decisions about the entity’s operations or that do not absorb
their
proportionate share of the entity’s expected losses or expected returns. The Group consolidates a VIE when it has both the
power to direct the activities that
most significantly impact the VIE’s economic performance and a right to receive benefits or
the obligation to absorb losses of the entity that could be
potentially significant to the VIE (that is, the Group is the primary beneficiary).
All other entities not deemed to be VIEs with which the Group has
involvement are evaluated for consolidation under other subtopics of
ASC 810.
 
108

 
In the normal course of business, the Group engages
in a variety of activities with VIEs. The Group determines whether it is the primary beneficiary of
a VIE at the time it becomes involved
with the variable interest entity and reconsiders that conclusion continually. In evaluating whether the Group is the
primary beneficiary,
the Group evaluates its economic interests in the entity. If the Group is determined to be the primary beneficiary of a VIE, it must
account
for the VIE as a consolidated subsidiary. If the Group is determined not to be the primary beneficiary of a VIE, such VIE is not consolidated.
 
The Group has segregated its involvement with
VIEs between those VIEs which are consolidated and those VIEs which are not consolidated.
 
Revenue recognition
 
Interest and financing service fees on loans which
are amortized over the contractual life of the related loans are recognized in consolidated statements
of comprehensive income in accordance
with Accounting Standard Codification (“ASC”) 310 using the effective interest method. In accordance with the
relevant guidance
in ASC Topic 606, the amounts associated with guarantee services under commercial bank partnership model is within the scope of ASC
Topic
460 and should be accounted for in accordance with the provisions of that Topic. The services not within the scope of other Topics should
be
accounted for in accordance with the remaining provisions of ASC Topic 606 and the applicable revenue recognition guidance. Also, asset
management
revenue and revenue from rendering of services are recognized in accordance with ASC 606 when following conditions are met:
(i) identify the contract(s)
with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction
price, (iv) allocate the transaction price to the
performance obligations in the contract and (v) recognize revenue when (or as) the entity
satisfies a performance obligation.
 
The criteria of revenue recognition as they relate
to each of the following major revenue generating activities are described below:
 
Interest and financing service fees on loans
 
Interest and financing service fees on loans,
which include financing service fees on loans, are collected from borrowers for loans and related services.
 
Interest and financing service fees on loans includes
the amortization of any discount or premium or differences between the initial carrying amount of
an interest-bearing asset and its amount
at maturity calculated using the effective interest basis.
 
The effective interest method is a method of calculating
the amortized cost of a financial asset and of allocating the interest and financing service fees
on loans over the years. The effective
interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of
the financial
instrument. When calculating the effective interest rate, we estimate cash flows considering all contractual terms of the financial instrument
but do not consider future credit losses. Interest on the impaired assets is recognized using the rate of interest used to discount future
cash flows.
 
Interest income on debt investment
 
Interest income on debt securities is calculated
by applying the effective interest rate to the gross carrying amount of debt securities to unrelated
companies plus any interest received
from corporate debt securities.
 
Revenue under commercial bank partnership model
 
In accordance with the relevant guidance in ASC
Topic 606, the amounts associated with guarantee services under commercial bank partnership model
is within the scope of ASC Topic 460
and should be accounted for in accordance with the provisions of that Topic. The services not within
the scope of
other Topics should be accounted for in accordance with the remaining provisions of ASC Topic 606 and the applicable revenue
recognition guidance.
 
109

 
The Group considers loan facilitation services
under commercial bank partnership model (covering matching of commercial banks to borrowers and
facilitating the execution of loan agreement
between commercial banks and borrowers) and post-facilitation services under commercial bank partnership
model (covering cash processing
services and collection services) as two distinctive performance obligations in accordance with ASC Topic 606. The
transaction price is
first allocated to guarantee services under commercial bank partnership model, if any, which is recorded at fair value and recognized
amortized during the guarantee term in accordance with ASC Topic 460.
 
Then the remaining considerations are allocated
to the loan facilitation under commercial bank partnership model and post-facilitation services under
commercial bank partnership model
using their relative standalone selling prices. When estimating total consideration, the Group considers early
termination scenarios based
on historical early payment and other termination scenarios as the Group can not receive the full contractual service fee amount
under
early termination, given the service fee is collected on a pro-rata basis upon early loan termination. Such service fee is determined
to be variable
consideration that meets the “probable of not reversing” threshold. As such, the Group recognizes revenue related
to early termination based on its best
estimate and true up adjustments are made from time to time. The Group does not have observable
standalone selling price for the loan facilitation services
or post-facilitation services because it does not provide loan facilitation
services or post-facilitation services on a standalone basis in similar circumstances
to similar customers. There is no direct observable
standalone selling price for similar services in the market that is reasonably available to the Group.
 
As a result, the estimation of standalone selling
price involves significant judgment. The Group uses an expected cost plus margin approach to estimate
the standalone selling prices of
loan facilitation services and post facilitation services as the basis of revenue allocation. When estimating the selling prices,
the
Group considers the cost related to such services, profit margin, customer demand, effect of competition on services, and other market
factors, among
which estimates of the cost of providing the services is the most significant.
 
The transaction price allocated to loan facilitation
services is recognized as revenue upon execution of loan agreements between commercial banks and
borrowers; the consideration allocated
to post-facilitation services is recognized over the period of the loan on a straight-line method, which approximates
the pattern of when
the underlying services are performed.
 
Remaining performance obligations represents the
amount of the transaction price for which services have not been performed under post-facilitation
services. The Group collects service
fees monthly. The aggregate amounts of the transaction price allocated to performance obligations that are unsatisfied
pertaining to post-origination
services were RMB67.08 million, RMB17.53 million and RMB6.3 million (US$0.9 million) as of December 31, 2022, 2023
and 2024, respectively.
64.6%, 100% and 100% of the remaining performance obligations will be recognized over the following 12 months for the years
ended December
31, 2022, 2023 and 2024, respectively.
 
Realized gains/(losses) on sales of investments
 
Realized gains/(losses) consist of realized gains
and losses from the sale of investment securities, presented on a net basis.
 
Net gains/(losses) on sales of loans
 
Net gains/(losses) on sales of loans refer to
any gains and losses from the disposal of loans which is accounted for as a sale under ASC 860.
 
Gains on confiscation of CRMPs
 
Gains on confiscation of CRMPs are recognized
to the extent confiscated CRMPs exceed previously recognized allowance for loan losses and
guarantee asset when sales partners surrender
the CRMPs and the obligation of refunding the CRMPs is released.
 
110

 
Loans
 
(i) On-balance sheet loans
 
Loans are reported at their outstanding principal
balances net of any unearned income and unamortized deferred fees and costs. Loan origination fees
and certain direct origination costs
are generally deferred and recognized as adjustments to income over the lives of the related loans.
 
We facilitate credit to borrowers through structured
funds which are considered as consolidated VIEs and we evaluated VIEs for consolidation in
accordance with ASC 810. Although we have ceased
providing credit enhancement and top-up arrangements since March 2018 and all the remaining loans
under such arrangement had been transferred
in 2021 and substantially all of such remaining loans had been paid off in 2022, we, as the subordinated unit
holder, still provide credit
strengthening services and are responsible to ensure sufficient capital to repay the principal amount and the agreed financing
costs for
the senior units, we also act as the manager of the structured funds, those are the two key factors to determine whether we should consolidate
the
structured funds. As a result, the loan principal remains on our consolidated balance sheets, whilst the funds received from senior
tranches holders are
recorded as Other Borrowings in our consolidated balance sheets.
 
Non-accrual policies
 
Loans principal, interest and financing service
fee receivables are placed on non-accrual status when payments are 90 days contractually past due.
When a loan principal, interest and
financing service fee receivable is placed on non-accrual status, interest and financing service fees accrual ceases. If the
loan is non-accrual,
the cost recovery method is used and cash collected is applied to first reduce the carrying value of the loan. Otherwise, interest income
may be recognized to the extent cash is received. Loans principal, interest and financing service fee receivables may be returned to accrual
status when all
of the borrower’s delinquent balances of loans principal, interest and financing service fees have been settled
and the borrower continues to perform in
accordance with the loan terms for a period of at least six months.
 
Charge-off policies
 
Loans principal, interest and financing service
fee receivables are charged down to net realizable value (fair value of collaterals, less estimated costs to
sell) when the Group has
determined the remaining balance is uncollectable after exhausting all collection efforts. In order to comply with ASC 310 and
ASC 326,
the Group considers loans principal, interest and financing service fee receivables meeting any of the following conditions as uncollectable
and
charged-off: (i) death of the borrower; (ii) identification of fraud, and the fraud is officially reported to and filed with relevant
law enforcement
departments; (iii) sales of loans to third parties; (iv) settlement with the borrower, where the Group releases irrecoverable
loans through private negotiations
with the borrower where the borrower cannot repay the loan in full through self-funding or voluntary
sale of the collateral; (v) disposal through legal
proceedings, including but not limited to online arbitrations, judicial auctions and
court enforcements; or (vi) loans are 180 days past due unless both well-
secured and in the process of collection.
 
111

 
Allowance for credit losses
 
Allowance for credit losses represents management’s
best estimate of probable losses inherent in the portfolio. Commencing January 1, 2020, the
Group adopted ASC 326, “Financial Instruments
- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaced the
incurred loss methodology
for determining the provision for credit losses and allowance for credit losses with a current expected credit loss methodology
(“ACL”)
, which is based on past events, current conditions and reasonable and supportable forecasts over the life of the loans. ASC 326 defines
the ACL
as a valuation account that is deducted from, or added to the amortized cost of a financial asset to present the net amount that
management expects to
collect on the financial asset over its expected life. All financial assets carried at amortized cost are in the
scope of ASC 326, while assets measured at fair
value are excluded. The allowance for credit losses is adjusted each period for changes
in expected lifetime credit losses. When credit expectations change,
the valuation account is adjusted with changes reported in provision
for credit losses. If amounts previously charged off are subsequently expected to be
collected, the Group may recognize a negative allowance,
which is limited to the amount that was previously charged off.
 
The ACL includes collectively evaluated (“collective
ACL”) and individually evaluated (“individual ACL”) allowance for credit losses. The Group
aggregates loans sharing similar
risk characteristics into pools for purposes of measuring expected credit losses. Pools are reassessed periodically to
confirm that all
loans within each pool continue to share similar risk characteristics. Expected credit losses for loans that do not share similar risk
characteristics with other financial assets are measured individually.
 
The collective ACL is measured based on
loans that share similar risk characteristics and includes both quantitative and qualitative components. The
collective ACL utilizes probability
of default (PD) and loss given default (LGD) models, and is the product of multiplying PD, LGD, and exposure at
default (EAD) for nondelinquent
loans, delinquent loans within 90 days. The PD is computed based on the historical delinquency data, adjusted for a
macroeconomic forecast,
which considers selected economic variables and the weighting of multiple macroeconomic forecast scenarios over the life of the
loans.
These macroeconomic scenarios include variables that have historically been key drivers of increases and decreases in credit losses. These
variables
include, but are not limited to, gross-domestic product, total retail sales of consumer goods and urban per capita disposable
income and are updated at least
quarterly. The LGD model considers historical loss experience period. The qualitative component of the
collective ACL represents the Group’s judgment of
additional considerations to account for external risk factors that are not adequately
measured in the quantitative component of the collective ACL,
including consideration of idiosyncratic risk factors, conditions that may
not be reflected in quantitatively derived results, or other relevant factors.
 
The individual ACL is estimated on an individual
basis for loans whose payments are contractually past due more than 90 days or do not share similar
risk characteristics. A financial
asset is collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be
provided substantially
through the sale or operation of the collateral. When a collateral-dependent financial asset is probable of foreclosure, the Group will
utilize the discounted cash flow (“DCF”) model to determine the expected credit loss for the loan by comparing the amortized
cost of the loan with the
present value of the projected cashflow for the underlying collateral. The projected cashflow is calculated
based on fair value of collateral provided by
third-party appraisers, adjusted for the estimated disposal discounts on the collateral
and cost to sell.
 
Under the trust lending model, when the Group grants a loan through
a trust plan, the loan is with the borrower and guarantee is entered into with a
separate counterparty (the sales partner). As such, under
the definition of ASC 326-20-20, the guarantee arrangement and lending arrangement would be
considered freestanding arrangements. As sale
partners will provide guarantee of the entire loan to the Group, collection for loss is probable and estimable
when a loss on an insured
loan is incurred and recognized. In this case, the Group will recognize guarantee loss recoverable asset in the amount that the
Group
determines is probable to receive from the guarantor with an offsetting entry to “provision for credit losses” when the Group
concludes that the loss
recovery is collectible. However, potential recovery that exceeds the recognized loss, if any, (gain contingency)
will not be recognized until cash is
received. Therefore, the amounts estimated to be recoverable from the proceeds of guarantees will
be reported as a separate asset (guarantee asset) in the
balance sheet. The increase in guaranteed recoverable assets are included in
the income statement as a reduction of the “provision for credit losses”,
separate disclosure of the increase in guaranteed
recoverable assets is included in the roll forward of the “allowance for credit losses”. The income
statement caption was
disclosed as “Provision for credit losses, net of increase in increase in guaranteed recoverable assets”.
 
112

 
Loans held-for-sale
 
Loans held-for-sale are measured at the lower
of cost or fair value, with valuation changes recorded in noninterest revenue. The valuation is performed
on an individual loan basis.
Loan origination fees or costs and purchase price discounts or premiums are deferred in a contra loan account until the related
loan is
sold. The deferred fees or costs and discounts or premiums are an adjustment to the basis of the loan and therefore are included in the
periodic
determination of the lower of cost or fair value adjustments.
 
The loan is derecognized if the Group does not
retain any risk and rewards after transferring the loan. Such transfer would be recorded as sales
according to ASC 860-10-40-5. At the
time of derecognition, any related loan loss allowance is released. Gains and losses on loans transfer as a sale are
recognized in the
non-interest income.
 
(ii) Off-balance sheet loans
 
For loans funded by the proceeds from third-party
commercial banks, each underlying loan and borrower has to be approved by the third-party
commercial banks individually. Once the loan
is approved by and originated by the third-party commercial bank, the fund is provided by the third-party
commercial bank to the borrower
and a lending relationship between the borrower and the third-party commercial bank is established through a loan
agreement. Effectively,
the Group offers loan facilitation services to the borrowers who have credit needs and the commercial banks who originate loans
directly
to borrowers referred by the Group. The Group continues to provide post-facilitation services to the borrowers over the term of the loan
agreement.
Under this scenario, the Group determines that it is not the legal lender or borrower in the loan origination and repayment
process. Accordingly, the Group
does not record loans principal, interest and financing service fee receivables arising from these loans
nor interest-bearing borrowings to the third-party
commercial banks.
 
Under the commercial bank partnership model, when
the third-party commercial banks grant loans, the Group provides guarantee services to
commercial banks and takes on all of the credit
risk of the borrowers. Also, if the loan is referred to the Group by a separate counterparty (the sales
partner), the credit risk of the
borrower will be transferred to the sales partner. As such, under the definition of ASC 326-20-20, the guarantee arrangement
between the
third-party commercial banks and the Group and between the Group and the sales partner would be considered freestanding arrangements.
As
sale partners will provide guarantee of the entire loan to the Group, collection for loss is probable and estimable when a loss on
an insured loan is incurred
and recognized. In this case, the Group will recognize guarantee loss recoverable asset in the amount that
the Group determines is probable to receive from
the guarantor with an offsetting entry to “provision for credit losses” when
the Group concludes that the loss recovery is collectible. However, potential
recovery that exceeds the recognized loss, if any, (gain
contingency) will not be recognized until cash is received. Therefore, the amounts estimated to be
recoverable from the proceeds of guarantees
will be reported as a separate asset (guarantee asset) in the balance sheet. The income statement caption was
disclosed as “Provision
for credit losses, net of increase in increase in guaranteed recoverable assets”.
 
113

 
Guarantee liabilities
 
Starting from 2021, the Group started to cooperate
with third-party financing guarantee corporations that provides guarantee services to commercial
banks. According to relevant financial
guarantee arrangements, third-party financing guarantee corporations will fulfil its obligations to purchase defaulted
loans. However,
the Group is required to provide deposits and replenish such deposits from time to time to third-party financing guarantee corporations
for
its obligations of purchasing defaulted loans. Effectively, the Group provides back-to-back guarantee to third-party financing guarantee
corporations and
takes on all of the credit risk of the borrowers. These financial guarantee contracts are accounted for as guarantee
liabilities under ASC 460, Guarantees.
 
The Group adopted ASC 326, Financial
Instruments—Credit Losses, which requires gross accounting for guarantee liability. As a result, at inception
of these
financial guarantee provided for off-balance sheet loans under commercial bank partnership model, the Group will recognize both a
stand-ready
guarantee liability under ASC 460 with an associated guarantee receivable, and a contingent guarantee liability with an
allowance for credit losses of the
underlying loans under current expected credit loss methodology, which includes both quantitative
and qualitative components. The collective ACL utilizes
probability of default (PD) and loss given default (LGD) models, and is the
product of multiplying PD, LGD, and exposure at default (EAD) for guarantee
liabilities. The PD is computed based on the historical
delinquency data, adjusted for a macroeconomic forecast, which considers selected economic
variables and the weighting of multiple
macroeconomic forecast scenarios over the life of the off-balance sheet loans. The LGD model considers historical
loss experience
period. The qualitative component of the collective ACL represents the Group’s judgment of additional considerations to
account for
external risk factors that are not adequately measured in the quantitative component of the collective ACL, including
consideration of idiosyncratic risk
factors, conditions that may not be reflected in quantitatively derived results, or other
relevant factors.
 
Subsequent to the initial recognition, the ASC
460 stand-ready guarantee is released into gains from guarantee liabilities on a straight-line basis over
the term of the guarantee, while
the contingent guarantee is reduced by the pay-outs made by the Group to compensate the investors upon borrowers’
default.
 
Share-based compensation expenses
 
We measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award and
recognize the cost over the period
the employee is required to provide service in exchange for the award, which generally is the vesting period. We
recognize compensation
cost using a front-loading approach for an award with only service conditions that has a graded vesting schedule over the requisite
service
period for the entire award, net of estimated forfeitures, provided that the cumulative amount of compensation cost recognized at any
date at least
equals the portion of the grant-date value of such award that is vested at that date. Forfeiture rates are estimated based
on historical and future expectations
of employee turnover rates.
 
In January 2017, SFIL adopted the 2017 SFIL Share
Incentive Plan, or the 2017 Plan. Under the 2017 Plan, SFIL granted 187,933,730 options to its
certain management members and employees
to purchase up to 187,933,730 ordinary shares. The term of the options will not exceed ten years from the
date of the grant. Accordingly,
60%, 20% and 20% of the award options shall vest on December 31 of each of the years 2017 to 2019, respectively. Unless
terminated earlier,
the 2017 Plan will terminate automatically in 2022 to 2024, respectively.
 
On August 27, 2018, we adopted our 2018 CNFinance
Holdings Limit Share Incentive Plan, or the 2018 Plan to replace the 2017 Plan and granted
187,933,730 options to certain management members
and employees to purchase up to 187,933,730 of our ordinary shares under this 2018 Plan to replace
the granted and outstanding options
under the 2017 Plan. Except for the extension of the 20% of the 2017 Option’s termination year, which was vested in
December 31,2017,
by one year to December 31st, 2023, all terms of the 2017 Option Plan and the 2018 Share Option Plan were the same.
 
On December 31, 2019, we granted up to 119,674,780
options to certain management members and employees to purchase up to 119,674,780 of our
ordinary shares under the 2018 Plan. Such options
will be considered vested as to 50%, 30%, 20% on each of December 31, 2020, December 31, 2021 and
December 31, 2022, respectively, but
will only be distributed to the applicable grantees based on their performance scores on December 31, 2022, subject
to continued employment
through such date. As of the date hereof, the options may be allocated to up to 42 employees. Vested options will expire five
years
from the date of vesting.
 
On December 31, 2023, 80% of the options issued
in 2018 had expired. The Board authorized the Company to extend the expiration date of the
expired portion from December 31, 2023 to December
31, 2024. On December 31, 2024, 100% of the options issued in 2018 (including the 80% that was
extended on December 31, 2023) had expired,
the Company therefore extended the expiration date of the 100% of 2018 option to December 31, 2027.
 
114

 
Share-based payment transactions with
employees, such as share options are measured based on the grant date fair value of the equity instrument. We
recognize the
compensation costs net of estimated forfeitures over the applicable vesting period. The estimate of forfeitures will be 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 will be
recognized through a cumulative catchup adjustment in the period of change and will also
impact the amount of stock compensation expense to be
recognized in future periods. There were no market conditions associated with
the share option grants.
 
The fair value of options granted to employees
is determined based on a number of factors including valuations. In determining the fair value of our
equity instruments, we referred
to valuation reports prepared by an independent third-party appraisal firm, based on data we provided. The valuation reports
provided
us with guidelines in determining the fair value of the equity instruments, but we are ultimately responsible for the determination of
all amounts
related to share-based compensation recorded in the financial statements.
 
Excluding the options containing service vesting conditions, we calculated
the estimated fair value of the options on the respective grant dates using a
binomial option pricing model with assistance from independent
valuation firms, with the following assumptions:
 
 
 
Share awards
granted on
January 3,
2017
(“2018
Option”)
   
Share awards
granted on
January 3,
2019
(“2019
Option”)
   
Share awards
granted on
December 31,
2023
(“Extend
2018
Option”)
   
Share awards
granted on
December 31,
2024
 
Expected volatility
   
40.00%   
41.52%   
59.27%   
48.52%
Expected dividends
   
–     
–     
–     
- 
Risk-free interest rate
   
3.10%   
3.12%   
2.08%   
1.65%
Expected term (in years)
   
5     
5     
–     
- 
Expected life (in years)
   
6     
8     
1     
3 
 
The contractual life of the share option is used
as an input into the binomial option pricing model. Exercise multiple and post-vesting forfeit are
incorporated into the model. When the
options of the 2018 Option were issued, our shares had not been publicly traded at the time the options were issued
and our shares were
rarely traded privately, expected volatility for the shares underlying such options is estimated based on the average historical volatility
of comparable entities with publicly traded shares for the period before the date of grant with length commensurate to contractual life
of the options. The
risk-free rate for the expected term of the option is based on the yield to maturity of China’s six-year government
bond at the date of grant. When the
options of the 2019 Option were issued, our shares were already publicly traded. Since the shares
have only been publicly traded for just over a year, the
expected volatility for the shares underlying such options is estimated based
on the historical volatility of comparable entities with publicly traded shares
for the period before the date of grant with length commensurate
to contractual life of the options. The contractual life of the options is 6 years, 7 years and
8 years, respectively. Therefore, the
risk-free rate for the expected term of the options is determined based on the yield to maturity of China 5-year, 7-year
and 10-year government
bond, using interpolation method, at the date of grant. We have not declared or paid any cash dividends on our capital stock, and
do not
anticipate any dividend payments on our ordinary shares in the foreseeable future.
 
If any of the assumptions used in the binomial
option pricing model changes significantly, share-based compensation expenses for future awards may
differ materially compared with the
awards granted previously.
 
The following table sets forth the fair value
of options and ordinary shares estimated at the dates of option grants indicated below with the assistance
from an independent valuation
firm.
 
Date of options grant
 
Options
granted
    Exercise price  
Fair value of
option
 
Fair value
of ordinary
shares
January 3, 2017
   
75,173,492   
RMB0.50
 
RMB1.26
 
RMB1.72
January 3, 2017
   
112,760,238   
RMB0.50
 
RMB1.27
 
RMB1.72
December 31, 2019
   
83,772,346   
RMB1.00
 
RMB0.71
 
RMB1.40
December 31, 2019
   
35,902,434   
RMB1.00
 
RMB0.75
 
RMB1.40
December 31, 2023
   
150,346,984   
RMB0.50
 
RMB0.34
 
RMB0.29
December 31, 2024
   
150,346,984   
RMB0.50
 
RMB0.08
 
RMB0.35
 
115

 
For the 2018 Option, the Group recognized compensation expenses of
RMB39,715,168 and RMB15,886,067 in year 2018 and 2019, respectively. As
of December 31, 2019, the expenses in relation to the 2018 Option
have been fully recognized. There was no income tax benefit recognized associated with
the share-based compensation expenses. On December
31, 2023, 80% of the 2018 Option has expired. The Board authorized the Group to postpone the
expiration date of the expired portion from
December 31, 2023 to December 31, 2024. On December 31, 2024, 100% of the options issued in 2018
(including the 80% that was extended
on December 31, 2023) had expired, the Company therefore extended the expiration date of the 100% of 2018 option
to December 31, 2027.
As of December 31, 2024, the Group recognized compensation expenses of RMB14.9 million.
 
For the 2019 Option, the Group recognized compensation expenses of
RMB5,774,266, nil and nil in year 2022, 2023 and 2024, respectively. There
was no income tax benefit recognized associated with the share-based
compensation expenses. As of December 31, 2024, the expenses in relation to the
2019 Option have been fully recognized.
 
Non-GAAP Financial Measure
 
Adjusted Net Income
 
We use adjusted net income, a non-GAAP financial
measure, in evaluating our operating results and for financial and operational decision-making
purposes. We believe that adjusted net
income helps identify underlying trends in our business by excluding the impact of share-based compensation
expense, which are non-cash
charges. We believe that adjusted net income provides useful information about our operating results, enhances the overall
understanding
of our past performance and future prospects and allows for greater visibility with respect to key metrics used by our management in its
financial and operational decision-making.
 
  
For the Year Ended December 31
 
 
 
2020
   
2021
   
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
US$
 
Adjusted net income
    176,925,893      83,973,831      141,125,677      172,134,910      52,682,980      7,217,539 
 
Adjusted net income is not defined under U.S.
GAAP and is not presented in accordance with U.S. GAAP. This non-GAAP financial measure should
not be considered in isolation from, or
as a substitute for, its most directly comparable financial measure prepared in accordance with U.S. GAAP. A
reconciliation of the historical
non-GAAP financial measure to its most directly comparable GAAP measure has been provided in the tables included
below. Investors are
encouraged to review the reconciliation of the historical non-GAAP financial measure to its most directly comparable GAAP financial
measure.
As adjusted net income has material limitations as an analytical metric and may not be calculated in the same manner by all companies,
it may not
be comparable to other similarly titled measures used by other companies. In light of the foregoing limitations, you should
not consider adjusted net income
as a substitute for, or superior to, net revenues prepared in accordance with U.S. GAAP. We encourage
investors and others to review our financial
information in its entirety and not rely on a single financial measure.
 
The following table reconciles our adjusted net
income for the periods presented to the most directly comparable financial measure calculated and
presented in accordance with U.S. GAAP,
which is net income.
 
 
 
For the Year Ended December 31
 
 
 
2020
   
2021
   
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
US$
 
Net Income
   
114,852,526     
65,207,464     
135,351,411     
164,617,561     
37,784,446     
5,176,448 
Add: share-based compensation expenses
   
62,073,367     
18,766,367     
5,774,266     
7,517,349     
14,898,534     
2,041,091 
Adjusted net income
   
176,925,893     
83,973,831     
141,125,677     
172,134,910     
52,682,980     
7,217,539 
 
116

 
Results of Operations
 
The following table sets forth a summary of our
consolidated statements of comprehensive income for the periods presented. This information should
be read together with our consolidated
financial statements and related notes included elsewhere in this annual report. The results in any period are not
necessarily indicative
of our future trends.
 
 
 
For the Year Ended December 31,
 
  
2022
   
2023
   
2024
 
  
RMB
   
RMB
   
RMB
   
US$
 
 
 
    
    
    
  
Interest and fees income
    1,731,352,575      1,754,595,020      1,538,620,115     
210,790,092 
Interest expenses on interest-bearing borrowings
    (784,776,537)     (723,081,286)     (794,518,514)     (108,848,590)
Net interest and fees income
   
946,576,038      1,031,513,734     
744,101,601     
101,941,502 
Net revenue under the commercial bank partnership model
   
57,551,005     
87,936,005     
97,127,306     
13,306,386 
Collaboration cost for sales partners
    (320,826,549)     (343,508,143)     (252,881,333)    
(34,644,601)
Net interest and fees income after collaboration cost
   
683,300,494     
775,941,596     
588,347,574     
80,603,287 
Provision for credit losses, net of increase in guaranteed recoverable assets
    (238,084,863)     (177,282,998)     (105,216,440)    
(14,414,593)
Provision for cost method investment
   
–     
(5,907,577)    
-     
- 
Net interest and fees income after collaboration cost and provision
   
445,215,631     
592,751,021     
483,131,134     
66,188,694 
Realized gains/(losses) on sales of investments, net
   
20,566,672     
6,548,484     
(4,125,037)    
(565,128)
Net losses on sales of loans
   
(44,554,948)    
(17,190,545)    
(6,497,731)    
(890,185)
Other gains/(losses), net
   
89,914,038     
4,847,597     
(24,400,913)    
(3,342,912)
Total non-interest (losses)/income, net
   
65,925,762     
(5,794,464)    
(35,023,681)    
(4,798,225)
Operating expenses
   
      
      
      
  
Employee compensation and benefits
    (197,035,872)     (204,573,389)     (155,735,239)    
(21,335,640)
Share-based compensation expenses
   
(5,774,266)    
(7,517,349)    
(14,898,534)    
(2,041,091)
Taxes and surcharges
   
(35,890,761)    
(31,343,671)    
(26,168,730)    
(3,585,101)
Operating lease cost
   
(13,966,943)    
(16,366,797)    
(15,693,697)    
(2,150,028)
Other expenses
   
(85,889,497)     (121,520,772)     (187,322,734)    
(25,663,109)
Total operating expenses
    (338,557,339)     (381,321,978)     (399,818,934)    
(54,774,969)
Income before income tax expense
   
172,584,054     
205,634,579     
48,288,519     
6,615,500 
Income tax expense
   
(37,232,643)    
(41,017,018)    
(10,504,073)    
(1,439,052)
Net income
   
135,351,411     
164,617,561     
37,784,446     
5,176,448 
Earnings per share
   
      
      
      
  
Basic
   
0.10     
0.12     
0.03     
0.004 
Diluted
   
0.09     
0.11     
0.03     
0.004 
Other comprehensive income
   
      
      
      
  
Foreign currency translation adjustment
   
15,181,518     
867,116     
524,148     
71,808 
Comprehensive income
   
150,532,929     
165,484,677     
38,308,595     
5,248,256 
Less: net income attributable to non-controlling interests
   
970,379     
19,377,314     
-     
- 
Total comprehensive income attributable to ordinary shareholders
   
149,562,550     
146,107,363     
38,308,595     
5,248,256 
 
117

 
Year Ended December 31, 2024 Compared to Year
Ended December 31, 2023
 
Interest and fees income
 
Total interest and fees income for fiscal year 2024 was RMB1,538.6
million (US$210.8 million) as compared to RMB1,754.6 million for the same
period of 2023.
 
Interest and financing service fees on loans
 
Interest and financing service fees on loans was RMB1,343.7 million
(US$184.1 million) for the fiscal year of 2024 as compared to
RMB1,580.0 million for the same period of 2023, primarily attributable
to a decrease of daily average outstanding loan principal under trust lending model
in 2024 as compared to 2023.
 
Interest income charged to sales partners
 
Interest income charged to sales partners, representing interest charged
to sales partners who choose to repurchase default loans in installments,
increased by 20.8% to RMB162.6 million (US$22.3 million) for
the fiscal year of 2024 from RMB134.5 million in the same period of 2023, primarily
attributable to the increase of delinquent loans repurchased
by instalments by sales partners to fulfill their obligations.
 
Interest income on debt securities
 
Interest income on debt securities decreased to
RMB16.8 million (US$2.3 million) in 2024 from RMB20.5 million in 2023.
 
Interest on deposit with banks
 
Interest on deposits with banks was RMB15.5 million (US$2.1million)
for the fiscal year of 2024 as compared to RMB19.6 million for the same
period of 2023, primarily due to decrease of daily average time
deposit in 2024 than 2023.
 
Interest and fees expenses
 
Total interest and fees expenses refer to interest expenses on interest-bearing
borrowings was RMB794.5 million (US$108.8 million) for the fiscal year
of 2024 as compared to RMB723.1 million for the same period of
2023, the increase was primarily due to the increase in the daily average principal of
borrowings with repurchase agreement which typically
bears higher interest rate in 2024.
 
Net interest and fees income
 
As a result of the foregoing, net interest and fees income was RMB744.1
million (US$101.9 million) for the fiscal year of 2024 as compared to
RMB1,031.5 million for the same period of 2023.
 
118

 
Net revenue under the commercial bank partnership
model
 
Net revenue under the commercial bank partnership model, representing
fees charged to commercial banks for services including introducing
borrowers, initial credit assessment, facilitating loans from the
banks to the borrowers and providing technical assistance to the borrowers and banks, net of
fees paid to third-party guarantor and commissions
paid to sales channels, increased by 10.5% to RMB97.1 million (US$13.3 million) for the fiscal year of
2024 from RMB87.9 million in the
same period of 2023. The increase was primarily due to the decrease in the expenses associated with facilitating new
loans under commercial
bank partnership.
 
Collaboration cost for sales partners
 
Collaboration cost for sales partners representing
sales incentives paid to sales partners was RMB252.9 million (US$34.6 million) for the fiscal year of
2024 as compared to RMB343.5 million
for the same period of 2023, the decrease was primarily due to a decrease of daily average outstanding loan
principal under the trust
lending model in 2024 as compared to 2023.
 
Net interest and fees income after collaboration
cost
 
Net interest and fees income after collaboration cost was RMB588.3
million (US$80.6 million) for the fiscal year of 2024 as compared to RMB775.9
million for the same period of 2023.
 
Provision for credit losses
 
Provision for credit losses representing provision
for credit losses under the trust lending model and the expected credit losses of guarantee under the
commercial bank partnership model
was RMB105.2 million (US$14.4 million) for the fiscal year of 2024 as compared to RMB177.2 million in the same
period of 2023. The decrease
was primarily driven by the combined effect of a decrease in allowances that are collectively evaluated and an increase in
allowances
that are individually evaluated. The decrease in allowances that are collectively evaluated are mainly due to the decrease of the Company’s
outstanding loan principal. As there are still uncertainties associated with real estate market, the Company chose to contain the volume
of facilitation to
mitigate risks. The increase of allowances that are individually evaluated are mainly due to the Company’s conservative
approach in evaluating risks
associated with loans that are 90 or more days past due.
 
Realized gains/(losses) on sales of investments, net
 
Realized losses on sales of investments, net representing realized
gains and losses from the sales of investment securities was RMB4.1 million (US$0.6
million) for the fiscal year of 2024, as compared
to a gain of RMB6.5 million in the same period of 2023.
 
Net losses on sales of loans
 
Net losses on sales of loans was RMB6.5 million
(US$0.9 million) for the fiscal year of 2024 as compared to RMB17.1 million in the same period of
2023.
 
Other gains/(losses), net
 
Other gains/(losses), net was a loss RMB24.4 million (US$3.3 million)
for the fiscal year of 2024, compared with a gain of RMB4.8 million in the
same period of 2023. The Company recorded net losses in 2024
because the balance of CRMPs forfeited by the sales partners continued to decrease as a
growing number of sales partners started to repurchase
delinquent loans by instalments. When CRMPs deposited by sales partners are confiscated by the
Company, the Company will recognize the
amount forfeited in other gain. Associated CRMPs will not be deemed as confiscated anymore when sales
partners who forfeited their CRMPs
were able to continue to fulfil their guarantee responsibility.
 
Total operating expenses
 
Our total operating expenses was RMB399.8 million (US$54.8 million)
for the fiscal year of 2024 as compared to RMB381.4 million for the same
period of 2023.
 
119

 
Employee compensation and benefits
 
Employee compensation and benefits decreased by 23.9% to RMB155.7 million
(US$21.3 million) for the fiscal year of 2024 as compared to
RMB204.6 million for the same period of 2023, primarily due to a decrease
in commissions paid due to a decrease in loan origination volume.
 
Share-based compensation expenses
 
Share-based compensation expenses was RMB14.9 million (US$2.0
million) for the fiscal year of 2024 as compared to RMB7.5 million for the same
period of 2023. In December 2024, the Company extended
the expiration date of 2018 Option to December 31, 2027 and the related incremental
compensation cost of RMB14.9 million was recognized
at the original expiration date.
 
Taxes and surcharges
 
Taxes and surcharges decreased to RMB26.2 million (US$3.6 million)
for the fiscal year of 2024 as compared to RMB31.3 million for the same period
of 2023. According to the PRC tax regulations, “service
fees charged to trust plans” incur a 6% VAT on the subsidiary level, but are not recorded as an
input VAT on a consolidated trust
plan level. The Company lowered the “Service fees charged to trust plans” in 2024.
 
Operating lease cost
 
Operating lease cost was RMB15.7 million
(US$2.2 million) for the fiscal year of 2024 as compared to RMB16.4 million for the same period of 2023.
 
Other expenses
 
Other expenses was to RMB187.3 million (US$25.7 million) for the
fiscal year of 2024 as compared to RMB121.6 million for the same period of
2023, primarily due to increase in post-loan management fees
paid to third parties to accelerate recovery of delinquent loans.
 
Income tax expenses
 
Income tax expenses was RMB10.5 million (US$1.4 million) for the
fiscal year of 2024 as compared to RMB41.0 million for the same period of 2023
primarily due to decrease in taxable incomes.
 
Net income
 
Net income was RMB37.8 million (US$5.2 million)
for the fiscal year of 2024 as compared to RMB164.6 million for the same period of 2023.
 
Year Ended December 31, 2023 Compared to Year
Ended December 31, 2022
 
Interest and fees income
 
Total interest and fees income for fiscal
year 2023 increased by 1.3% to RMB1,754.6 million as compared to RMB1,731.4 million for the same period
of 2022.
 
Interest and financing service fees on loans
 
Interest and financing service fees on loans increased
by 0.3% to RMB1,580.0 million for the fiscal year of 2023 as compared to RMB1,574.7 million
for the same period of 2022, primarily attributable
to combined effect of increase in the balance of average daily outstanding loan principal and decrease of
weighted average interest rate
of loans outstanding in 2023.
 
120

 
Interest income charged to sales partners
 
Interest income charged to sales partners, representing
interest charged to sales partners who choose to repurchase default loans in installments,
increased by 10.2% to RMB134.5 million for
the fiscal year of 2023 from RMB122.0 million in the same period of 2022, primarily attributable to an
increase in the delinquent loans
that were repurchased by the sales partners in installments.
 
Interest income on debt securities
 
Interest income on debt securities decreased
to RMB20.5 million in 2023 from RMB21.6 million in 2022.
 
Interest on deposit with banks
 
Interest on deposits with banks increased by 49.6%
to RMB19.6 million for the fiscal year of 2023 as compared to RMB13.1 million for the same
period of 2022, primarily due to the higher
daily average amount of time deposits during the year.
 
Interest and fees expenses
 
Total interest and fees expenses refer to interest
expenses on interest-bearing borrowings and decreased by 7.9% to RMB723.1 million for the fiscal
year of 2023 as compared to RMB784.8
million for the same period of 2022, primarily due to the lower funding cost of trust company partners.
 
Net interest and fees income
 
As a result of the foregoing, net interest and
fees income increased by 9.0% to RMB1,031.5 million for the fiscal year of 2023 as compared to
RMB946.6 million for the same period
of 2022.
 
Net revenue under the commercial bank partnership
model
 
Net revenue under the commercial bank partnership
model, representing fees charged to commercial banks for services including introducing
borrowers, initial credit assessment, facilitating
loans from the banks to the borrowers and providing technical assistance to the borrowers and banks, net of
fees paid to third-party guarantor
and commissions paid to sales channels, increased by 52.6% to RMB87.9 million for the fiscal year of 2023 from
RMB57.6 million in the
same period of 2022. The increase was primarily due to the increase of loans recommended to commercial banks in 2023 as
compared to the
same period of 2022.
 
Collaboration cost for sales partners
 
Collaboration cost for sales partners representing
sales incentives paid to sales partners increased by 7.1% to RMB343.5 million for the fiscal year of
2023 as compared to RMB320.8 million
for the same period of 2022, primarily attributable to an increase of daily average outstanding loan principal under
the trust lending
model in 2023 as compared to 2022, and also the involvement of sales partners in the commercial bank partnership model since the
beginning
of 2023.
 
Net interest and fees income after collaboration
cost
 
Net interest and fees income after collaboration
cost was RMB775.9 million for the fiscal year of 2023 representing an increase of 13.5% as compared
to RMB683.4 million for the same
period of 2022.
 
Provision for credit losses
 
Provision for credit losses representing
provision for credit losses under the trust lending model and the expected credit losses of guarantee under the
commercial bank
partnership model was RMB183.2million for the fiscal year of 2023 as compared to RMB238.1 million in the same period of 2022,
primarily attributable to the lower delinquency ratio. Besides, in the fiscal year of 2023, some sales partners who forfeited their
Credit Risk Mitigation
Positions (CRMPs) due to the inability to fulfil their obligations to repurchase delinquent loans during the
first half of 2023 were able to recommence their
payments, in addition, we started to involve sales partners under the commercial
bank partnership since the beginning of 2023, which has jointly led to an
increase of guarantee assets and also provided more
protection to the loans
 
121

 
Realized gains on sales of investments, net
 
Realized gains on sales of investments, net representing
realized gains from the sales of investment securities was RMB6.5 million for the fiscal year
of 2023, as compared to RMB20.6 million
in the same period of 2022.
 
Net losses on sales of loans
 
Net losses on sales of loans was RMB17.1
million for the fiscal year of 2023 as compared to RMB44.6 million in the same period of 2022.
 
Other gains, net
 
Other gains, net was RMB4.8 million for the fiscal
year of 2023, compared with RMB89.9 million in the same period of 2022. Starting in the second
half of 2023, the balance of CRMPs forfeited
by the sales partners has decreased as we refined our installment policies to ease the liquidity pressure of
sales partners. When CRMPs
deposited by sales partners are confiscated by the Company, the Company will recognize the amount forfeited in other gain.
In the fourth
quarter of 2023, some sales partners who forfeited their CRMPs were able to continue to fulfil their guarantee responsibility, and associated
CRMPs will not be deemed as confiscated.
 
Total operating expenses
 
Our total operating expenses increased by
12.6% to RMB381.4 million for the fiscal year of 2023 as compared to RMB338.6 million for the same
period of 2022.
 
Employee compensation and benefits
 
Employee compensation and benefits increased by
3.9% to RMB204.6 million for the fiscal year of 2023 as compared to RMB197.0 million for the
same period of 2022, primarily due to an
increase in the performance-based bonuses as a result of an increase in loan origination volume in 2023.
 
Share-based compensation expenses
 
Share-based compensation expenses increased
by 29.3% to RMB7.5 million for the fiscal year of 2023 as compared to RMB5.8 million for the same
period of 2022. In the fourth quarter
of 2023, the Board authorized the Company to postpone the expiration date of the share option plan adopted on
December 31, 2018 (2018
Option) from December 31, 2023 to December 31, 2024, and the related incremental compensation cost of RMB7.5 million was
recognized at
the original expiration date.
 
Taxes and surcharges
 
Taxes and surcharges decreased by
12.8% to RMB31.3 million for the fiscal year of 2023 as compared to RMB35.9 million for the same period of
2022. primarily attributable
to the decrease of “service fees charged to trust plans” which is a non-deductible item in value added tax (“VAT”).
According to
the PRC tax regulations, “service fees charged to trust plans” incur a 6% VAT on the subsidiary level, but are
not recorded as an input VAT on a
consolidated trust plan level. The Company lowered the “Service fees charged to trust plans”
in 2023.
 
Operating lease cost
 
Operating lease cost increased by
17.1% to RMB16.4 million for the fiscal year of 2023 as compared to RMB14.0 million for the same period of
2022.
 
122

 
Other expenses
 
Other expenses increased by 41.6%
to RMB121.6 million for the fiscal year of 2023 as compared to RMB85.9 million for the same period of 2022,
primarily due to (a) the increase
in fees paid to local channels. Local channels are rewarded for referring sales partners to the Company, and will also
receive commission
of a certain percentage of loans recommended to the Company by the sales partners they have referred; and (b) increase in service fee
for third-party post-loan management.
 
Income tax expenses
 
Income tax expenses increased by 10.2% to
RMB41.0 million for the fiscal year of 2023 as compared to RMB37.2 million for the same period of 2022
primarily due to an increase in
the amount of taxable income.
 
Net income
 
Net income increased by 21.5% to RMB164.5 million
for the fiscal year of 2023 as compared to RMB135.4 million for the same period of 2022.
 
5.B. Liquidity and Capital Resources
 
Cash Flows and Working Capital
 
Our principal sources of liquidity have been cash generated from financing,
operating and investing activities. As of December 31, 2024, we had cash
and cash equivalents of RMB1.2 billion (US$161.1 million), as
compared to cash and cash equivalents of RMB2.0 billion as of December 31, 2023,
substantially all of which were held by our PRC subsidiaries.
Our cash and cash equivalents consist primarily of bank deposits and are primarily
denominated in Renminbi. We believe that our current
cash and anticipated cash flow from financing activities will be sufficient to meet our anticipated
cash needs, including our cash needs
for working capital and capital expenditures for at least the next 12 months.
 
We intend to finance our future working capital
requirements and capital expenditures from funds provided by operating activities and raised from
financing activities. We may, however,
require additional cash due to changing business conditions or other future developments, including any investments
or acquisitions we
may decide to pursue. If our existing cash is insufficient to meet our requirements, we may seek to issue debt or equity securities or
obtain additional credit facilities. Financing may be unavailable in the amounts we need or on terms acceptable to us, if at all. Issuance
of additional equity
securities, including convertible debt securities, would dilute our earnings per share. The incurrence of debt would
divert cash for working capital and
capital expenditures to service debt obligations and could result in operating and financial covenants
that restrict our operations and our ability to pay
dividends to our shareholders. If we are unable to obtain additional equity or debt
financing as required, our business operations and prospects may suffer.
 
As a holding company with no material operations
of our own, we conduct our operations primarily through our PRC subsidiaries in China. We are
permitted under PRC laws and regulations
to provide funding to our PRC subsidiaries in China through capital contributions or loans, subject to the
approval of government authorities
and limits on the amount of capital contributions and loans. The ability of our subsidiaries in China to make dividends
or other cash
payments to us is subject to various restrictions under PRC laws and regulations. For details, please refer to “Item 5. Operating
and Financial
Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.”
 
123

 
The following table sets forth a summary of our
cash flows for the periods indicated.
 
 
 
For the Year Ended December 31,
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
   
US$
 
Net cash provided by operating activities
   
919,253,112      1,705,760,744     
757,230,274     
103,740,122 
Net cash used in investing activities
    (1,098,197,823)     (2,483,913,809)    
(263,667,119)    
(36,122,247)
Net cash provided by/(used in) financing activities
   
(288,156,250)     1,005,540,570      (1,332,188,609)     (182,509,091)
Net increase/(decrease) in cash, cash equivalents and restricted cash
   
(467,100,961)    
227,387,505     
(838,625,454)     (114,891,216)
Cash, cash equivalents and restricted cash at the beginning of year
    2,231,437,361      1,772,184,145      2,001,602,420     
274,218,407 
Effect of exchange rate change on cash, cash equivalents and restricted cash
   
7,847,745     
2,030,770     
7,409,110     
1,015,044 
Cash, cash equivalents and restricted cash at the end of the year
    1,772,184,145      2,001,602,420      1,170,386,076     
160,342,235 
 
Operating Activities
 
Net cash provided by operating activities in
2024 was RMB757.2 million (US$ 103.7 million) due to net income of RMB 37.8 million (US$ 5.2
million), mainly adjusted for (i)
provision for credit losses of RMB 105.2 million, (ii) share-based compensation expenses of RMB 14.9 million and (iii)
depreciation
and amortization of RMB11.5 million; and (iv) the increase of proceeds from sales and paydowns of loans originally classified as
held for sale
was RMB1,404.5 million. Adjustment for changes in operating assets and liabilities consisted of (i) a decrease in
other operating liabilities of RMB 40.6
million, (ii) a decrease in deposits of RMB 1.1 million, and (iii) an increase in other
operating assets of RMB 243.9 million.
 
Net cash provided by operating activities in 2023
was RMB1,705.8 million due to net income of RMB164.6 million (US$23.2 million), mainly
adjusted for (i) provision for credit losses of
RMB177.3 million, (ii) share-based compensation expenses of RMB7.5 million, (iii) depreciation and
amortization of RMB1.8 million, (iv)
losses on sale of loans of RMB17.2 million, (v) the utilized of loans held-for-sale for originations and purchase was
RMB629.0 million
and (vi) the increase of proceeds from sales and paydowns of loans originally classified as held for sale was RMB1,896.1 million.
Adjustment
for changes in operating assets and liabilities consisted of (i) a decrease in other operating liabilities of RMB12.6 million, (ii) a
decrease in
other operating assets of RMB15.1 million, (iii) a decrease in deposits of RMB18.0 million, (iv) an increase of CRMP of RMB234.5
million and (v) and
increase in guarantee deposits of RMB142.0 million.
 
Net cash provided by operating activities in 2022
was RMB919.3 million due to net income of RMB135.4 million, mainly adjusted for (i) provision for
credit losses of RMB238.1 million, (ii)
share-based compensation expenses of RMB5.8 million, (iii) depreciation and amortization of RMB2.2 million, (iv)
losses on sale of loans
of RMB44.6 million, (v) the utilized of loans held-for-sale for originations and purchase was RMB585.4 million and (vi) the
increase of
proceeds from sales and paydowns of loans originally classified as held for sale was RMB1,550.0 million. Adjustment for changes in operating
assets and liabilities consisted of (i) a decrease in other operating liabilities of RMB12.5 million, (ii) an increase in other operating
assets of RMB167.2
million, (iii) a decrease in deposits of RMB11.9 million, (iv) an increase of CRMP of RMB6.2 million and (v) an increase
in guarantee deposits of
RMB168.8 million.
 
124

 
Investing Activities
 
Net cash used in investing activities was
RMB263.7 million (US$36.2 million) in 2024, which was attributable to (i) purchase of investment securities
of RMB922.1 million,
(ii) purchases of property, equipment and intangible assets of RMB7.9 million, (iii) loans originated, net of principal collected of
RMB819.0 million and (iv) purchase of loans with credit deterioration of RMB 436.0 million, offset by (i) proceeds from sales of investment securities of
RMB1,080.9 million, (ii) proceeds from sales of
loans of RMB814.6 million, and (iii) proceeds from disposal of cost method investments of RMB25.0
million.
 
Net cash used in investing activities was RMB2,483.9
million in 2023, which was attributable to (i) purchase of investment securities of RMB922.1
million, (ii) purchase of loans with credit
deterioration of RMB436.0 million, and (iii) loans originated, net of principal collected of RMB819.0 million,
offset by (i) proceeds
from sales of investment securities of RMB1,080.9 million, (ii) proceeds from sales of loans of RMB814.6 million, and (iii) proceeds
from
disposal of non-marketable equity securities of RMB25.0 million.
 
Net cash used in investing activities was RMB1,098.2
million in 2022, which was attributable to (i) purchase of investment securities of RMB8,567.3
million, (ii) purchases of property,
equipment and intangible assets of RMB89.9 million, (iii) loans originated, net of principal collected of RMB2,556.9
million, and (iv)
purchases of non-marketable equity securities of RMB25.0 million offset by (i) proceeds from sales of investment securities of
RMB9,002.2
million, (ii) proceeds from disposal of property, equipment and intangible assets of RMB0.3 million, and (iii) proceeds from sales of
loans of
RMB1,088.4 million. And.
 
Financing Activities
 
Net cash used in financing activities in 2024
was RMB 1,332.2 million (US$182.5 million), which was attributable to repayment of interest-bearing
borrowings of RMB 10,820.9 million,
offset by proceeds from interest-bearing borrowings of RMB9,493.3 million.
 
Net cash provided by financing activities was
RMB1,005.5 million in 2023, which was attributable to proceeds from interest-bearing borrowings of
RMB10,402.3 million, offset by repayment
of interest-bearing borrowings of RMB9,294.9 million.
 
Net cash used in financing activities was RMB288.2
million in 2022, which was attributable to (i) repayment of interest-bearing borrowings of
RMB6,333.6 million, and (ii) repurchase of
ordinary shares of RMB87.6 million, partially offset by (i) proceeds from interest-bearing borrowings of
RMB6,082.3 million and (ii) proceeds
from contributions from non-controlling shareholders of RMB50.8 million.
 
Capital Expenditures
 
Our capital expenditures primarily cover the acquisition
of property, equipment, and intangible assets essential for operational support. These
expenditures totaled RMB114.5 million in 2023,
and subsequently decreased to RMB7.9 million (US$1.1 million) in 2024. The notable increase in 2023
was primarily driven by the procurement
of a new office building in Guangzhou.
 
125

 
Off-Balance Sheet Commitments and Arrangements
 
We launched in 2021 a new funding model in cooperation
with commercial banks, under which our commercial bank partners are responsible for
reviewing and approving the loan while we charge a
service fee for our loan facilitation services. For loans funded by the proceeds from third-party
commercial banks as our commercial bank
partners, each underlying loan and borrower has to be approved by the third-party commercial banks
individually. Once the loan is approved
by and originated by the third-party commercial bank, the fund is provided by the third-party commercial bank to
the borrower and a lending
relationship between the borrower and the third-party commercial bank is established through a loan agreement. Effectively, we
offer loan
facilitation services to the borrowers who have credit needs and the commercial banks who originate loans directly to borrowers referred
by us.
We continue to provide post-origination services to the borrowers over the term of the loan agreement. As we are not the legal
lender or borrower in the
loan origination and repayment process, we do not record loans principal, interest and financing service fee
receivables arising from these loans nor
interest-bearing borrowings to the third-party commercial banks.
 
Apart from the above, we have not entered
into any derivative contracts that are indexed to our shares and classified as shareholders’ equity, or that are
not reflected
in our consolidated financial statements. Furthermore, we do 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. Moreover, we do not have any
variable interest in any
unconsolidated entity that provides financing, liquidity, market risk or credit support
to us or engages in leasing, hedging or product development services
with us.
 
Contractual Obligations
 
We lease multiple office spaces which are contracted
under various non-cancelable operating leases, most of which provide extension or early
termination options and are generally expired
in one to four years. We do not enter into any finance leases or leases where the Group is a lessor. Moreover,
the existing operating
lease agreements do not contain any residual value guarantees or material restrictive covenants.
 
Management determines if an arrangement is a lease
at inception and records the leases in the financial statements upon lease commencement, which is
the date when the underlying office
space is made available for use by the lessor. The incremental borrowing rates determined for computing the lease
liabilities are based
on the People’s Bank of China (PBOC) Benchmark Rates for terms of loans ranging from zero (exclusive) to five years and above.
 
The following tables present the operating lease
cost and other supplemental information.
 
 
 
Year ended December 31,
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
 
Operating lease cost(1)
   
13,966,943     
16,366,797     
15,693,697 
   
126

 
Holding Company Structure
 
CNFinance Holdings Limited is a holding company
with no operations of its own. It conducts substantially all of its operations in China primarily
through its subsidiaries in China, in
particular Shenfanlian Investment Group Co., Ltd. (formerly known as Shenzhen Fanhua United Investment Group
Co., Ltd.), Guangzhou Heze
Information Technology Co., Ltd., and their subsidiaries and consolidated affiliated entities, and substantially all of its assets
and
operations are located in China. With a holding company structure, we principally rely on dividends from our PRC subsidiaries for our
cash
requirements, including any payment of dividends to our shareholders. If these subsidiaries or any newly formed subsidiaries incur
debt on their own behalf
in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
 
In 2022, 2023 and 2024, CNFinance has not transferred
any cash proceeds to any of its PRC subsidiaries. For instance, cash proceeds raised from
overseas financing activities, may be transferred
by CNFinance through China Financial Services Group Limited, our Hong Kong subsidiary, to Fanhua
Chuangli Information Technology (Shenzhen)
Company Limited (“Fanhua Chuangli”), a PRC subsidiary, via capital contribution and shareholder loans, as
the case may be.
Fanhua Chuangli then will transfer funds to its subsidiaries to meet the capital needs of business operations.
 
None of our PRC subsidiaries have issued any dividends or distributions
to respective holding companies, including CNFinance, or any investors as of
the date of this annual report. Our subsidiaries in the PRC
generate and retain cash generated from operating activities and re-invest it in business
operations.
 
In
addition, our subsidiaries in the PRC are only permitted to pay dividends only out of their
retained earnings, if any, as determined in accordance
with the Accounting Standards for
Business Enterprise as promulgated by the Ministry of Finance of the PRC, or PRC GAAP. The
aggregate retained
earnings for our PRC subsidiaries as determined under the PRC GAAP were
RMB2,990.3 million, RMB3,124.3 million and RMB3,169.1 million
(US$440.4 million), as of December
31, 2022, 2023 and 2024, respectively.
 
Pursuant to the law applicable to foreign investment
enterprises, our subsidiaries that are foreign investment enterprises in the PRC are required to
draw 10% of their profits as the companies’
statutory common reserve, provided that companies with aggregate common reserve of more than 50% of the
companies registered capital may
elect not to draw any statutory common reserve any more. The appropriation to the general reserve fund must be at least
10% of the after-tax
profits calculated in accordance with PRC GAAP. Appropriation is not required if the reserve fund has reached 50% of the registered
capital
of our subsidiary. Appropriation to the other two reserve funds are at our subsidiary’s discretion. See “Item 3. Key
Information—D. Risk Factors—
Risks Related to Doing Business in China—We may rely on dividends and other distributions
on equity paid by our PRC subsidiaries to fund any cash and
financing requirements we may have, and any limitation on the ability of our
PRC subsidiaries to make payments to us could have a material and adverse
effect on our ability to conduct our business” and “Item
3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If we are
classified as a PRC resident enterprise
for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-
PRC shareholders or ADS
holders.”
 
As of the date of this annual report, the majority of our PRC subsidiaries
are still required to contribute to general reserve fund and these contributions
are not expected to cease in the near term. Appropriation
to the other two reserve funds are at our subsidiaries’ discretion. Our PRC subsidiaries did not
make any contributions to the enterprise
expansion fund or the staff and bonus welfare fund during each period presented. The restricted amounts of our
PRC subsidiaries totaled
RMB428.4 million, RMB432.6 million and RMB 448.7 million(US$ 62.4 million) as of December 31, 2022, 2023 and 2024,
respectively. In addition,
ADS holders may potentially be subject to PRC taxes on dividends paid by CNFinance in the event it is deemed as a PRC resident
enterprise
for PRC tax purposes.
 
127

 
An offshore holding company is permitted under PRC laws and
regulations to provide funding from the proceeds of offshore fund raising activities to
its PRC subsidiaries through loans or
capital contributions, and to its consolidated affiliated entities only through loans, in each case subject to the
satisfaction of
the applicable government registration and approval requirements. As a result, there is uncertainty with respect to our ability to
provide
prompt financial support to our PRC subsidiaries when needed. For details about the applicable PRC rules that limit transfer
of funds from overseas to our
PRC subsidiaries, see “Risk Factors—Risks Related to Doing Business in China—PRC
regulations of loans to and direct investment in PRC entities by
offshore holding companies and governmental control of currency
conversion may delay us from using the proceeds of our public offerings to make loans
or additional capital contributions to our PRC
subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our
business.”
Notwithstanding the foregoing, our PRC subsidiaries may use their own retained earnings (rather than Renminbi converted from foreign
currency denominated capital) to provide financial support to our consolidated affiliated entities either through entrustment loans
from our PRC
subsidiaries or direct loans to such consolidated affiliated entities’ nominee shareholders, which would be
contributed to the consolidated affiliated entities
as capital injections. Such direct loans to the nominee shareholders would be
eliminated in our consolidated financial statements against the consolidated
affiliated entities’ share capital.
 
Furthermore, if certain procedural requirements
are satisfied, the payment of current account items, including profit distributions and trade and service
related foreign exchange transactions,
can be made in foreign currencies without prior approval from State Administration of Foreign Exchange (“SAFE”)
or its local
branches. However, where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses, such as the
repayment
of loans denominated in foreign currencies, approval from or registration with competent government authorities or its authorized banks
is
required. The PRC government may take measures at its discretion from time to time to restrict access to foreign currencies for current
account or capital
account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies
to satisfy our foreign currency
demands, our PRC subsidiaries may not be able to pay dividends in foreign currencies to our offshore intermediary
holding companies or ultimate parent
company, and therefore, our shareholders or investors in the ADSs. In addition, we cannot assure
you that new regulations or policies will not be
promulgated in the future, which may further restrict the remittance of RMB into or out
of the PRC. We cannot assure you, in light of the restrictions in
place, or any amendment to be made from time to time, that our current
or future PRC subsidiaries will be able to satisfy their respective payment
obligations that are denominated in foreign currencies, including
the remittance of dividends out of the PRC.
 
Recent Accounting Pronouncements
 
ASU 2023-07 was adopted by the Group on January
1, 2024 on a retrospective basis. The Group applied ASU 2023-07 retrospectively to all prior
periods presented in the consolidated financial
statements. The adoption had no material impact on reportable segments identified and had no effect on the
Group’s consolidated
financial position, results of operations, or cash flows. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic
740)
- Improvements to Income Tax Disclosures, which provides more transparency about income tax information through improvements to income
tax
disclosures primarily related to the rate reconciliation and income taxes paid information. This ASU 2023-09 is to be adopted on a
prospective basis and
will be effective for the Group on January 1, 2025, although early adoption is permitted. The ASU is currently not
expected to have a significant impact on
the Group’s consolidated financial statements.
 
In December 2023, the FASB issued ASU No. 2023-09,
Income Taxes (Topic 740) - Improvements to Income Tax Disclosures, which provides more
transparency about income tax information through
improvements to income tax disclosures primarily related to the rate reconciliation and income taxes
paid information. This ASU 2023-09
is to be adopted on a prospective basis and will be effective for the Group on January 1, 2025, although early adoption
is permitted.
 
In November 2024, FASB issued ASU No. 2024-03,
Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures
(Subtopic 220-40): Disaggregation of Income Statement
Expenses, which requires additional disclosure of the nature of expenses included in the income
statement as well as disclosures about
specific types of expenses included in the expense captions presented in the income statement.
 
In January 2025, the FASB issued ASU No. 2025-01,
Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures
(Subtopic 220-40): Clarifying the Effective
Date, clarified that ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026,
and interim periods within
annual reporting periods beginning after December 15, 2027. Both early adoption and retrospective application are permitted.
 
The Group is currently evaluating the impact of
this accounting standard update on its consolidated financial statements and related disclosures. The
Group does not believe other recently
issued but not yet effective accounting standards, if currently adopted, would have a material effect on the
consolidated financial statements.
 
5.C. Research and Development
 
We have focused on and will continue to invest
in our technology system, which supports all key aspects of our platform and is designed to optimize
for scalability and flexibility.
 
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Our research and development expenses which was reported in other expenses
of the consolidated statements of comprehensive income were RMB0.8
million, RMB1.8 million and RMB1.0 million (US$0.1 million) in 2022,
2023 and 2024, respectively.
 
5.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, 2024 that are reasonably
likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital
resources, or that would
cause the disclosed financial information to be not necessarily indicative of future results of operations or financial condition.
 
5.E. Critical Accounting Estimates
 
We prepare our financial statements in conformity
with U.S. GAAP, which requires us to make estimates and assumptions that affect out reporting of,
among other things, assets and liabilities,
contingent assets and liabilities and total revenues and expenses. On an on-going basis, we evaluate out estimates
based on historical
experience and on various other assumptions that from other sources. Since our financial reporting process inherently relies on the use
of estimates and assumptions, our actual results could differ from what we expect. We consider an accounting estimate to be critical if:
(i) the accounting
estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate
was made, and (ii) changes in the
estimate that are reasonably likely to occur from period to period or use of different estimates that
we reasonably could have used n the current period,
would have a material impact on our financial condition or results of operations.
Such critical estimates are discussed below. For further information on our
other significant accounting estimates, see Note 2 to our
consolidated financial statements included elsewhere in this annual report.
 
Allowance for credit loss and guaranteed liabilities
 
Commencing January 1, 2020, we adopted ASC 326,
which replaced the incurred loss methodology for determining the provision for credit losses and
allowance for credit losses with a current
expected credit loss methodology that is referred to as the ACL model. Allowance for credit losses represents our
estimate of probable
losses inherent in the portfolio, and the guaranteed liabilities represents our estimate of probable losses of providing financial
guarantee
services for the off-sheet loans under the commercial bank partnership model. Estimation of ACL requires us to make assumptions regarding
the
likelihood and severity of credit loss events and their impact on expected cash flows, which drive the probability of default (PD),
loss given default (LGD)
and exposure at default (EAD) models. we incorporate forward-looking information through the use of macroeconomic
scenarios applied over the
forecasted life of the assets. These variables include, but are not limited to, gross-domestic product rates
and consumer price indexes.
 
Item 6. Directors, Senior Management and Employees
 
6.A. Directors and Senior Management
 
The following table sets forth information regarding
our executive officers and directors as of the date of this annual report. The business address of
our directors and executive officers
except for Mr. Fengyong Gao, Mr. Lin Xu, Mr. Xi Wang and Mr. Ge Yang is 22/F, South Finance Center, No. 6
Wuheng Road Tianhe District,
Guangzhou City, Guangdong Province, People’s Republic of China. The business address for Mr. Fengyong Gao is Room
703A, No.1518
Minsheng Road, Pudong New District, Shanghai. The business address for Mr. Lin Xu is No.1405, Building 4, No.3 Courtyard, Sanlihe
Yiqu,
Xicheng District, Beijing. The business address for Mr. Xi Wang is No.66 Xingang Xi Road, Guangzhou, Guangdong Province. The business
address
for Mr. Ge Yang is 32 Crabtree Ln Tenafly, NJ 07670, the U.S.A.
 
Directors and Executive Officers
 
Age
   
Position/Title
Bin Zhai
   
55
    Chairman, Director, Chief Executive Officer
Jun Qian
   
52
    Director and Vice President
Fengyong Gao
   
55
    Independent Director
Lin Xu
   
63
    Independent Director
Xi Wang
   
56
    Independent Director
Ge Yang
   
54
    Independent Director
Zehui Zhang
   
52
    Vice President
Huiling Jiang
   
45
    Vice President
Jing Li
   
44
    Chief Financial Officer
 
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Bin Zhai has served as our Chairman of
the Board of Directors since 2017 and our Chief Executive Officer since 2010. He joined our company in 2006
as executive director of Shenzhen
Nanfeng Mortgage Advisory Co., Ltd., a subsidiary of Fanhua Inc. Prior to joining us, Mr. Zhai served as account
manager of Bank of Communications
Tianjin Branch from 1991 to 1993, investment manager at China Ministry of Agriculture Shenzhen Office from 1993
to 1998 and general manager
at Shenzhen Modern Warehouse Building Material Co., Ltd. from 1998 to 2006. Mr. Zhai received his bachelor’s degree in
insurance
from Nankai University in China.
 
Jun Qian joined the Company in 2001 and
has served as our Vice President since 2010. Mr. Qian has over 20 years of experience in China’s loan
industry and has served in
the Company’s senior management team for more than 15 years. Mr. Qian received his bachelor’s degree in international trade
from Hohai University and his second bachelor’s degree in accounting from Guilin University of Electronic Technology.
 
Fengyong Gao has served as our Independent
Director since our initial public offering. Mr. Gao is the founder, partner and chief executive director of
Leading Capital Co., Ltd.
and the founder, partner and chairman of the board of Shanghai Blue Ocean Capital. Mr. Gao previously served as the general
manager of
the trust department and subsequently as the vice president of Bridge Trust Co., Ltd. from 2003 to 2007. Mr. Gao currently also serves
as the
independent director of China Haisum Engineering Co., Ltd. and Great Wall Movie and Television Co. Ltd. Mr. Gao received both his
bachelor’s degree
and master’s degree in finance from Nankai University in China.
 
Lin Xu has served as our Independent Director
since our initial public offering. Mr. Xu currently serves as the chairman of the board of U.S.-China
Green Fund. Prior to that, Mr. Xu
served as the director general of China Center for Urban Development of NDRC from 2017 to 2018, the director general
of Development Planning
Department of NDRC from 2012 to 2017. Mr. Xu also served as the director general of Fiscal and Financial Affairs Department
of NDRC from
2006 to 2012 and as the deputy director general of Development Planning Department of NDRC from 2002 to 2006. Mr. Xu received his
bachelor’s
degree in mathematics from Hunan Shaoyang Normal College, his first master’s degree in economics from Nankai University and his
second
master’s degree of public administration from the Lee Kuan Yew School of Public Policy at National University of Singapore.
 
Xi Wang has served as our Independent Director
since March 2019. Dr. Wang is currently a professor at Lingnan (University) College, as well as the
director of China Institute for Economic
Transformation and Opening of Sun Yat-sen University (“SYSU”). He specializes in economics and his research
area includes
banking and monetary policy, international finance (exchange rates and balance of payments), and China’s economy among other subjects.
Dr. Wang received his master’s degree and Ph.D in economics from SYSU and has been a professor at SYSU since 2004. He is a contributor
of multiple
business journals, such as the Economic Research Journal, China Economic Quarterly, Finance Research, and Journal of World
Economy. Dr. Wang also
serves as an independent director at various companies including Palm Eco-Town Development Co., Ltd., a company
listed on the Shenzhen Stock
Exchange since May 2014, Zhuhai Rural Commercial Bank Co., Ltd. since July 2014, Guangdong Electric Power
Development Co., Ltd., a company listed
on the Shenzhen Stock Exchange since June 2016, Guangzhou Public Transport Group Co., Ltd. since
August 2018, and Guangzhou Yuexiu Financial
Holdings Group Co., Ltd., a company listed on the Shenzhen Stock Exchange since January 2019.
 
Ge Yang has served as our Independent Director
since November 2022. Mr. Yang has over 30 years of experiences in corporate finance, non-bank
financial institution, and wealth and asset
management, having worked with public companies both in China and in the U.S. Mr. Yang received his
bachelor’s degree in international finance from Nankai University, his MBA degree from Tsinghua University,
and a second master’s degree in accounting
from Seton Hall University.
 
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Zehui Zhang has served as our Vice President
since 2010. He joined Fanhua Inc. in 2001 and served as general manager of Guangdong Nanfeng
Insurance Agency Co., Ltd., a subsidiary
of Fanhua Inc. from 2002 to 2009. Mr. Zhang has over 15 years of experience in finance business. He received his
diploma in accounting
at Guangdong Polytechnic Normal University, formerly known as Guangdong Commercial Management College, in China.
 
Huiling Jiang has served as our Vice President
since 2021. She joined the Company in 2008, and served successively as the Manager of Operation
Management Department, the Manager of
Risk Management Department, the General Manager of Guangzhou Branch, the Manager of Retail Financing
Department, the President of Structural
Funding Department and the Assistant President of the Company.
 
Jing Li has served as our Chief
Financial Officer, Assistant President of the Company and the Head of Department of Finance and Internal Control
since the fourth quarter
of 2021. Ms. Li has 20 years of experience in the financial industry and holds the certificate of ACCA and IPA. Prior to joining
CNFinance
Holdings Limited in 2008, she worked for Deloitte Touche Tohmatsu Certified Public Accountants LLP and Fanhua Inc. Ms. Li received her
bachelor’s degree in financial management from Guangdong University of Foreign Studies and her MPAcc degree from Sun Yat-Sen University.
 
6.B. Compensation
 
Compensation
 
For the fiscal year ended December 31, 2024, we
paid an aggregate of RMB4.8 million (US$0.7 million) in cash to our executive officers (including
our executive directors), and we paid
US$0.12 million to our non-executive directors. For the fiscal year ended December 31, 2024, we paid for our
executive officers (including
our executive directors) an aggregate of RMB412,737 (US$56,545) of social insurance plans and housing provident funds
required by PRC
law. We did not pay such insurance or housing fund for our non-executive directors. For share incentive grants to our directors and
executive
officers, please refer to “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plan.”
 
Employment Agreements and Indemnification Agreements
 
We have entered into employment agreements with
each of our executive officers. Each of our executive officers is employed for a specified time
period, which can be renewed upon both
parties’ agreement before the end of the current employment term. We may terminate an executive officer’s
employment for cause
at any time without advance notice in the event of, among other things, (i) commitments by such executive officer of any serious
breach
of the terms and conditions of his or her employment and our internal rules and procedures, (ii) conviction of a criminal offense, or
(iii) severe
neglect of his or her duties or embezzlement to our detriment. We may also terminate an executive officer’s employment
by giving a 30 days’ prior written
notice or by paying a compensation of an amount equal to one month’s wages of such executive
officer. An executive officer may terminate his or her
employment at any time by giving a 30 days’ prior written notice.
 
Each executive officer has agreed to hold, unless
expressly consented to by us, at all times during and after the termination of his or her employment
agreement, in strict confidence and
not to use, any of our confidential information or the confidential information of our customers and suppliers. In
addition, each executive
officer has agreed to be bound by certain non-competition and non-solicitation restrictions during the term of his or her
employment and
for two years following the last date of employment. Specifically, each executive officer has agreed not to (i) carry out or otherwise
be
concerned or interested, directly or indirectly, in certain businesses in direct or indirect competition with us; (ii) assume employment
with or provide
services to certain of our competitors or engage, whether as principal, partner, licensor or otherwise, with such competitors;
or (iii) seek directly or
indirectly, by the offer of alternative employment or other inducement whatsoever, to solicit the services of
any of our employees, agents or consultants
who are employed or engaged by us at any time in the one year preceding the last date of his
or her employment.
 
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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
 
2017 SFIL Share Incentive Plan
 
In January 2017, SFIL adopted the 2017 SFIL Share
Incentive Plan, or the 2017 Plan. Under the 2017 Plan, SFIL granted 187,933,730 options to its
certain management members and employees
to purchase up to 187,933,730 ordinary shares. The term of the options will not exceed ten years from the
date of the grant.
 
2018 CNFinance Holdings Limited Share Incentive
Plan
 
On August 27, 2018, we adopted the 2018 CNFinance
Holdings Limited Share Incentive Plan, or the 2018 Plan, to replace the 2017 Plan and granted
187,933,730 options to certain management
members and employees to purchase up to 187,933,730 of our ordinary shares under this 2018 Plan to replace
the granted and outstanding
options under the 2017 Plan. Pursuant to the terms of the 2018 Plan, 60%, 20% and 20% of the award options shall vest on
December 31 of
each of the years 2017, 2018 and 2019, respectively.
 
On December 31, 2023, 80% of the options issued
in 2018 had expired. The Board authorized the Company to extend the expiration date of the
expired portion from December 31, 2023 to December
31, 2024.
 
On December 31, 2024, 100% of the 2018 Option
(including the 80% which was postponed on December 31, 2023 to December 31, 2024) has
expired. The Group extended the expiration date
of 100% of the 2018 Option to from December 31. 024 to December 31, 2027.
 
On December 31, 2019, we granted 119,674,780 options
to certain management members and employees to purchase up to 119,674,780 of our
ordinary shares under the 2018 Plan. Pursuant to the
terms of 2018 Plan, 50%, 30% and 20% of the award options shall vest on December 31 of each of the
years of 2021, 2022 and 2023, respectively.
 
The purpose of the 2018 Plan is to promote the
success and enhance the value of the Company by linking the personal interests of the members of the
board of directors, employees and
consultants to those of the Company shareholders and by providing such individuals with an incentive for outstanding
performance to generate
superior returns to the Company shareholders. The 2018 Plan is further intended to provide flexibility to the Company in its ability
to
motivate, attract and retain the services of member of the board of director, employees and consultants upon whose judgment, interest
and special effort
the successful conduct of the Company’s operation is largely dependent. The 2018 Plan provides for the issuance
of up to an aggregate of 307,608,510 of
our ordinary shares.
 
The following paragraphs summarize the terms of
the 2018 Plan.
 
Types of Awards. The 2018
Plan permits the awards of options, restricted shares and restricted share units and other rights or benefits under the 2018
Plan.
 
Plan Administration. The
2018 Plan shall be administered by the board of directors; provided, however, that the board of directors may delegate to a
committee
of one or more members of the board of the directors the authority to grant or amend Awards to grantee other than Independent Directors
and
executive officers of the Company. The committee shall consist of at least two individuals, each of whom qualifies as a non-employee
director.
 
Eligibility. Employees, consultants
of the Company or its affiliate and member of the board of directors are eligible to participate in the 2018 Plan. An
employee or consultant
who has been granted an award may, if he or she is otherwise eligible, be granted additional awards.
 
Designation of Award. Each
award under the 2018 Plan is designated in an award agreement, which is a written agreement evidencing the grant of an
award executed
by the company and the grantee, including any amendments thereto.
 
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Conditions of Award. The
board of directors or any entity appointed by the board of directors to administer the 2018 Plan shall determine the
provisions, terms,
and conditions of each award including, but not limited to, the award vesting schedule, repurchase provisions, rights of first refusal,
forfeiture provisions, and form of payment upon settlement of the award.
 
Terms of Award. The term
of each award is stated in the award agreement between the Company and the grantee of such award.
 
Amendment, Modification, Suspension or Termination
of the 2018 Plan. The administrator of the 2018 Plan may amend, alter, suspend, discontinue
or terminate this 2018 Plan,
or any Award Agreement hereunder or any portion hereof or thereof at any time; provided, however, that (a) to the extent
necessary and
desirable to comply with applicable laws defined therein, or stock exchange rules, the Company shall obtain shareholder approval of any
Plan amendment in such a manner and to such a degree as required, and (b) shareholder approval is required for any amendment to the 2018
Plan that (i)
increases the number of shares available under the 2018 Plan (other than any adjustment as provided by Article 8 of the
2018 Plan), (ii) permits the
Committee to extend the term of the 2018 Plan or the exercise period for an option beyond ten years from
the date of grant, or (iii) results in a material
increase in benefits or a change in eligibility requirements.
 
The following table summarizes, as of the date
of this annual report, the outstanding equity awards granted to our directors and executive officers
under the 2018 Plan, which replaced
the 2017 Plan.
 
Name
 
Number of
Options
Outstanding(1)   
Ordinary
Shares
Underlying
Equity
Awards
Granted(1)    
Exercise
Price 
(Per share)(1)  
Date of
Grant(1)
 
Date of
Expiration
Bin Zhai
   
40,000,000     
40,000,000   
RMB0.5
 
January 3, 2017
 
December 31, 2024
Ning Li
   
30,000,000     
30,000,000   
RMB0.5
 
January 3, 2017
 
December 31, 2024
Jun Qian
   
20,000,000     
20,000,000   
RMB0.5
 
January 3, 2017
 
December 31, 2024
Zehui Zhang
   
20,000,000     
20,000,000   
RMB0.5
 
January 3, 2017
 
December 31, 2024
All directors and executive officers as a
group
   
110,000,000     
110,000,000   
RMB0.5
 
January 3, 2017
 
December 31, 2024
 
 
Notes:
 
(1) Does not include 35,902,434 options to purchase up to 35,902,434 of our ordinary shares granted under the 2018 Plan on December 31,
2019, with an
exercise price of RMB1.0 per share. Such options will be considered vested as to 50%, 30%, 20% on each of December 31, 2020,
December 31, 2021
and December 31, 2022, respectively, but will only be distributed to the applicable grantees based on their performance
scores on December 31, 2022,
subject to continued employment through such date.
 
As of the date of this annual report, our other
employees as a group held options to purchase up to 161,706,076 of our ordinary shares. For the options
granted on January 3, 2017, our
other employees as a group held options to purchase up to 77,933,730 of our ordinary shares, with an exercise price of
RMB0.5 per share.
For the option granted on December 31, 2019, our other employees as a group held options to purchase up to 83,772,346 of our
ordinary
shares, with an exercise price of RMB1.0 per share.
 
For discussions of our accounting policies and
estimates for awards granted pursuant to the 2018 Plan, see “Item 5. Operating and Financial Review
and Prospects—A. Operating
Results—Critical Accounting Policies, Judgments and Estimates—Share-based compensation expenses.”
 
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6.C. Board Practices
 
Board of Directors
 
Our Board of Directors consists of six directors,
including four independent directors. A director is not required to hold any shares in our company to
qualify to serve as a director.
 
A director who is in any way, whether directly
or indirectly, interested in a contract or proposed contract with our company is required to declare the
nature of his or her interest
at a meeting of our directors. A general notice given to the directors by any director to the effect that he or she is a member,
shareholder,
director, partner, officer or employee of any specified company or firm and is to be regarded as interested in any contract or transaction
with
that company or firm shall be deemed a sufficient declaration of interest for the purposes of voting on a resolution in respect to
a contract or transaction in
which he/she has an interest, and after such general notice it shall not be necessary to give special notice
relating to any particular transaction. A director
may vote in respect of any contract or proposed contract or arrangement notwithstanding
that he/she may be interested therein and if he/she does so, his/her
vote shall be counted and he/she may be counted in the quorum at
any meeting of the directors at which any such contract or proposed contract or
arrangement is considered. Our board of directors may
exercise all of the powers of our company to borrow money, to mortgage or charge its undertaking,
property and uncalled capital, or any
part thereof, and to issue debentures, debenture stock or other securities whenever money is borrowed or as security
for any debt, liability
or obligation of our company or of any third party. None of our directors has a service contract with us that provides for benefits upon
termination of service as a director.
 
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 under
our Board of Directors. We have adopted
a charter for each of the three committees. Each committee’s members and functions are described below.
 
Audit Committee
 
Our audit committee consists of Mr. Fengyong Gao,
Mr. Lin Xu and Mr. Xi Wang, and is chaired by Mr. Fengyong Gao. We have determined that Mr.
Fengyong Gao, Mr. Lin Xu and Mr. Xi Wang satisfy
the requirements of Section 303A of the Corporate Governance Rules of the NYSE and meet the
independence standards under Rule 10A-3 under
the Securities Exchange Act of 1934, as amended. We have determined that Mr. Fengyong Gao qualifies
as an “audit committee financial
expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial
statements
of our company. The audit committee is responsible for, among other things:
 
●
reviewing and recommending to our board for approval, the appointment, re-appointment or removal of the independent auditor, after
considering
its annual performance evaluation of the independent auditor;
 
●
approving the remuneration and terms of engagement of the independent auditor and pre-approving all auditing and non-auditing services
permitted to be performed by our independent auditors at least annually;
 
●
obtaining a written report from our independent auditor describing matters relating to its independence and quality control procedures;
 
●
reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response;
 
●
discussing with our independent auditor, among other things, the audits of the financial statements, including whether any material
information
should be disclosed, issues regarding accounting and auditing principles and practices;
 
●
reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;
 
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●
reviewing and recommending the financial statements for inclusion
within our quarterly earnings releases and to our board for inclusion in our
annual reports;
 
●
discussing the annual audited financial statements with management and the independent registered public accounting firm;
 
●
reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any special steps taken
to monitor
and control major financial risk exposures;
 
●
at least annually, reviewing and reassessing the adequacy of the committee charter;
 
●
approving annual audit plans, and undertaking an annual performance evaluation of the internal audit function;
 
●
establishing and overseeing procedures for the handling of complaints and whistleblowing;
 
●
meeting separately and periodically with management and the independent registered public accounting firm;
 
●
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures
to
ensure proper compliance; and
 
●
reporting regularly to the board.
 
Compensation Committee
 
Our compensation committee consists of Mr. Bin
Zhai, Mr. Jun Qian and Mr. Fengyong Gao and is chaired by Mr. Bin Zhai. We have determined that
Mr. Fengyong Gao satisfies the “independence”
requirements of Section 303A of the Corporate Governance Rules of the NYSE. The compensation
committee assists the board in reviewing
and approving the compensation structure, including all forms of compensation, relating to our directors and
executive officers. Our chief
executive officer may not be present at any committee meeting during which his or her compensation is deliberated upon. The
compensation
committee is responsible for, among other things:
 
●
overseeing the development and implementation of compensation programs in consultation with our management;
 
●
at least annually, reviewing and approving, or recommending to the board for its approval, the compensation for our executive officers;
 
●
at least annually, reviewing and recommending to the board for determination with respect to the compensation of our non-executive
directors;
 
●
at least annually, reviewing periodically and approving any incentive compensation or equity plans, programs or other similar arrangements;
 
●
reviewing executive officer and director indemnification and insurance matters;
 
●
overseeing our regulatory compliance with respect to compensation matters, including our policies on restrictions on compensation
plans and
loans to directors and executive officers;
 
●
at least annually, reviewing and reassessing the adequacy of the committee charter;
 
●
selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that
person’s
independence from management; and
 
●
reporting regularly to the board.
 
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Nominating and Corporate Governance Committee
 
Our nominating and corporate governance committee
consists of Mr. Bin Zhai, Mr. Jun Qian and Mr. Xi Wang, and is chaired by Mr. Bin Zhai. We
have determined that Mr. Xi Wang satisfies
the “independence” requirements of Section 303A of the Corporate Governance Rules of the NYSE. The
nominating and corporate
governance committee assists the board 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 is responsible for, among other things:
 
●
recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board;
 
●
reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge,
skills,
experience, expertise, diversity and availability of service to us;
 
●
developing and recommending to our board such policies and procedures with respect to nomination or appointment of members of our
board and
chairs and members of its committees or other corporate governance matters as may be required pursuant to any SEC or NYSE rules,
or otherwise
considered desirable and appropriate;
 
●
selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee,
as
well as of the nominating and corporate governance committee itself;
 
●
at least annually, reviewing and reassessing the adequacy of the committee charter;
 
●
developing and reviewing at least annually the corporate governance principles adopted by the board and advising the board with respect
to
significant developments in the law and practice of corporate governance and our compliance with such laws and practices; and
 
●
evaluating the performance and effectiveness of the board as a whole.
 
Duties and Functions of Directors
 
Under Cayman Islands law, our directors owe fiduciary
duties to our company, including a duty of loyalty, a duty to act honestly and a duty to act in
what they consider in good faith to be
in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe
to our company
a duty to exercise the skill they actually possess and such care and diligence that a reasonable prudent person would exercise in comparable
circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill
than may reasonably
be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards
an objective standard with
regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.
In fulfilling their duty of care to us, our directors
must ensure compliance with our second amended and restated memorandum and articles
of association, as amended and restated from time to time. Our
company has the right to seek damages if a duty owed by our directors is
breached. In limited exceptional circumstances, a shareholder may have the right
to seek damages in our name if a duty owed by our directors
is breached. The functions and powers of our Board of Directors include, among others, (i)
convening shareholders’ annual general
meetings and reporting its work to shareholders at such meetings, (ii) declaring dividends, (iii) appointing officers
and determining
their terms of offices and responsibilities, and (iv) approving the transfer of shares of our company, including the registering of such
shares
in our share register.
 
Terms of Directors and Officers
 
Our officers are elected by and serve at the
discretion of the board. Each director is not subject to a term of office and holds office until such time as his
successor takes office
or until the earlier of his death, resignation or removal from office by special resolution or the unanimous written resolution of all
shareholders. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes
any arrangement or
composition with his creditors; (ii) dies or is found by our company to be of unsound mind; (iii) resigns by notice
in writing to our company; (iv) without
special leave of absence from our Board of Directors, is absent from three consecutive meetings
of the board and the board resolves that his office be
vacated; (v) is prohibited by law from being a director; or (vi) is removed from
office pursuant to any other provisions of our second amended and restated
memorandum and articles of association.
 
136

 
Interested Transactions
 
A director may, subject to approval of the chairman
of the relevant board meeting and under applicable law or applicable NYSE rules, vote in respect
of any contract or transaction in which
he or she is interested, provided that the nature of the interest of any directors in such contract or transaction is
disclosed by him
or her at or prior to its consideration and any vote in that matter.
 
6.D. Employees
 
We had 691 employees as of December 31, 2024.
Our employees are based in our headquarters in Guangzhou, Guangdong province and various local
offices over 50 cities across China.
 
The following table sets forth the breakdown of
our employees by function as of December 31, 2024.
 
 
 
As of December 31, 2024
 
Functions
 
Number
   
% of
Total
Employees  
Risk Management
   
403     
58.3%
Sales and Marketing
   
138     
20.0%
General and Administration
   
66     
9.6%
Finance
   
38     
5.5%
Others
   
46     
6.7%
Total
   
691     
100%
 
As required by laws and regulations in China,
we participate in various employee social security plans that are organized by municipal and provincial
governments, including, among
other things, housing, pension, medical insurance and unemployment insurance.
 
We typically enter into standard employment, confidentiality
and non-compete agreements with our senior management. These contracts include a
standard non-compete covenant that prohibits any employee
from competing with us, directly or indirectly, during his or her employment and for two years
after the termination of employment, provided
that we pay monthly compensation equal to 30% of his or her previous average monthly salary during the
restriction period.
 
We believe that we maintain a good working relationship
with our employees, and we have not experienced any labor disputes. None of our employees
are represented by labor unions.
 
6.E. Share Ownership
 
The following table sets forth information concerning
the beneficial ownership of our ordinary shares, as of March 31, 2025, by:
 
●
each of our directors and executive officers; and
 
●
each person known to us to beneficially own more than 5% of our ordinary shares.
 
The
calculations in the table below are based on 1,371,643,240 ordinary shares issued and outstanding as of the date of March 31, 2025.
 
137

 
Beneficial ownership is determined in accordance
with the rules and regulations of the SEC. 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, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of
the
percentage ownership of any other person.
 
 
 
Ordinary Shares
Beneficially Owned 
as of March 31, 
2025
 
Functions
 
Number
   
%*
 
Directors and Executive Officers:†
   
     
 
Bin Zhai(1)
   
283,949,380     
20.1%
Jun Qian(2)
   
20,000,000     
1.4%
Zehui Zhang(3)
   
20,000,000     
1.4%
Huiling Jiang
   
–     
– 
Jing Li
   
–     
– 
Fengyong Gao
   
–     
– 
Lin Xu
   
–     
– 
Xi Wang
   
–     
– 
Ge Yang
   
–     
– 
 
   
      
  
Principal Shareholders:
   
      
  
Kylin Investment Holdings Limited(4)
   
243,949,380     
17.8%
S. Donald Sussman(5)
   
139,187,000     
10.1%
 
 
Notes:
 
*
For each person and group included in this table, percentage ownership is calculated by dividing the number of shares beneficially owned by such
person or group by the sum of (i) 1,559,576,960, being the number of ordinary shares as of March 31, 2025 and (ii) the number of ordinary shares
underlying share options held by such person or group that are exercisable within 60 days after March 31, 2025.
 
†
The business address of our directors and executive officers except
for Mr. Fengyong Gao, Mr. Lin Xu, Mr. Xi Wang and Mr. Ge Yang is 22/F, South
Finance Center, No. 6 Wuheng Road Tianhe District, Guangzhou
City, Guangdong Province, People’s Republic of China. The business address for Mr.
Fengyong Gao is Room 703A, No.1518 Minsheng
Road, Pudong New District, Shanghai. The business address for Mr. Lin Xu is No.1405, Building 4,
No.3 Courtyard, Sanlihe Yiqu, Xicheng
District, Beijing. The business address for Mr. Xi Wang is No.66 Xingang Xi Road, Guangzhou, Guangdong
Province. The business address
for Mr. Ge Yang is 32 Crabtree Ln Tenafly, NJ 07670, the U.S.A.
 
(1) Includes (i) options we granted to Mr. Bin Zhai under the 2018 Plan to purchase up to 40,000,000 of our ordinary shares that are immediately
exercisable; and (ii) the equity interest held by Mr. Bin Zhai through Kylin Investment Holdings Limited, or Kylin Investment, as set forth in note (4)
below.
 
(2) Includes options we granted to Mr. Jun Qian under the 2018 Plan to purchase up to 20,000,000 of our ordinary shares that are immediately exercisable.
This does not include the equity interest held by Mr. Jun Qian through Kylin Investment, as set forth in note (4) below.
 
(3) Includes options we granted to Mr. Zehui Zhang under the 2018 Plan to purchase up to 20,000,000 of our ordinary shares that are immediately
exercisable. This does not include the equity interest held by Mr. Zehui Zhang through Kylin Investment, as set forth in note (4) below.
 
(4) Represents 243,949,380 ordinary shares of our company held by Kylin Investment Holdings Limited, or Kylin Investment, a company incorporated in
the British Virgin Islands. 50% of the total outstanding shares of Kylin Investment are held by Mr. Bin Zhai, our chairman and chief executive officer.
30% of the total outstanding shares of Kylin Investment are held by Mr. Ning Li, our former executive director and former chief financial officer. 10%
of the total outstanding shares of Kylin Investment are held by Mr. Jun Qian, one of our officers and 10% of the total outstanding shares of Kylin
Investment are held by Mr. Zehui Zhang, one of our officers. Mr. Bin Zhai may be deemed to have the power to direct voting and disposition of the
243,949,380 of our ordinary shares held by Kylin Investment. The business address of Kylin Investment Holdings Limited is Floor 44, Building G,
Winter Square, Gaode Land, Guangzhou, Guangdong Province, People’s Republic of China.
 
(5) Represents 139,187,000 ordinary shares of our company held by Mr. S. Donald Sussman, which may be held, in part, in the forms of ADS,
with each
ADS representing 20 ordinary shares. The foregoing beneficial ownership information of Mr. S. Donald Sussman is based on the
Amendment No.4 to
the Schedule 13G filed by Mr. S. Donald Sussman with the SEC on February 13, 2025. The business address of Mr. S. Donald
Sussman is 888 E Las
Olas Blvd, Suite 710, Fort Lauderdale, Florida 33301-2395, U.S.A.
 
138

 
6.F. Disclosure of a Registrant’s Action to Recover Erroneously
Awarded Compensation
 
Not applicable
 
Item 7. Major Shareholders and Related Party Transactions
 
7.A. Major Shareholders
 
Please refer to “Item 6. Directors, Senior
Management and Employees—E. Share Ownership.”
 
7.B. Related Party Transactions
 
Employment Agreements
 
See “Item 6. Directors, Senior Management
and Employees—6.B. Compensation—Employment Agreements and Indemnification Agreements” for a
description of the employment
agreements we have entered into with our senior executive officers.
 
Share Incentives
 
See “Item 6. Directors, Senior Management
and Employees—6.B. Compensation—Share Incentive Plan” for a description of share options we have
granted to our directors,
officers and other individuals as a group.
 
Other Related Party Transactions
 
The Group did not have any other related party
transactions in the year ended December 31, 2024.
 
7.C. Interests of Experts and Counsel
 
Not applicable.
 
Item 8. Financial Information
 
8.A. Consolidated Statements and Other Financial Information
 
We have appended consolidated financial statements
filed as part of this annual report.
 
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 in
the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is
likely to result
in a substantial cost and diversion to our resources, including our management’s time and attention. For risks relating to legal
and
administrative proceedings against us, please see “Item 3. Key Information—D. Risk Factors—Risks Related to Our
Business—We are involved in legal
proceedings in the ordinary course of our business from time to time. If the outcomes of these
proceedings are adverse to us, it could have a material
adverse effect on our business, results of operations and financial condition.”
 
139

 
Dividend Policy
 
We have not previously declared or paid cash dividends
and we have no plan to declare or pay any dividends in the near future on our shares or the
ADSs representing our ordinary shares. We
currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand
our business.
 
We are a holding company incorporated in the Cayman
Islands. We rely principally on dividends from our PRC subsidiaries for our cash requirements,
including any payment of dividends to our
shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us. See “Item
3. Key Information—D.
Risk Factors—Risks Related to Doing Business in China—We may rely on dividends and other distributions on equity paid by our
PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to
make payments to
us could have a material and adverse effect on our ability to conduct our business” and “Item 4. Information
of the Company—B. Business Overview—
Regulation—Regulations on Dividend Distribution.”
 
Our Board of Directors has discretion as to whether
to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, subject
to the provisions in our second amended
and restated memorandum and articles of association, our shareholders may by ordinary resolution declare a
dividend, but no dividend may
exceed the amount recommended by our Board of Directors. Under Cayman Islands law, a Cayman Islands company may
pay a dividend out of
either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company
being
unable to pay its debts as they fall due in the ordinary course of business. Even if our Board of Directors decides to pay dividends,
the form,
frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial
condition, contractual
restrictions and other factors that the board of directors may deem relevant. If we pay any dividends on our ordinary
shares, we will pay those dividends
which are payable in respect of the ordinary shares underlying the ADSs to the depositary, as the
registered holder of such ordinary shares, and the
depositary then will pay such amounts to the ADS holders in proportion to the ordinary
shares underlying the ADSs held by such ADS holders, 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.”
 
8.B. Significant Changes
 
Except as otherwise disclosed in this report,
we have not experienced any significant changes since the date of the annual financial statements included
herein.
 
Item 9. The Offer And Listing
 
9.A. Offering and Listing Details
 
Our ADSs have been listed on the New York Stock
Exchange since November 7, 2018 under the symbol “CNF.” Each ADS represents 20 ordinary
shares, par value US$0.0001 per share.
 
9.B. Plan of Distribution
 
Not applicable.
 
9.C. Markets
 
Our ADSs have been listed on the New York Stock
Exchange since November 7, 2018 under the symbol “CNF.”
 
9.D. Selling Shareholders
 
Not applicable.
 
140

 
9.E. Dilution
 
Not applicable.
 
9.F. Expenses of the Issue
 
Not applicable.
 
Item 10. Additional Information
 
10.A. Share Capital
 
Not applicable.
 
10.B. Memorandum and Articles of Association
 
We incorporate by reference into this annual report
our Second Amended and Restated Memorandum and Articles of Association, the form of which
was filed as Exhibit 3.1 to our current report
on Form 6-K (File Number 001-38726), filed with the Securities and Exchange Commission on November
29,
2024. Our members adopted our second amended and restated memorandum and articles of association by a special resolution on November
29, 2024,
which became effective immediately.
 
10.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 this annual report.
 
10.D. Exchange Controls
 
The Cayman Islands currently has no exchange control
regulations or currency restrictions. For exchange control regulations or currency restrictions in
China, see “Item 4. Information
of the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange.”
 
10.E. Taxation
 
Cayman Islands Taxation
 
According to Walkers (Hong Kong), our Cayman counsel,
the Cayman Islands currently levies no taxes on individuals or corporations based upon
profits, income, gains or appreciation, and there
is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to
us or holders of our
ADSs or ordinary shares 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 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.
 
Payments of dividends and capital in respect of
the ADSs or ordinary shares will not be subject to taxation in the Cayman Islands and no withholding
will be required on the payment of
a dividend or capital to any holder of the ADSs or ordinary shares, nor will gains derived from the disposal of the ADSs
or ordinary shares
be subject to Cayman Islands income or corporation tax.
 
141

 
Our Company has been incorporated under the laws
of the Cayman Islands as an exempted company with limited liability and, as such, has obtained
an undertaking from the Government of the
Cayman Islands as to tax concessions under the Tax Concessions Act (as amended). In accordance with the
provision of Section 6 of the
Tax Concession Act (as amended), the Governor in Cabinet undertakes with our company:
 
●
that no law which is hereafter enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciation
shall apply to
our company or its operations; and
 
●
in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance
tax shall be
payable:
 
●
on or in respect of the shares or other obligations of our company; or
 
●
by way of the withholding, in whole or part, of any relevant payment as defined in Section 6(3) of the Tax Concessions Law (as amended).
 
These concessions shall be for a period of 20
years from January 28, 2014.
 
PRC Taxation
 
Under the PRC EIT Law, which became effective
on January 1, 2008 and was lastly amended on December 29, 2018, an enterprise established outside
the PRC with “de facto management
bodies” within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally
subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation rules to the PRC EIT Law, a “de
facto
management body” is defined as a body that has material and overall management and control over the manufacturing and business
operations, personnel
and human resources, finances and properties of an enterprise.
 
In addition, the SAT Circular 82 issued by the
SAT in April 2009 and as amended on December 29, 2017, specifies that certain offshore incorporated
enterprises controlled by PRC enterprises
or PRC enterprise groups will be classified as PRC resident enterprises if the following are located or resident in
the PRC: (a) senior
management personnel and departments that are responsible for daily production, operation and management; (b) financial and
personnel
decision-making bodies; (c) key properties, accounting books, company seal, minutes of board meetings and shareholders’ meetings;
and (d) half
or more of the senior management or directors having voting rights. Further to SAT Circular 82, the SAT issued the SAT Bulletin
45, which took effect in
September 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for
procedures and administration details
of determination on resident status and administration on post-determination matters. Our company
is a company incorporated outside the PRC. As a
holding company, its key assets are its ownership interests in its subsidiaries, and its
key assets are located, and its records (including the resolutions of its
board of directors and the resolutions of its shareholders)
are maintained, outside the PRC. As such, we do not believe that our company meets all of the
conditions above or is a PRC resident enterprise
for PRC tax purposes. For the similar reasons, we believe our other entities outside China are not PRC
resident enterprises either. 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.” There can be no assurance that the PRC government will ultimately
take a view
that is consistent with us. If the PRC tax authorities determine that our Cayman Islands holding company is a PRC resident
enterprise for PRC enterprise
income tax purposes, a number of unfavorable PRC tax consequences could follow. For example, a 10% withholding
tax would be imposed on dividends
we pay to our non-PRC enterprise shareholders (including our ADS holders). In addition, nonresident
enterprise shareholders (including our ADS holders)
may be subject to PRC tax at a rate of 10% gains realized on the sale or other disposition
of ADSs or ordinary shares, if such income is treated as sourced
from within the PRC. Furthermore, if we are deemed a PRC resident enterprise,
dividends paid to our non-PRC individual shareholders (including our ADS
holders) and any gain realized on the transfer of ADSs or ordinary
shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the
case of dividends, may be withheld at source by
us). These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC
shareholders of our company would be able
to obtain the benefits of any tax treaties between their country of tax residence and the PRC in the event that
we are treated as a PRC
resident enterprise. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If
we are
classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable
tax consequences to us and
our non-PRC shareholders and ADS holders.”
 
 
142

 
Material U.S. Federal Income Tax Considerations
 
The following are material U.S. federal
income tax consequences to the U.S. Holders described below of the ownership and disposition of the ADSs or
ordinary shares, but
this discussion does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular
person’s
decision to hold such ADSs or ordinary shares. This discussion applies only to a U.S. Holder that holds the ADSs or
ordinary shares as capital assets for U.
S. federal income tax purposes. In addition, it does not describe all of the tax
consequences that may be relevant in light of a U.S. Holder’s particular
circumstances, including any minimum tax, the
Medicare contribution tax on net investment income and tax consequences applicable to U.S. Holders
subject to special rules, such
as:
 
●
certain financial institutions;
 
●
dealers or traders in securities that use a mark-to-market method of tax accounting;
 
●
persons holding ADSs or ordinary shares as part of a straddle, conversion transaction or similar transaction;
 
●
persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
 
●
entities classified as partnerships for U.S. federal income tax purposes;
 
●
tax-exempt entities, “individual retirement accounts” or “Roth IRAs”;
 
●
persons who acquired our ADSs or ordinary shares pursuant to the exercise of an employee stock option or otherwise as compensation;
 
●
persons that own or are deemed to own 10% or more of the Company’s stock by vote or value; or
 
●
persons holding ADSs or ordinary shares in connection with a trade or business conducted outside the United States.
 
If an entity that is classified as a partnership
for U.S. federal income tax purposes owns ADSs or ordinary shares, the U.S. federal income tax treatment
of a partner will generally depend
on the status of the partner and the activities of the partnership. Partnerships owning ADSs or ordinary shares and
partners in such partnerships
should consult their tax advisers as to the particular U.S. federal income tax consequences of owning and disposing of ADSs
and ordinary
shares.
 
This discussion is based on the Internal Revenue
Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions, final,
temporary and proposed Treasury
regulations, and the income tax treaty between the United States and the PRC (the “Treaty”), all as of the date hereof, any
of which is subject to change, possibly with retroactive effect. This discussion assumes that each obligation under the deposit agreement
will be performed
in accordance with its terms.
 
As used herein, a “U.S. Holder” is
a person that is, for U.S. federal income tax purposes a beneficial owner of the Company’s ADSs or ordinary shares
and:
 
●
a citizen or individual resident of the United States;
 
●
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
therein or the
District of Columbia; or
 
●
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
 
In general, a U.S. Holder that owns ADSs will
be treated as the owner of the underlying ordinary shares represented by those ADSs for U.S. federal
income tax purposes. Accordingly,
no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying ordinary shares represented by
those ADSs.
 
This discussion does not address the effects of
any state, local or non-U.S. tax laws, or any U.S. federal taxes other than income taxes (such as U.S.
federal estate or gift tax consequences).
U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and non-U.S. tax
consequences of owning and disposing
of ADSs or ordinary shares in their particular circumstances.
 
143

 
Passive Foreign Investment Company
 
In general, a non-U.S. corporation will be a PFIC
for U.S. federal income tax purposes for any taxable year in which (i) 75% or more of its gross
income consists of passive income or (ii)
50% or more of the average value of its assets (generally determined on a quarterly basis) consists of assets that
produce, or are held
for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns
at
least 25% by value of the equity interests of another corporation or partnership is treated as if it held its proportionate share of
the assets of the other
corporation or partnership and received directly its proportionate share of the income of the other corporation
of partnership. Passive income generally
includes interest, income equivalent to interest, rents, dividends, royalties and gains from
financial investments.
 
It is not entirely clear how the PFIC rules should
apply to a company with a business such as ours. For example, although the loans issued through our
trust plans are shown in their entirety
as our assets on our consolidated balance sheet, it is not clear whether for purposes of the PFIC rules we should be
treated as owning
only our subordinated interests in the trust plans, and earning only the portion of the trust plans’ interest income attributable
thereto. If
we are treated as owning only the subordinated units and the portion of the trust plans’ loans attributable thereto,
our PFIC status for any taxable year may
depend on the relative values of the loans we are treated as owning and our other passive assets
on the one hand, and the value of our goodwill and other
intangible assets (to the extent attributable to the services we provide) and
fee receivables on the other hand. The value of our goodwill and other intangible
assets, and the extent to which our goodwill and other
intangible assets should be treated as active assets are not entirely clear. Moreover, the value of our
goodwill and other intangible
assets may be determined by reference to our market capitalization, which has declined in recent years and may continue to
decline or
be volatile. In addition, we provide loan facilitation, loan administration and other services in connection with the loans issued by
our trust plans
and we charge our trust plans service fees that are eliminated in, and therefore not shown on, our consolidated income
statement. Therefore, our PFIC status
for any taxable year may depend on the relative amounts of our fee and interest income (which as
discussed above may be less than the amount of interest
income shown on our income statement, if we are treated as owning only a portion
of the trusts’ loans). Furthermore, it is not entirely clear whether a
portion of the interest income earned by the trust plans
could be treated as payable in part for services to the borrowers. Although our PFIC status for any
taxable year is not entirely clear,
based on the composition of our income and assets and the manner in which we currently operate our business, we were
likely a PFIC for
our 2024 and prior taxable years, and will likely be a PFIC for our 2025 taxable year and future taxable years, subject to the discussion
in
the subsequent paragraph regarding the Active Financing Exception, as defined below. U.S. Holders should consult their tax advisers
regarding the proper
application of the PFIC rules to us and our PFIC status for any taxable year.
 
For purposes of the PFIC rules “passive
income” is defined by way of a cross-reference to Section 954(c) of the Code, which applies for purposes of
the Code’s “controlled
foreign corporation” (“CFC”) rules. A different provision under the CFC rules (namely Section 954(h) of the Code) sets
forth an
exception for interest income derived by “eligible CFCs” that are “predominantly engaged” in the active
conduct of a financing or similar business (the
“Active Financing Exception”). Because the Active Financing Exception addresses
eligible CFCs, there has been uncertainty as to whether it could apply to
determine the PFIC status of companies that are not CFCs, such
as our company. Proposed Treasury regulations promulgated in 2019 (the “2019 Proposed
Regulations”) provided that the Active
Financing Exception could apply to determine the PFIC status of such companies. However, in 2020 these
regulations were finalized (the
“2020 Final Regulations”) without addressing the Active Financing Exception. Although the 2020 Final Regulations are
silent
on the availability of the Active Financing Exception to companies like us, in the preamble to the 2020 Final Regulations Treasury expressed
its
position that under current law the Active Financing Exception does not apply in determining the PFIC status of a company that is
neither a CFC nor a
bank. The 2020 Final Regulations apply to taxable years of shareholders beginning on or after January 14, 2021. Treasury
indicated in the preamble to the
2020 Final Regulations that taxpayers can rely on the 2019 Proposed Regulations to apply the Active Financing
Exception for any open taxable year ending
on or before December 31, 2020. Concurrently with the issuance of the 2020 Final Regulations,
Treasury issued proposed regulations (the “2020 Proposed
Regulations”) that would state explicitly that the Active Financing
Exception is available only if the tested non-U.S. corporation is a bank. The 2020
Proposed Regulations have not been finalized yet. Based
on the foregoing, U.S. Holders (i) generally are permitted to apply the Active Financing
Exception for a taxable year ending on
or before December 31, 2020 (provided that we in fact satisfied the exception’s conditions for the relevant year), (ii)
should expect that the Internal Revenue Service (the “IRS”)
will not agree with a return position that applies the Active Financing Exception for any
subsequent taxable year, and (iii) should be
aware that if the 2020 Proposed Regulations are finalized in their current form they generally will not be able to
take the position that
the Active Financing Exception applies for any taxable year to which the regulations apply. If we were “predominantly engaged”
in
the active conduct of a financing or similar business (as defined for purposes of the Active Financing Exception) and met all of the
exception’s
requirements, then we would not be a PFIC for any taxable year with respect to which taxpayers validly applied the Active
Financing Exception, if
applicable. U.S. Holders should be aware that we have not determined whether these requirements were in fact satisfied.
Moreover, if any of our trust plans
is treated as a partnership for U.S. federal income tax purposes, and if such trust’s senior
unit holders are treated as owning interests in such partnership
other than as creditors, the characterization of our interest income
as active under the Active Financing Exception may also depend, in part, on whether we
owned 25% or more of the value of such trust for
the relevant taxable years. U.S. Holders should consult their tax advisers as to whether the Active
Financing Exception could apply to
us with respect to any taxable year prior to the finalization of the 2020 Proposed Regulations, and whether it is
advisable to take this
position in light of Treasury’s views, as described above.
 
144

 
Our company may also hold, directly or indirectly,
equity interests in subsidiaries and other entities which are PFICs (collectively “Lower-tier PFICs”).
Under attribution rules,
if we are a PFIC, U.S. Holders will be deemed to own their proportionate share of the equity interests in each Lower-tier PFICs and
will
be subject to U.S. federal income tax according to the PFIC rules described below on (i) certain distributions by a Lower-tier PFIC and
(ii) a
disposition of equity interests of a Lower-tier PFIC, in each case as if the U.S. Holder held such interests directly, even though
the U.S. Holders will not
receive the proceeds of those distributions or dispositions directly.
 
A U.S. Holder that owns our company’s ADSs
or ordinary shares (or as discussed above is deemed to own equity interests of any Lower-tier PFIC)
during any taxable year in which we
are a PFIC will generally be subject to adverse tax treatment. In general, gain recognized on a disposition (including,
under certain
circumstances, a pledge) of ADSs or ordinary shares by the U.S. Holder (or on an indirect disposition of equity interests of any Lower-tier
PFIC) will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares. The amounts allocated to
the taxable year of
disposition and to any year before we (or, a Lower-tier PFIC, as the case may be) became a PFIC, will be taxed as
ordinary income. The amounts allocated
to each other taxable year will be subject to tax at the highest rate in effect for that taxable
year for individuals or corporations, as appropriate, and an
interest charge will be imposed on the resulting tax liability for each taxable
year. Any loss recognized upon disposition of ADSs or ordinary shares will be
capital loss and will be long-term capital loss if the U.S.
Holder held the ADSs or ordinary shares for more than one year. The deductibility of capital losses
is subject to limitations. The total
amount of gain (before the imposition of interest charges described above) or loss will equal the difference between the
U.S. Holder’s
tax basis in the ADSs or ordinary shares disposed of and the amount realized on disposition, in each case as determined in U.S. dollars.
 
Furthermore, to the extent that distributions
received in a taxable year by a U.S. Holder on its ADSs or ordinary shares (or a distribution by any Lower-
tier PFIC that is deemed to
be received by a U.S. Holder) exceed 125% of the average of the annual distributions received (or deemed received) during the
preceding
three taxable years or the U.S. Holder’s holding period, whichever is shorter, the excess distributions will be subject to taxation
in the same
manner.
 
If we are a PFIC for any year during which a U.S.
Holder holds ADSs or ordinary shares, we will generally continue to be treated as a PFIC with
respect to such ADSs or ordinary shares
held by the U.S. Holder for all succeeding years during which the U.S. Holder holds such ADSs or ordinary
shares, even if we cease to
be a PFIC, unless the U.S. Holder makes a “deemed sale” election, which would allow the U.S. Holder to eliminate the
continuing
PFIC status under certain circumstances but would require the U.S. Holder to recognize gain taxed under the general PFIC rules described
above.
 
If the ADSs are “regularly traded”
on a “qualified exchange,” a U.S. Holder of ADSs may make a mark-to-market election that would result in tax
treatment different
from the general tax treatment for PFICs described above. The ADSs will be treated as “regularly traded” in any calendar year
in which
more than a de minimis quantity of the ADSs are traded on a qualified exchange on at least 15 days during each calendar quarter.
The New York Stock
Exchange on which the ADSs are listed is a qualified exchange for this purpose. If a U.S. Holder makes the mark-to-market
election, the U.S. Holder
generally will recognize as ordinary income any excess of the fair market value of the ADSs at the end of each
taxable year over their adjusted tax basis,
and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of
the ADSs over their fair market value at the end of the taxable year
(but only to the extent of the net amount of income previously included
as a result of the mark-to-market election). If a U.S. Holder makes the election, the
U.S. Holder’s tax basis in the ADSs will be
adjusted to reflect the income or loss amounts recognized. Any gain recognized on the sale or other disposition
of ADSs in a year when
the Company is a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of
the
net amount of income previously included as a result of the mark-to-market election, with any excess loss treated as a capital loss).
Distributions paid
on ADSs will be treated as discussed below under “—Taxation of Distributions.” U.S. Holders should
consult their tax advisers regarding the availability
and advisability of making a mark-to-market election in their particular circumstances.
In particular, U.S. Holders should consider carefully the impact of a
mark-to-market election with respect to their ADSs given that we
may have Lower-tier PFICs and that there is no provision in the Code, Treasury
regulations or any administrative guidance that would permit
making a mark-to-market election with respect to any Lower-tier PFIC the shares of which
are not “regularly traded” as described
above.
 
145

 
If we are a PFIC (or with respect to a particular
U.S. Holder are treated as a PFIC) for a taxable year in which we pay a dividend or for the prior
taxable year, the favorable tax rate
applicable to “qualified dividend income” paid to certain non-corporate U.S. Holders will not apply.
 
We do not intend to provide U.S. Holders with
the information necessary to make a qualified electing fund election, which if available would result in
an alternative treatment of the
ADSs and ordinary shares.
 
If a U.S. Holder owns ADSs or ordinary shares
during any year in which we are PFIC, the U.S. Holder generally must file annual reports on an IRS
form 8621 with respect to us and any
Lower-tier PFIC, generally with the U.S. Holder’s federal income tax return for that year.
 
The application of the PFIC rules to an investment
in our ADSs or ordinary shares is complex. U.S. Holders should consult their tax advisers
concerning our PFIC status for any taxable year
and the application of the PFIC rules in their particular circumstances.
 
Taxation of Distributions
 
The following discussion is subject to the discussion
under “—Passive Foreign Investment Company” above.
 
Distributions paid on the Company’s ADSs
or ordinary shares (other than certain pro rata distributions of ordinary shares) will be treated as dividends
to the extent paid out
of our company’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we
do not calculate our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be
reported to U.S. Holders
as dividends. Dividends will not be eligible for the dividends-received deduction generally available to U.S.
corporations under the Code. In light of the
discussion in “—Passive Foreign Investment Company” above, non-corporate
U.S. Holders should expect that dividends, if any, will likely not be eligible
for preferential tax rates.
 
Dividends will be included in a U.S. Holder’s
income on the date of the U.S. Holder’s, or in the case of ADSs, the depositary’s, receipt. The amount of
any dividend income
paid in foreign currency will be the U.S. dollar amount calculated by reference to the spot rate in effect on the date of receipt,
regardless
of whether the payment is in fact converted into U.S. dollars on such date. If the dividend is converted into U.S. dollars on the date
of receipt, a
U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the amount received.
A U.S. Holder may have foreign
currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.
 
Dividends will be treated as foreign-source income
for foreign tax credit purposes. As described in “Item 10. Additional Information—E. Taxation—
PRC Taxation,” dividends
paid by the Company may be subject to PRC withholding tax. For U.S. federal income tax purposes, the amount of the dividend
income will
include any amounts withheld in respect of PRC withholding tax. Subject to applicable limitations, which vary depending upon the U.S.
Holder’s circumstances and the discussion below regarding certain Treasury regulations, PRC taxes withheld from dividend payments
(at a rate not
exceeding the applicable rate provided in the Treaty if a U.S. Holder is eligible for Treaty Benefits) generally will be
creditable against a U.S. Holder’s U.S.
federal income tax liability. The rules governing foreign tax credits are complex and U.S.
Holders should consult their tax advisers regarding the
creditability of PRC taxes in their particular circumstances. For example, Treasury
regulations provide that, in the absence of an election to apply the
benefits of an applicable income tax treaty, in order for non-U.S.
income taxes to be creditable, the relevant non-U.S. income tax rules must be consistent
with certain U.S. federal income tax principles,
and we have not determined whether the PRC income tax system meets this requirement. The IRS has
released notices that provide relief
from certain of the provisions of the Treasury regulations described above 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). In lieu
of
claiming a credit, a U.S. Holder may elect to deduct any creditable PRC taxes in computing its taxable income, subject to applicable
limitations. An
election to deduct foreign taxes instead of claiming foreign tax credits applies to all otherwise creditable foreign taxes
paid or accrued in the taxable year.
 
146

 
Sale or Other Taxable Disposition of ADSs or
Ordinary Shares
 
The following discussion is subject to the discussion
under “—Passive Foreign Investment Company” above. A U.S. Holder will generally recognize
gain or loss on a sale or
other taxable disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized on the sale
or disposition
and the U.S. Holder’s tax basis in the ADSs or ordinary shares disposed of, in each case as determined in U.S. dollars. Such gain
or loss will
be long-term capital gain or loss if, at the time of the sale or disposition, the U.S. Holder has owned the ADSs or ordinary
shares for more than one year,
and we are not a PFIC (or treated as a PFIC with respect to the U.S. Holder). Long-term capital gains recognized
by noncorporate U.S. Holders are subject
to tax rates that are lower than those applicable to ordinary income. In light of the discussion
under “—Passive Foreign Investment Company” above, U.S.
Holders should expect that any gain recognized on a sale or
other taxable disposition of the ADSs or ordinary shares will likely not be treated as long-term
capital gain. The deductibility of capital
losses is subject to limitations.
 
Foreign tax credit for PRC taxes imposed on
disposition of ADSs or ordinary shares
 
As described in “Item 10. Additional Information—E.
Taxation—PRC Taxation,” gain on the sale of ADSs or ordinary shares may be subject to PRC
taxes if the Company is considered
a PRC resident enterprise for PRC enterprise income tax purposes. Under the Code, capital gains of U.S. persons are
generally treated
as U.S. source income. However, a U.S. Holder that is eligible for Treaty benefits may be able to elect to treat the gain as foreign-source
income under the Treaty and claim foreign tax credit in respect of any PRC tax on dispositions. Treasury regulations generally preclude
a U.S. Holder from
claiming a foreign tax credit with respect to PRC income taxes on gains from dispositions of ADSs or ordinary shares
if the U.S. Holder is not eligible for,
or does not elect to apply, the benefits of the Treaty. As discussed above, the IRS has released
notices that provide relief from certain of the provisions of
these Treasury regulations (including the limitation described in the preceding
sentence) 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). However, even if these
Treasury regulations do not prohibit U.S. Holders
from claiming a foreign tax credit with respect to any PRC taxes on disposition gains, other limitations
under the foreign tax credit
rules may preclude U.S. Holders from claiming (or limit U.S. Holders’ ability to claim) a foreign tax credit in whole or in part.
If a U.S. Holder is precluded from claiming (or does not wish to claim) a foreign tax credit, it is possible that any PRC taxes on disposition
gains may
either be deductible or reduce the amount realized on the disposition. An election to deduct non-U.S. taxes in lieu of claiming
foreign tax credits applies to
all otherwise creditable non-U.S. taxes paid or accrued in the relevant taxable year. The rules governing
foreign tax credits and deductibility of foreign
taxes are complex. U.S. Holders should consult their tax advisers regarding the consequences
of the imposition of any PRC tax on disposition gains,
including the Treaty’s resourcing rule, any reporting requirements with respect
to a Treaty-based return position and the creditability or deductibility of the
PRC tax on disposition gains in their particular circumstances
(including any applicable limitations).
 
147

 
Information Reporting and Backup Withholding
 
Payments of dividends and sales proceeds that
are made within the United States or through certain U.S.-related financial intermediaries may be
subject to information reporting and
backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient (and if required, establishes
its status as
such) or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that
it is not
subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit
against the U.S.
Holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information
is timely furnished to the IRS.
 
Certain U.S. Holders who are individuals (or certain
specified entities) may be required to report information relating to their ownership of ADSs or
ordinary shares or non-U.S. financial
accounts through which they are held. U.S. Holders should consult their tax advisers regarding their reporting
obligations with respect
to the ADSs or ordinary shares.
 
10.F. Dividends and Paying Agents
 
Not applicable.
 
10.G. Statement by Experts
 
Not applicable.
 
10.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. We have also
filed a registration
statement on Form F-6 (Registration No. 333-228089), a registration statement on Form S-8 (Registration No. 333230955), and a
registration
statement on Form 8-A (Registration No. 001-38726), including relevant exhibits and schedules under the Securities Act, covering the ordinary
shares represented by the ADSs, as well as the ADSs.
 
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. We are
subject to periodic reporting
and other informational requirements of the Exchange Act as applicable to foreign private issuers, and are required to file
reports and
other information with the SEC. Specifically, we are required to file annually an annual report on Form 20-F within four months after
the end of
each fiscal year, which is December 31. 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.
 
We will furnish JPMorgan Chase Bank, N.A., the
depositary of our ADSs, with our annual reports, which will include a review of operations and
annual audited consolidated financial statements
prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and
communications that are made
generally available to our shareholders. The depositary will make such notices, reports and communications available to
holders of ADSs
and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting
received
by the depositary from us.
 
148

 
10.I. Subsidiary information
 
Not applicable.
 
10.J. Annual Report to Security Holders
 
Not applicable.
 
Item 11. Quantitative And Qualitative Disclosures About Market
Risk
 
Interest rate risk
 
Our exposure to interest rate risk relates to
the interest income and financing service fee on loans and interest on deposits with banks. Borrowers’ cost
of borrowing mainly
consist of interest rates charged under trust plans. An increase in prevailing interest rates could result in an increase in the interest
rates of loans we facilitate, and borrowers may be less likely to accept such adjusted terms. If borrowers decide not to use the products
or services we offer
because of such an increase in market interest rates, our ability to retain existing borrowers and engage prospective
borrowers as well as our competitive
position may be severely impaired.
 
Foreign exchange risk
 
Substantially all of our revenues are denominated in Renminbi. The
functional currency of our company is the Hong Kong dollar. The functional
currency of SFIL, which is incorporated in British Virgin Islands,
is the U.S. dollar. The functional currency of our subsidiary in the PRC 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 ruling 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. Due to foreign currency
translation adjustments, we recognized a foreign exchange gain of RMB15,181,518 in 2022, a foreign exchange loss of RMB867,116 in 2023
and a foreign
exchange gain of RMB524,149 (US$71,808) in 2024, respectively.
 
The Renminbi is not freely convertible into foreign
currencies for capital account transactions. The value of the Renminbi against the U.S. dollar and
other currencies is affected by, among
other things, changes in China’s political and economic conditions and China’s foreign exchange policies. On July
21,2005,
the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar, and the Renminbi appreciated more
than
20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange
rate between the
Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the RMB has fluctuated against the U.S.
dollar, at times significantly and
unpredictably. 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.
 
To date, we have not entered into any hedging transactions in an effort
to reduce our exposure to foreign currency exchange risk. 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.
 
Inflation risk
 
Since our inception, inflation in China has not materially impacted
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 December 2022, 2023 and 2024 were increases of 1.8%, 0.2% and 0.1%, respectively.
Although we have not in the past been
materially affected by inflation since our inception, we can provide no assurance that we will not be affected in the
future by higher
rates of inflation in China.
 
149

 
Item 12. Description of Securities Other Than Equity Securities
 
12.A. Debt Securities
 
Not applicable.
 
12.B. Warrants and Rights
 
Not applicable.
 
12.C. Other Securities
 
Not applicable.
 
12.D. American Depositary Shares
 
Fees and Expenses
 
Pursuant to the terms of the deposit agreement,
the depositary may charge each person to whom ADSs are issued, including, without limitation,
issuances against deposits of shares, issuances
in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or
stock split declared by us
or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited
securities,
and each person surrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or reduced for any other reason,
$5.00
for each 100 ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered, as the case may be. The depositary
may sell (by public or
private sale) sufficient securities and property received in respect of a share distribution, rights and/or other
distribution prior to such deposit to pay such
charge.
 
The following additional charges shall be incurred
by the ADR holders, by any party depositing or withdrawing shares or by any party surrendering
ADSs and/or to whom ADSs are issued (including,
without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of
stock regarding the ADSs or
the deposited securities or a distribution of ADSs), whichever is applicable:
 
●
a fee of US$1.50 per ADR or ADRs for transfers of certificated or direct registration ADRs;
 
●
a fee of up to US$0.05 per ADS for any cash distribution made pursuant to the deposit agreement;
 
●
an aggregate fee of up to US$0.05 per ADS per calendar year (or portion thereof) for services performed by the depositary in administering
the
ADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the
record
date or record dates set by the depositary during each calendar year and shall be payable in the manner described in the next succeeding
provision);
 
●
a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including,
without
limitation, the custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange control
regulations or
any law or regulation relating to foreign investment) in connection with the servicing of the shares or other deposited
securities, the sale of
securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise
in connection with the depositary’s
or its custodian’s compliance with applicable law, rule or regulation (which fees and
charges shall be assessed on a proportionate basis against
holders as of the record date or dates set by the depositary and shall be payable
at the sole discretion of the depositary by billing such holders or by
deducting such charge from one or more cash dividends or other
cash distributions);
 
●
a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount
equal to the $0.05
per ADS issuance fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such
securities (treating
all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are
instead distributed by the
depositary to those holders entitled thereto;
 
150

 
●
stock transfer or other taxes and other governmental charges;
 
●
cable, telex and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery of
shares, ADRs or
deposited securities;
 
●
transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with
the deposit or
withdrawal of deposited securities;
 
●
in connection with the conversion of foreign currency into U.S. dollars, JPMorgan shall deduct out of such foreign currency the fees,
expenses and
other charges charged by it and/or its agent (which may be a division, branch or affiliate) so appointed in connection with
such conversion; and
 
●
fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any public
and/or private sale
of securities under the deposit agreement.
 
The fees and charges described above may be amended
from time to time by agreement between us and the depositary.
 
The depositary may make available to us a set
amount or a portion of the depositary fees charged in respect of the ADR program or otherwise upon
such terms and conditions as we and
the depositary may agree from time to time. The depositary collects its fees for issuance and cancellation of ADSs
directly from investors
depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary
collects fees
for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property
to
pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions, or by directly
billing investors, or by
charging the book-entry system accounts of participants acting for them. The depositary will generally set off
the amounts owing from distributions made
to holders of ADSs. If, however, no distribution exists and payment owing is not timely received
by the depositary, the depositary may refuse to provide
any further services to holders that have not paid those fees and expenses owing
until such fees and expenses have been paid. At the discretion of the
depositary, all fees and charges owing under the deposit agreement
are due in advance and/or when declared owing by the depositary.
 
The fees and charges you may be required to pay
may vary over time and may be changed by us and by the depositary. You will receive prior notice of
the increase in any such fees and
charges.
 
Payments by Depositary
 
In March 2019, excluding withholding tax, we received
a US$0.4 million cash payment from JPMorgan Chase Bank, N.A., the depositary bank for our
ADR program.
 
151

 
PART II
 
Item 13. Item Defaults, Dividend Arrearages And Delinquencies
 
None.
 
Item 14. Material Modifications To The Rights Of Security Holders
and Use of Proceeds
 
14.A.-14.D. Material Modifications to the Rights of Security Holders
 
See “Item 10. Additional Information”
for a description of the rights of shareholders, which remain unchanged.
 
14.E. Use of Proceeds
 
The following “Use of Proceeds” information
relates to the registration statement on Form F-1, as amended (File No. 333-226126) in relation to our
initial public offering, which
was declared effective by the SEC on November 6, 2018. In November 2018, we completed our initial public offering in
which we issued and
sold an aggregate of 7,060,460 ADSs, representing 141,209,200 ordinary shares, resulting in net proceeds to us of US$45.7 million,
net
of the underwriting discounts and commissions and other fees paid or payable by us in connection with the offering.
 
As of December 31, 2024, we had used a portion
of the net proceeds received from our initial public offering for share repurchase and other general
corporate purposes.
 
Item 15. Controls and Procedures
 
Disclosure Controls and Procedures
 
Our management, with the participation of our
Group Chief Executive Officer and Group Chief Financial Officer, has performed an evaluation of the
effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this
report, as required
by Rule 13a-15(b) under the Exchange Act.
 
Disclosure controls and procedures are controls
and procedures that are designed to ensure that information required to be disclosed in our reports filed
or submitted under the Securities
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information
required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal
executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
Based upon that evaluation, our management has
concluded that, as of December 31, 2024, our existing disclosure controls and procedures were
effective.
  
152

 
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 Rule 13a-15 (f) and
15d-15(f) under the Exchange Act.
Our management evaluated the effectiveness of our internal control over financial reporting, as required by Rule 13a-
15(c) of the Exchange
Act, based on criteria established in 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 has concluded that our internal control over financial
reporting was effective as of December 31, 2024.
 
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness
of our internal control over financial reporting 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 and procedures may deteriorate.
 
Attestation Report of the Registered Public Accounting Firm
 
Our independent registered public accounting firm,
HTL International, LLC, has audited the effectiveness of our company’s internal control over
financial reporting as of December
31, 2024, as stated in its report, which appears on page F-2-F-3 of this annual report on Form 20-F.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting during the year ended December 31, 2024 that have materially affected,
or are
reasonably likely to materially affect, our internal control over financial reporting.
 
Item 16. [Reserved]
 
16.A. Audit Committee Financial Expert
 
Our Board of Directors has determined that Mr.
Fengyong Gao, an independent director and the chairperson of our audit committee, qualifies as an
“audit committee financial expert”
within the meaning of the SEC rules and possesses financial sophistication within the meaning of Listing Rules of the
New York Stock Exchange.
Mr. Fengyong Gao satisfies the “independence” requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as
amended,
and Section 303A of the Corporate Governance Rules of the NYSE.
 
16.B. Code of Ethics
 
Our Board of Directors has adopted a code of business
conduct and ethics that applies to all of our directors, officers, employees, including certain
provisions that specifically apply to
our principal executive officer, principal financial officer, principal accounting officer or controller and any other
persons who perform
similar functions for us. We have filed our code of business conduct and ethics as Exhibit 99.1 of our registration statement on Form
F-1 (file No. 333-226126), as amended, filed with the SEC on July 31, 2018 and posted a copy of our code of business conduct and ethics
on our website at
ir.cashchina.cn. 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.
 
153

 
16.C. Principal Accountant Fees and Services
 
Auditor Fees
 
The following table sets forth the aggregate fees
by categories specified below in connection with certain professional services rendered by KPMG
Huazhen LLP, our former independent registered
public accounting firm, and HTL International, LLC, our current independent registered public
accounting firm, for the periods indicated.
 
  
Year Ended December 31,
 
 
 
2022
   
2023
   
2024
 
Services
 
RMB
   
RMB
   
RMB
 
  
(in thousands)
 
Audit Fees (1)
   
6,620     
8,900     
6,225 
Audit-Related Fees (2)
   
–     
–     
- 
Tax Fees (3)
   
–     
–     
- 
Other Fees (4)
   
100     
7     
- 
Total
   
6,720     
8,907     
6,225 
 
 
(1) Audit Fees. Audit fees mean the aggregate fees billed in each of the fiscal periods listed for professional services rendered
by our principal auditors for
the audit of our annual consolidated financial statements and assistance with and review of documents filed
with the SEC.
 
(2) Audit-related Fees. Audit-related fees mean the aggregate fees billed for professional services rendered by our principal auditors
for the assurance and
related services, which were not included under Audit Fees above.
 
(3) Tax Fees. Tax fees mean fees incurred from professional services related to tax compliance.
 
(4) Other Fees. Other fees mean fees incurred from professional services related to training, advisory and assurance for corporate
and social responsibility
reporting and professional services related to tax advice.
 
On December 6, 2024, we engaged HTL International,
LLC as the Company’s independent registered public accounting firm and dismissed KPMG
Huazhen LLP. See also “Item 16.F. Change
in Registrant’s Certifying Accountant.”
 
The policy of our audit committee is to pre-approve
all audit and non-audit services provided by HTL International, LLC, our independent registered
public accounting firm, including audit
services and audit-related services as described above, other than those for de minimis services which are approved
by the audit committee
prior to the completion of the audit.
 
16.D. Exemptions from the Listing Standards for Audit Committees
 
Not applicable.
 
16.E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
 
On March 16, 2022, our board of directors authorized
a share repurchase program whereby our company was authorized a share repurchase program
under which the Company may repurchase up to
US$20.0 million of its ordinary shares in the form of American depositary shares during a period of up to
12 months commencing on March
16, 2022 (the “Share Repurchase Program”). On March 16, 2023, the Company’s board of directors authorized to extend
the Share Repurchase Program for 12 months commencing on March 16, 2023. On March 16, 2024, the Company’s board of directors authorized
to extend
the Share Repurchase Program for 24 months commencing on March 16, 2024.
 
The Company’s share repurchases may be made
from time to time on the open market at prevailing market prices, in open-market transactions,
privately negotiated transactions or block
trades, and/or through other legally permissible means, depending on market conditions and in accordance with
the applicable rules and
regulations. The timing and conditions of the share repurchases will be subject to various factors including the requirements under
Rule
10b-18 and Rule 10b5-1 of the Exchange Act. Our board of directors will review the share repurchase program periodically and may authorize
adjustments to its terms and size or suspend or discontinue the program.
 
154

 
The table below is a summary of the shares repurchased by us from April
1, 2024 to March 31, 2025. All shares were repurchased in the open market
pursuant to such share repurchase programs.
 
 
 
Total Number
of ADSs
Purchased
   
Average
Price Paid
Per ADS
   
Total ADSs
Purchased as
Part of the
Publicly
Announced
Plans
   
Approximate
Dollar Value
of ADSs that
May Yet Be
Purchased
Under the
Plans
 
Period
   
     
     
     
 
April 2024
   
-     
-     
7,634,936     
1,476,308.5 
May 2024
   
-     
-     
7,634,936     
1,476,308.5 
June 2024
   
-     
-     
7,634,936     
1,476,308.5 
July 2024
   
-     
-     
7,634,936     
1,476,308.5 
August 2024
   
-     
-     
7,634,936     
1,476,308.5 
September 2024
   
-     
-     
7,634,936     
1,476,308.5 
October 2024
   
-     
-     
7,634,936     
1,476,308.5 
November 2024
   
-     
-     
7,634,936     
1,476,308.5 
December 2024
   
281,781     
0.9     
7,916,717     
1,208,616.5 
January 2025
   
-     
-     
7,916,717     
1,208,616.5 
February 2025
   
-     
-     
7,916,717     
1,208,616.5 
March 2025
   
324,741     
0.9     
8,241,458     
952,720.6 
 
16.F. Change in Registrant’s Certifying Accountant
 
For a detailed description of the change in registrant’s
certifying accountant, see our report on Form 6-K furnished to the Securities and Exchange
Commission on December 6, 2024.
 
16.G. 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 twenty 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.
 
Director independence
 
The NYSE Standards require a majority of the membership
of NYSE-listed company boards to be composed of independent directors, which is not
required under Cayman Islands law, the law of our
country of incorporation. Our Board of Directors currently consists of six members, four of whom are
independent directors.
 
Non-management directors’ executive sessions
 
The NYSE Standards require non-management directors
of NYSE-listed companies to meet at regularly scheduled executive sessions without
management. We are not subject to this requirement
under the Cayman Islands law.
 
Committee member composition
 
The NYSE Standards require NYSE-listed companies
to have a nominating/corporate governance committee and a compensation committee that are
composed entirely of independent directors.
Cayman Islands law does not impose similar requirements. Currently, 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.
 
155

 
Shareholder Approval
 
The NYSE Standards require shareholder approval
in connection with (i) equity-compensation plans and material revisions thereto; and (ii) issuance of
shares under certain circumstances,
including in connection with a transaction involving the issuance or potential issuance by the Company of common
stock (or their equivalent)
equal to 20% or more of the common stock or 20% voting power outstanding before the issuance. We are not subject to such
shareholder approval
requirements under the Cayman Islands law nor in our second amendment and restated memorandum and articles of association.
 
16.H. Mine Safety Disclosure
 
Not applicable.
 
16.I. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections
 
Not applicable.
 
16.J. Insider Trading Policies
 
We have adopted insider trading policies and procedures
governing the purchase, sale and other dispositions of our securities by directors, senior
management and employees, which policies and
procedures are reasonably designed to promote compliance with applicable insider trading laws, rules and
regulations, and any listing
standards applicable to us. We have filed our insider trading policies, as amended, as Exhibit 11.2 to this annual report on Form
20-F.
 
16.K. Cybersecurity
 
Cybersecurity Risk Management
 
Cybersecurity risk management is an integral part
of our overall risk management program. Our cybersecurity risk management program is designed to
align with industry best practices and
provide a framework for handling cybersecurity threats and incidents, including threats and incidents associated with
the use of applications
developed and services provided by third-party service providers, and facilitate coordination across different departments of the
company.
This framework includes steps for assessing the severity of a cybersecurity threat, identifying the source of a cybersecurity threat including
whether the cybersecurity threat is associated with a third-party service provider, implementing cybersecurity countermeasures and mitigation
strategies
and informing management and our board of directors of material cybersecurity threats and incidents. Our cybersecurity team
is responsible for assessing
our cybersecurity risk management program and we currently do not engage third parties for such assessment.
 
Our board of directors has overall oversight responsibility
for our risk management and is charged with oversight of our cybersecurity risk
management program. Our board is responsible for ensuring
that management has processes in place designed to identify and evaluate cybersecurity risks
to which the company is exposed and implement
processes and programs to manage cybersecurity risks and mitigate cybersecurity incidents. Our vice
president in charge of operations
reports material cybersecurity risks to our full board of directors. Management is responsible for identifying, considering
and assessing
material cybersecurity risks on an ongoing basis, establishing processes to ensure that such potential cybersecurity risk exposures are
monitored, putting in place appropriate mitigation measures and maintaining cybersecurity programs. Our cybersecurity programs are under
the direction of
our vice president in charge of operations who receives reports from our cybersecurity team and monitors the prevention,
detection, mitigation, and
remediation of cybersecurity incidents. Our vice president who directs our cybersecurity programs and dedicated
personnel are experienced information
systems security professionals and information security managers with years of experience. Management,
including our cybersecurity team, regularly
update the board of directors on the company’s cybersecurity programs, material cybersecurity
risks and mitigation strategies and provide cybersecurity
reports upon requirements of the board that cover, among other topics, developments
in cybersecurity and updates to the company’s cybersecurity programs
and mitigation strategies.
 
In 2024, we did not identify any cybersecurity
threats that have materially affected or are reasonably likely to materially affect our business strategy,
results of operations, or financial
condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances
that we have
not experienced an undetected cybersecurity incident.
 
156

 
PART III
 
Item 17. Financial Statements
 
We have elected to provide financial statements
pursuant to Item 18.
 
Item 18. Financial Statements
 
Our consolidated financial statements are included
at the end of this annual report.
 
Item 19. Exhibits
 
Exhibit
Number
 
Description
of Document
1.1
  Second Amended and Restated Memorandum and Articles of Association (incorporated by reference to Exhibit 3.1 to our Form 6-K (File
No. 001-38726), filed with the SEC on November 29, 2024)
2.1
  Form
of Registrant’s Specimen American Depositary Receipt (incorporated by reference to Exhibit 4.1 from our registration statement
on
Form F-1 (File No. 333-226126). as amended, initially filed publicly with the SEC on July 11, 2018)
2.2
  Registrant’s
Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.2 from our registration statement on Form F-
1 (File
No. 333-226126), as amended, initially filed publicly with the SEC on July 11, 2018)
2.3
  Form
of Deposit Agreement (incorporated by reference to Exhibit 4.3 from our registration statement on Form F-1 (File No. 333-226126),
as amended, initially filed publicly with the SEC on July 11, 2018)
2.4
  Description of Securities registered under Section 12 of the Exchange Act (incorporated by reference to Exhibit 2.4 to the annual report on
Form 20-F (File No. 001-38726) filed with the SEC on April 26, 2024).
4.1
  Form
of Indemnification Agreement with the Registrant’s directors (incorporated by reference to Exhibit 10.1 from our registration
statement on Form F-1 (File No. 333-226126), as amended, initially filed publicly with the SEC on July 11, 2018)
4.2
  Form
of Employment Agreement between the Registrant and the executive officers of the Registrant (incorporated by reference to Exhibit
10.2 from our registration statement Form F-1 (File No. 333-226126), as amended, initially filed publicly with the SEC on July 11,
2018)
4.3
  2018
CNFinance Holdings Limited Share Incentive Plan (incorporated by reference to Exhibit 10.3 from our registration statement Form F-
1
(File No. 333-226126), as amended, initially filed publicly with the SEC on July 11, 2018)
4.4
  English translation of Cooperative Service and Management Agreement between Shenzhen Fanhua United Investment Group Co., Ltd, and
FOTIC, dated March 15, 2018 (incorporated by reference to Exhibit 10.4 from our registration statement Form F-1 (File No. 333-226126),
as amended, initially filed publicly with the SEC on July 11, 2018)
4.5
  English translation of FOTIC Jinghua No. 5 Project Service Agreement between the Company and China Foreign Economy and Trade
Trust Co., Ltd. (“FOTIC”), dated December 19, 2014 (incorporated by reference to Exhibit 10.5 from our registration statement Form F-1
(File No. 333-226126), as amended, initially filed publicly with the SEC on July 11, 2018)
4.6
  English translation of FOTIC Jinghua Structure Fund 5 Trust Plan-Structure Funds Trust Contract (Subordinated Level) between the
Company and FOTIC, dated December 19, 2014 (incorporated by reference to Exhibit 10.6 from our registration statement Form F-1 (File
No. 333-226126), as amended, initially filed publicly with the SEC on July 11, 2018)
8.1*
  List of subsidiaries of the Registrant
11.1
  Code of Business Conduct and Ethics of the
Registrant (incorporated by reference to Exhibit 99.1 from our registration statement Form F-1
(File No. 333-226126), as amended,
initially filed publicly with the SEC on July 11, 2018)
11.2*
  Insider Trading Policy
12.1*
  Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*
  Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1**
  Certification by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**
  Certification by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*
  Consent of Global Law Office
15.2*
  Consent of Walkers (Hong Kong)
15.3*
  Consent of KPMG Huazhen LLP, Former Independent Registered Public Accounting Firm
15.4*
  Consent of HTL International, LLC, Independent Registered Public Accounting Firm
15.5
  Letter from KPMG Huazhen LLP to the Securities and Exchange Commission, dated December 6, 2024 (incorporated by reference to
Exhibit 16.1 to our Form 6-K (File No. 001-38726), filed with the SEC on December 6, 2024)
97
  Compensation Recoupment policy (incorporated by reference to Exhibit 97 to our Form 20-F (File No. 001-38726) filed publicly with the
SEC on April 26, 2024)
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
 
*
Filed herewith
 
**
Furnished herewith
 
157

 
Signatures
 
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.
 
 
 
CNFinance Holdings Limited
 
 
 
Date:
April 29, 2025
 
By:
/s/ Bin Zhai
 
 
 
 
Name:  Bin Zhai
 
 
 
 
Title:
Chief Executive Officer and Chairman
 
158

 
CNFINANCE HOLDINGS LIMITED
 
Consolidated
Financial Statements
December 31, 2022, 2023 and 2024
 
CNFINANCE HOLDINGS LIMITED
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENT
 
Contents
 
Page(s)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 7000)
 
F-2-F-3
REPORT OF FORMER INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 1186)
 
F-4
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2023 AND 2024
 
F-5 - F-6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2022, 2023
AND 2024
 
F-7
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY FOR THE YEARS ENDED DECEMBER 31,
2022, 2023 AND 2024
 
F-8
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
 
F-9 - F-10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
F-11 - F-72
 
(With Independent
Registered Public Accounting
Firm’s Report Thereon)
 
F-1

 
 
Report of Independent
Registered Public Accounting Firm
 
To the Shareholders and Board of Directors of CNFinance Holdings Limited
 
Opinions on the Consolidated Financial Statements
and Internal Control Over Financial Reporting
 
We have audited the accompanying consolidated
balance sheet of CNFinance Holdings Limited, its subsidiaries and variable interest entities (the
“Company”) as of December
31, 2024, and the related consolidated statements of comprehensive income, changes in shareholders’ equity, and cash flows
for the
year ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).
We also have audited the
Company’s internal control over financial reporting as of December 31, 2024, based on criteria established
in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
 
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2024 and the results
of its operations and its cash flows for the year ended December 31, 2024, in conformity with U.S. generally accepted
accounting principles.
Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December
31, 2024 based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.  
 
Basis for Opinions
 
The Company’s management is responsible
for these consolidated financial statements, 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 opinions on the Company’s consolidated financial statements and
on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with
the Public Company Accounting
Oversight Board (United States) (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 audits to obtain reasonable
assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial
reporting was maintained in all material respects.
 
Our audits of the consolidated financial statements included performing
procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. Our audit of internal
control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
 
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.
 
F-2

 
 
Critical Audit Matter
 
The critical audit matter communicated below
is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be
communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated
financial
statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of 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 accounts or
disclosures to which it relates.
 
Assessment of the allowance for credit losses
 
As described in Notes 2(e), 2(o), 5, and 13 to
the consolidated financial statements, the Company has home equity loans and off-balance sheet loans that
are subject to credit losses.
As of December 31, 2024, the Company recorded an allowance of credit loss of RMB627,925,367 and RMB351,277,409 for its
home equity loans
and contingent guarantee liabilities respectively. The Company utilizes a current expected credit loss model which is based on historical
data, current conditions, and reasonable and supportable forecasts over the life of the loans to estimate allowance of credit loss (“ACL”).
 
The ACL comprises of collective and individual
allowance for credit loss. The collective allowance covers assets with similar risks including non
delinquent loans, loans delinquent
up to 90 days and guarantee liabilities. It takes into account quantitative and qualitative factors and is calculated by
multiplying probability
of default (“PD”), loss given default (“LGD”), and exposure at default (“EAD”). PD is based on past
delinquency data and is
adjusted for macroeconomic factors which considers selected economic variables and the weighting of multiple macroeconomic
forecast scenarios over the
life of the loans. LGD reflects historical loss experience period while EAD represents the amount outstanding.
The qualitative component of the collective
ACL represents the Company’s judgment of additional considerations to account for external
risk factors that are not adequately measured in the
quantitative component of the collective ACL, including consideration of idiosyncratic
risk factors, conditions that may not be reflected in quantitatively
derived results, or other relevant factors. The individual allowance
applies to loans delinquent over 90 days or with distinct risks and guarantee liabilities,
often collateral-dependent. It uses a discounted
cash flow (“DCF”) model, comparing carrying value to the present value of the expected cash flows from
the underlying collateral,
adjusted for disposal discounts and costs to sell.
 
We identified the ACL as a critical audit matter
due to the significant judgment and estimation by management in determining the quantitative and
qualitative variables utilized in their
credit loss model to estimate collective and individual credit loss allowance which in turn led to a high degree of
auditor judgment,
subjectivity, and effort in performing procedures and in evaluating audit evidence obtained relating to the credit loss estimates.
 
Addressing the matter involved performing procedures and evaluating
audit evidence in connection with forming our overall opinion on the consolidated
financial statements. The following are the primary
procedures we performed to address this critical audit matter:
 
●
Evaluated the design and operating effectiveness of internal controls over the ACL methodology, including PD and LGD model development,
macroeconomic variable selection, historical loss experience periods, collateral valuation for individual allowances;
 
●
Tested the accuracy and completeness of underlying input data for collective and individual allowance calculations by verifying PD and LGD model
inputs for collective allowances, such as historical delinquency and recovery data, and by verifying loan-specific inputs for individual allowances, such
as expected cash flows and collateral values;
 
●
Assessing the reasonableness of the PD and LGD model for collective allowances and determined whether the collective allowance models are suitable
for their intended use, and evaluated the reasonableness of individual allowance calculations based on expected cash flows or collateral fair values;
 
●
Assessed the reasonableness of forward-looking macroeconomic adjustments for collective allowances by comparing selected variables and scenario
weightings to independent economic reports and industry practices;
 
●
Verified collateral appraisals for individual allowances against third-party valuations, industry benchmarks, and regulatory guidance, ensuring lien and
valuation factors were considered, and tested the reasonableness of disposal discount assumptions;
 
●
Reviewed the Company’s ACL policy and evaluated the sufficiency of disclosures related to the ACL in the financial statements, ensuring compliance
with U.S. generally accepted accounting principles.
 
/s/ HTL International, LLC
 
We have served as the Company’s auditor since 2024.
 
Houston, Texas
April 29, 2025
 
F-3

 
 
Report of Independent Registered Public Accounting
Firm
 
To the Shareholders and Board of Directors
 
CNFinance Holdings Limited:
 
Opinion on the Consolidated Financial Statements
 
We have audited the accompanying consolidated balance sheet of CNFinance
Holdings Limited (CNFinance), its subsidiaries and variable interest entities
(the Company) as of December 31, 2023, the related consolidated
statements of comprehensive income, changes in shareholders’ equity, and cash flows for
each of the years in the two year period
ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our
opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and
the
results of its operations and its cash flows for each of the years in the two year period ended December 31, 2023, in conformity with
U.S. generally
accepted accounting principles. 
Basis for Opinion
 
These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (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 consolidated financial statements
are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain
an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material
misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis
for
our opinion.
 
/s/ KPMG Huazhen LLP
 
We served as the Company’s auditor from 2013 to 2024.
 
Guangzhou, China
April 26, 2024
 
F-4

 
 
CNFINANCE HOLDINGS LIMITED
 
Consolidated balance sheets
(Amount in Renminbi ( “RMB”), except
for numbers of shares and per share data)
 
 
 
Note
 
 
December 31,
2023
   
December 31,
2024
 
 
 
 
 
 
RMB
   
RMB
 
Assets
 
 
 
 
    
  
 
 
 
 
 
    
  
Cash, cash equivalents and restricted cash (including amounts of the consolidated VIEs of
RMB1,510,686,015 and RMB 1,024,148,680 as of December 31, 2023 and 2024,
respectively)
   
4
 
   
2,001,602,420     
1,170,386,076 
Loans principal, interest and financing service fee receivables (including amounts of the
consolidated VIEs of RMB9,132,462,231 and RMB 6,086,217,494 as of December 31, 2023
and 2024, respectively)
   
5
 
   
9,815,753,828     
7,545,283,306 
Allowance for credit losses (including amounts of the consolidated VIEs of RMB 729,743,207
and RMB591,519,389 as of December 31, 2023 and 2024, respectively)
   
 
 
   
781,795,096     
678,020,346 
Net loans principal, interest and financing service fee receivables (including amounts of the
consolidated VIEs of RMB8,415,130,321 and RMB  5,494,698,105  as of December 31,
2023 and 2024, respectively)
   
 
 
   
9,033,958,732     
6,867,262,960 
Loans held-for-sale (including amounts of the consolidated VIEs of RMB1,296,708,106 and
RMB 2,013,904,758 as of December 31, 2023 and 2024, respectively)
   
5
(d)   
2,471,413,744     
3,529,585,983 
Investment securities (including amounts of the consolidated VIEs of RMB21,545,271 and
RMB23,000,000 as of December 31, 2023 and 2024, respectively)
   
6
 
   
413,908,211     
266,928,774 
Property and equipment
   
7
 
   
8,158,950     
187,477,921 
Intangible assets
   
 
 
   
3,014,944     
3,082,451 
Deferred tax assets (including amounts of the consolidated VIEs of 384,801 and RMB
1,809,403 as of December 31, 2023 and 2024, respectively)
   
26
 
   
92,224,714     
131,112,019 
Deposits (including amounts of the consolidated VIEs of RMB156,815,888 and RMB
130,977,736  as of December 31, 2023 and 2024, respectively)
   
8
 
   
163,113,726     
162,039,260 
Right-of-use assets (including amounts of the consolidated VIEs of RMB63,450 and RMB
413,172 as of December 31, 2023 and 2024, respectively)
   
 
 
   
27,827,938     
25,049,991 
Guaranteed assets (including amounts of the consolidated VIEs of RMB684,293,725 and
RMB656,112,865 as of December 31, 2023 and 2024, respectively)
   
9
 
   
875,031,026     
1,133,290,527 
Other assets (including amounts of the consolidated VIEs of RMB55,748,802 and
RMB29,910,749 as of December 31, 2023 and 2024, respectively)
   
10
 
   
1,274,091,419     
1,550,898,580 
Total assets
   
 
 
    16,364,345,824      15,027,114,542 
Liabilities and shareholders’ equity
   
 
 
   
      
  
 
   
 
 
   
      
  
Interest-bearing borrowings
   
11
 
   
      
  
Borrowings under agreements to repurchase (including amounts of the consolidated VIEs of
85,331,820 and RMB29,708,280 as of December 31, 2023 and 2024, respectively)
   
 
 
   
686,581,454     
1,669,232,250 
Other borrowings (including amounts of the consolidated VIEs of RMB8,146,494,548 and
RMB5,844,144,937 as of December 31, 2023 and 2024, respectively)
   
 
 
   
8,243,615,381     
5,933,286,917 
Accrued employee benefits (including amounts of the consolidated VIEs of RMB22,782 and
RMB38,168  as of December 31, 2023 and 2024, respectively)
   
 
 
   
25,662,995     
15,337,376 
Income taxes payable (including amounts of the consolidated VIEs of RMB1,030,049 and
RMB2,013,889  as of December 31, 2023 and 2024, respectively)
   
 
 
   
181,031,767     
199,758,987 
Deferred tax liabilities (including amounts of the consolidated VIEs of RMB Nil and Nil as of
December 31, 2023 and 2024, respectively)
   
26
 
   
72,578,615     
73,421,888 
Lease liabilities (including amounts of the consolidated VIEs of RMB Nil and RMB86,485 as
of December 31, 2023 and 2024, respectively)
   
 
 
   
26,073,473     
21,389,738 
Credit risk mitigation position
   
12
 
   
1,589,183,564     
1,370,674,079 
Other liabilities (including amounts of the consolidated VIEs of RMB232,873,758 and
RMB430,140,564 as of December 31, 2023 and 2024, respectively)
   
13
 
   
1,530,691,852     
1,686,454,806 
Total liabilities
   
 
 
    12,355,419,101      10,969,556,041 
 
   
 
 
   
      
  
Commitments and contingencies
   
30
 
   
-     
- 
 
The accompanying notes are an integral part of these consolidated financial
statements.
 
F-5

 
 
CNFINANCE HOLDINGS LIMITED
 
Consolidated balance sheets
(continued)
 
 
 
Note
   
December 31,
2023
   
December 31,
2024
 
 
 
 
   
RMB
   
RMB
 
 
 
 
   
    
  
Ordinary shares (USD0.0001 par value; 3,800,000,000 shares authorized; 1,559,576,960 shares
issued and 1,371,643,240 shares outstanding as of December 31, 2023 and December 31,
2024, respectively)
   
14
     
916,743     
916,743 
Treasury stock
   
 
     
(118,322,545)    
(122,897,896)
Additional paid-in capital
   
15
     
1,031,720,864     
1,046,619,398 
Retained earnings
   
16
     
3,103,956,542     
3,141,740,988 
Accumulated other comprehensive losses
   
17
     
(9,344,881)    
(8,820,732)
Total equity attributable to owners of the Company
   
 
     
4,008,926,723     
4,057,558,501 
 
   
 
     
      
  
Non-controlling interests
   
 
     
-     
- 
 
   
 
     
      
  
Total shareholders’ equity
   
 
     
4,008,926,723     
4,057,558,501 
Total liabilities and shareholders’ equity
   
 
      16,364,345,824      15,027,114,542 
 
The accompanying notes are an integral part of these consolidated financial
statements.
 
F-6

 
 
CNFINANCE HOLDINGS LIMITED
 
Consolidated statements
of comprehensive income
(Amounts in Renminbi ( “RMB”), except
for numbers of shares and per share data)
 
 
 
 
   
Year ended December 31
 
 
 
Note
   
2022
   
2023
   
2024
 
 
 
 
   
RMB
   
RMB
   
RMB
 
 
 
 
     
     
     
 
Interest and fees income
   
18
      1,731,352,575      1,754,595,020      1,538,620,115 
 
   
 
     
      
      
  
Interest expenses on interest-bearing borrowings
   
 
      (784,776,537)     (723,081,286)     (794,518,514)
Net interest and fees income
   
 
     
946,576,038      1,031,513,734     
744,101,601 
 
   
 
     
      
      
  
Net revenue under the commercial bank partnership model
   
19
     
57,551,005     
87,936,005     
97,127,306 
 
   
 
     
      
      
  
Collaboration cost for sales partners
   
20
      (320,826,549)     (343,508,143)     (252,881,333)
 
   
 
     
      
      
  
Net interest and fees income after collaboration cost
   
 
     
683,300,494     
775,941,596     
588,347,574 
 
   
 
     
      
      
  
Provision for credit losses, net of increase in guaranteed recoverable assets
   
21
      (238,084,863)     (177,282,998)     (105,216,440)
Provision for cost method investment
   
10(viii)
   
-     
(5,907,577)    
- 
 
   
 
     
      
      
  
Net interest and fees income after collaboration cost and provision
   
 
     
445,215,631     
592,751,021     
483,131,134 
 
   
 
     
      
      
  
Realized gains/(losses) on sales of investments, net
   
22
     
20,566,672     
6,548,484     
(4,125,037)
Net losses on sales of loans
   
23
     
(44,554,948)    
(17,190,545)    
(6,497,731)
Other gains/(losses), net
   
24
     
89,914,038     
4,847,597     
(24,400,913)
Total non-interest (losses)/income, net
   
 
     
65,925,762     
(5,794,464)    
(35,023,681)
 
   
 
     
      
      
  
Operating expenses
   
 
     
      
      
  
Employee compensation and benefits
   
 
      (197,035,872)     (204,573,389)     (155,735,239)
Share-based compensation expenses
   
 
     
(5,774,266)    
(7,517,349)    
(14,898,534)
Taxes and surcharges
   
 
     
(35,890,761)    
(31,343,671)    
(26,168,730)
Operating lease cost
   
 
     
(13,966,943)    
(16,366,797)    
(15,693,697)
Other expenses
   
25
     
(85,889,497)     (121,520,772)     (187,322,734)
Total operating expenses
   
 
      (338,557,339)     (381,321,978)     (399,818,934)
 
   
 
     
      
      
  
Income before income tax expense
   
 
     
172,584,054     
205,634,579     
48,288,519 
Income tax expense
   
26
     
(37,232,643)    
(41,017,018)    
(10,504,073)
Net income
   
 
     
135,351,411     
164,617,561     
37,784,446 
Earnings per share
   
27
     
      
      
  
Basic
   
 
     
0.10     
0.12     
0.03 
Diluted
   
 
     
0.09     
0.11     
0.03 
 
   
 
     
      
      
  
Other comprehensive income
   
 
     
      
      
  
Foreign currency translation adjustment
   
 
     
15,181,518     
867,116     
524,149 
Comprehensive income
   
 
     
150,532,929     
165,484,677     
38,308,595 
Less: net income attributable to non-controlling interests
   
 
     
970,379     
19,377,314     
- 
 
   
 
     
      
      
  
Total comprehensive income attributable to ordinary shareholders
   
 
     
149,562,550     
146,107,363     
38,308,595 
 
The accompanying notes are an integral part of these consolidated financial
statements.
 
F-7

 
 
CNFINANCE HOLDINGS LIMITED
 
consolidated statements
of changes in shareholders’ equity
(Amount in Renminbi ( “RMB”), except
for numbers of shares and per share data)
 
 
  Note   
Ordinary
Shares   
Treasury
Stock
  
Additional
paid-in 
capital
  
Accumulated
other 
comprehensive
(losses)/
income
  
Retained
earnings
  
Non-
controlling
interest
   Total
equity  
 
 
 
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
 
 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Balance as of January 1, 2022
 
    916,743  
-   1,018,429,249  
(25,393,515)   2,824,335,263  
-   3,818,287,740 
Repurchase
of treasury stock
  
 
   
-    (87,631,475)  
-   
-   
-   
-   
(87,631,475)
Net income
  
 
   
-   
-   
-   
-   
134,381,032   
970,379   
135,351,411 
Foreign
currency translation
adjustment
  
17
   
-   
-   
-   
15,181,518   
-   
-   
15,181,518 
Share-based
compensation
  
 
   
-   
-   
5,774,266   
-   
-   
-   
5,774,266 
Balance
as of December 31, 2022
  
 
    916,743    (87,631,475)  1,024,203,515   
(10,211,997)  2,958,716,295   51,720,379   3,937,713,460 
 
  
 
   
    
    
    
    
    
    
  
Balance as of January 1, 2023
  
 
    916,743    (87,631,475)  1,024,203,515   
(10,211,997)  2,958,716,295   51,720,379   3,937,713,460 
Repurchase
of treasury stock
  
 
   
-    (30,691,070)  
-   
-   
-   
-   
(30,691,070)
Net income
  
 
   
-   
-   
-   
-   
145,240,247   19,377,314   
164,617,561 
Foreign
currency translation
adjustment
  
17
   
-   
-   
-   
867,116   
-   
-   
867,116 
Share-based
compensation
  
 
   
-   
-   
7,517,349   
-   
-   
-   
7,517,349 
Contributions
from non-controlling
interests
   2(a)    
-   
--   
-   
-   
-   71,514,091   
71,514,091 
Balance
as of December 31, 2023
  
 
    916,743    (118,322,545)  1,031,720,864   
(9,344,881)  3,103,956,542   
-   4,008,926,723 
Balance as of January 1, 2024
  
 
    916,743    (118,322,545)  1,031,720,864   
(9,344,881)  3,103,956,542   
-   4,008,926,723 
Repurchase
of treasury stock
  
 
   
-   
(4,575,351)  
-   
-   
-   
-   
(4,575,351)
Net income
  
 
   
-   
-   
-   
-   
37,784,446   
-   
37,784,446 
Foreign
currency translation
adjustment
  
17
   
-   
-   
-   
524,149   
-   
-   
524,149 
Share-based
compensation
  
 
   
-   
-   
14,898,534   
-   
-   
-   
14,898,534 
Contributions
from non-controlling
interests
   2(a)    
-   
--   
-   
-   
-   
-   
- 
Acquisition
of interests in
consolidated VIEs from non-
controlling interests
  
 
   
-   
-   
-   
-   
-   
-   
- 
Balance
as of December 31, 2024
  
 
    916,743   (122,897,896)  1,046,619,398   
(8,820,732)  3,141,740,988   
-   4,057,558,501 
 
The accompanying notes are an integral part of these consolidated financial
statement
 
F-8

 
 
CNFINANCE HOLDINGS LIMITED
 
Consolidated statements of cash flows
(Amount in Renminbi ( “RMB”))
 
 
 
Year ended December 31
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
 
 
 
 
   
 
   
 
 
Cash flows from operating activities:
 
    
    
  
 
 
    
    
  
Net income
   
135,351,411     
164,617,561     
37,784,446 
 
   
      
      
  
Adjustments to reconcile net income to net cash provided by operating activities:
   
      
      
  
 
   
      
      
  
Provision for credit losses
   
238,084,863     
177,282,998     
105,216,440 
Provision for cost method investment
   
-     
5,907,577     
- 
Depreciation and amortization
   
2,244,279     
1,753,032     
11,540,878 
Share-based compensation expenses
   
5,774,266     
7,517,349     
14,898,534 
Net losses/(gains) on disposal of property and equipment
   
30,742     
147,644     
(39,563)
Net loss on disposal of non-marketable equity securities and Investment securities
   
-     
1,524,159     
(4,125,037)
Foreign exchange gains
   
(7,355,135)    
(3,589,629)    
(5,933,998)
Deferred tax benefit
   
(133,913,450)    
(16,493,414)    
(38,044,032)
Net losses on sale of loans
   
44,554,948     
17,190,545     
6,497,731 
Profit and loss arising from fair value changes
   
362,855     
5,765,113     
- 
 
   
      
      
  
Loans held-for-sale:
   
      
      
  
Originations and purchases
   
(585,434,771)    
(629,040,509)     (392,734,939)
Proceeds from sales and paydowns of loans originally classified as held-for-sale
    1,549,993,492      1,896,137,537      1,404,481,435 
 
   
      
      
  
Changes in operating assets and liabilities:
   
      
      
  
Deposits
   
11,860,799     
(18,020,425)    
1,074,466 
Guarantee deposits
   
(168,790,845)    
(142,002,003)    
(37,968,789)
Credit risk mitigation position and guarantee repayments from sales partner
   
6,203,644     
234,530,494     
(60,885,147)
Other operating assets
   
(167,193,614)    
15,130,538      (243,888,698)
Other operating liabilities
   
(12,520,372)    
(12,597,823)    
(40,643,453)
Net cash provided by operating activities
   
919,253,112      1,705,760,744     
757,230,274 
Cash flows from investing activities:
   
      
      
  
 
   
      
      
  
Loans originated, net of principal collected
    (2,556,903,189)     (3,040,754,719)     (818,975,410)
Proceeds from sales of investment securities
    9,002,171,357      2,973,911,087      1,080,908,979 
Proceeds from disposal of non-marketable equity securities
   
-     
3,400,000     
25,000,000 
Proceeds from disposal of subsidiaries
   
50,000,000     
-     
- 
Proceeds from disposal of property and equipment and intangible assets
   
319,539     
38,909     
833,525 
Proceeds from sales of loans
    1,088,433,960      1,202,955,909     
814,597,838 
Purchased loans with credit deterioration
   
-     
(640,283,653)     (435,981,602)
Purchases of investment securities
    (8,567,330,149)     (2,868,678,085)     (922,104,610)
Purchases of non-marketable equity securities
   
(25,000,000)    
-     
- 
Purchases of property, equipment and intangible assets
   
(89,889,341)    
(114,503,257)    
(7,945,839)
Net cash used in investing activities
    (1,098,197,823)     (2,483,913,809)    
(263,667,119)
 
The accompanying notes are an integral part of these consolidated financial
statements.
 
F-9

 
 
CNFINANCE HOLDINGS LIMITED
 
Consolidated statements
of cash flows (continued)
 
 
 
Year ended December 31
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
 
 
 
 
   
 
   
 
 
Cash flows from financing activities:
 
    
    
  
 
 
    
    
  
Proceeds from interest-bearing borrowings
    6,082,283,165      10,402,258,233     
9,493,281,488 
Proceeds from contributions from non-controlling shareholders
   
50,750,000     
71,514,091     
- 
Repurchase of ordinary shares
   
(87,631,475)    
(30,691,070)    
(4,575,351)
Repayment of interest-bearing borrowings
    (6,333,557,940)     (9,294,928,900)     (10,820,894,746)
Acquisition of interests in  consolidated VIEs from non-controlling interests
   
-     
(142,611,784)    
- 
Net cash provided by/(used in) financing activities
   
(288,156,250)    
1,005,540,570     
(1,332,188,609)
Net increase/(decrease) in cash, cash equivalents and restricted cash
   
(467,100,961)    
227,387,505     
(838,625,454)
Cash, cash equivalents and restricted cash at the beginning of year
    2,231,437,361     
1,772,184,145     
2,001,602,420 
Effect of exchange rate change on cash, cash equivalents and restricted cash
   
7,847,745     
2,030,770     
7,409,110 
Cash, cash equivalents and restricted cash at the end of year
    1,772,184,145     
2,001,602,420     
1,170,386,076 
Supplemental disclosures of cash flow information:
   
      
      
  
Income taxes paid, net of refunds
   
139,205,940     
63,458,446     
27,704,212 
Interest expense paid
   
792,794,985     
726,293,220     
776,332,323 
 
The accompanying notes are an integral part of these consolidated financial
statements.
 
F-10

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
1.
DESCRIPTION OF BUSINESS, ORGANIZATION, AND BASIS OF PRESENTATION
 
CNFinance Holdings Limited (“CNFinance”), through its controlled
subsidiaries and consolidated variable interest entities (collectively, referred
to hereinafter as the “Group”) in the People’s
Republic of China (“PRC”), primarily provides micro credit loan services for micro and small-
enterprise (“MSE”)
owners, loan facilitation and post-facilitation and guarantee services for the commercial banks, and loan lending agency
service for financial
institutions.
 
The Group’s main funding resources are equity and borrowings
from third parties. The loans are granted through its licensed micro credit
subsidiaries in Beijing, Shenzhen and Chongqing directly,
or the structured funds funded with the Group as general partners. Home equity loans
were secured by residential or commercial real estate
as of December 31, 2023 and December 31, 2024.
 
In December 2018, the Group began to explore a new collaboration model
to mitigate credit risks (“collaboration model”) and started to record the
business under this model. Under such model, the
Group is able to develop a financial services platform that matches various parties to lend
resources at competitive rates. Those parties
include sales partners who introduce borrowers from particular jurisdictions, trust companies that
administer funds, and the loan borrowers
who has financial needs for their business operations. The sales partners are nationwide mid-or-small
companies that have local risk assessment
capabilities. The collaboration model requires the sales partners to place a security deposit called credit
risk mitigation positions
(“CRMP”) which could be confiscated by the Group when loans are defaulted. The loan borrowers who are introduced by
the sales
partners are MSE owners who have properties that can be used as collateral. In the event of loans issued to the borrowers acquired under
such collaboration model are in default, the respective sales partners who introduced such borrowers will share the credit risks with
the Group by
choosing from the following options, including (i)(1) full repayment to the Group for the total unpaid principal and accrued
and overdue interests
under the respective loan agreement on behalf of the borrower and acquiring respective credit rights, (i)(2) repayment
in instalments to the Group
for the total unpaid principal and accrued and overdue interests under the respective loan agreement on behalf
of the borrower and acquiring
respective credit rights under each instalments; (ii) repayment to the Group for the unpaid principal and
accrued and overdue interests under the
respective loan agreement on behalf of the borrower, and if the borrower pays the payments under
the loan agreement, the repayment by the sales
partner on behalf of the borrower will be refunded to the sales partner; or (iii) relinquishing
the respective credit risk mitigation positions
(“CRMPs”) for such loan.
 
The Group also has started to collaborate with commercial banks since
2021 and such collaboration grew and scaled in the second half of 2022.
Under the commercial bank partnership model, the Group provides
loan facilitation services (covering matching of commercial banks to
borrowers and facilitating the execution of loan agreement between
commercial banks and borrowers), post-facilitation services (covering cash
processing services and collection services), and guarantee
services for the off–balance sheet loans. In 2023, the Group started to introduce sales
partners under the commercial bank partnership
model as well.
 
Basis of preparation
 
The consolidated financial statements are prepared on the
accrual basis of accounting in accordance with U.S. Generally Accepted Accounting
Principles (“U.S. GAAP”).
 
F-11

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
1.
DESCRIPTION OF BUSINESS, ORGANIZATION, AND BASIS OF PRESENTATION
(CONTINUED)
 
Investment in significant subsidiaries for the year ended December
31, 2024
 
 
Name of company
 
Place and date of 
incorporation/ 
establishment
  Registered capital    
Issued 
and fully 
paid up capital
   
Percentage of
equity attributable 
to the Group
   
Principal
activities
 
 
 
 
 
   
 
   
Direct
   
Indirect
   
 
 
 
 
   
     
     
     
   
 
Sincere Fame International
Limited 
诚名国际有限公司
 
British Virgin
Islands 
October 6, 2006   USD
1,230,434    USD
1,230,434     
100%   
-   
Investment
Holding
 
 
 
   
      
      
      
    
 
China Financial Services Group
Limited 
泛华金融服务集团 有限公司 
Hong Kong 
August 28, 2000
  HKD 100,000,000    HKD 100,000,000     
-     
100% 
Investment
Holding
 
 
 
   
      
      
      
    
 
Fanhua Chuang Li Information
Technology (Shenzhen) Co.,
Ltd. 
泛华创利信息技术 (深圳) 有
限公司
 
the PRC 
December 21, 1999
  HKD 400,000,000    HKD 400,000,000     
-     
100% 
Investment
Holding
 
 
 
   
      
      
      
    
 
Shenzhen Fanhua United
Investment Group Co., Ltd. 
深圳泛华联合投资集团
有限公司
 
the PRC 
August 9, 2006
  RMB 250,000,000    RMB 250,000,000     
-     
100% 
Investment
Holding
 
 
 
   
      
      
      
    
 
Guangzhou Anyu Mortgage
Consulting Co., Ltd. 
广州安宇按揭咨询 有限公司 
the PRC 
January 23, 2003
  RMB
2,220,000    RMB
2,220,000     
-     
100% 
Micro credit  and
mortgage  agency
 services
 
 
 
   
      
      
      
    
 
Chongqing Fengjie Financial
Advisory Co., Ltd. 
重庆丰捷财务咨询 有限公司 
the PRC 
June 13, 2010
  RMB
500,000    RMB
500,000     
-     
100% 
Financial
consultancy
 
 
 
   
      
      
      
    
 
Guangzhou Chengze Information
Technology Co., Ltd. 
广州诚泽信息科技 有限公司 
the PRC 
December 11, 2006
  RMB
3,000,000    RMB
3,000,000     
-     
100% 
Software
development and
maintenance
 
 
 
   
      
      
      
    
 
Chongqing Liangjiang New Area
Fanhua Micro-credit Co., Ltd. 
重庆市两江新区泛华 小额贷
款有限公司
 
the PRC 
December 26, 2011
  USD
30,000,000    USD
30,000,000     
-     
100% 
Micro credit  and
mortgage  agency
services
 
 
 
   
      
      
      
    
 
Shenzhen Fanhua Micro-credit
Co., Ltd. 
深圳泛华小额贷款 有限公司 
the PRC 
March 15, 2012
  RMB 300,000,000    RMB 300,000,000     
-     
100% 
Micro credit  and
mortgage  agency
services
  
F-12

 
 
CNFINANCE HOLDINGS LIMITED
  
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
1.
DESCRIPTION OF BUSINESS, ORGANIZATION, AND BASIS OF PRESENTATION
(CONTINUED)
  
Name of company
 
Place and date of 
incorporation/ 
establishment
  Registered capital    
Issued 
and fully 
paid up capital
   
Percentage of
equity attributable 
to the Group
   
Principal
activities
 
 
 
 
 
   
 
   
Direct
   
Indirect
   
 
 
 
 
   
     
     
     
   
 
Shenzhen Fanhua Fund
Management Services Co., Ltd.
深圳泛华基金 管理服务有限
公司
 
the PRC 
June 8, 2012
  RMB
5,000,000    RMB
5,000,000     
-     
100% 
Company register
service
 
 
 
   
      
      
      
    
 
Guangzhou Heze Information
Technology Co., Ltd. 
广州和泽信息科技 有限公司 
the PRC 
September 16, 2010
  RMB
20,000,000    RMB
20,000,000     
-     
100% 
Software
development and
maintenance
 
 
 
   
      
      
      
    
 
Beijing Lianxin Chuanghui
Information Technology Co.,
Ltd. 
北京联鑫创辉 信息技术有限
公司
 
the PRC 
February 2, 2012
  HKD
10,000,000    HKD
10,000,000     
-     
100% 
Software
development and
maintenance
 
 
 
   
      
      
      
    
 
Shenzhen Fanlian Investment
Co., Ltd.
深圳泛联投资有限公司
 
the PRC 
November 26, 2012
  RMB
30,000,000    RMB
30,000,000     
-     
100% 
Investment
Holding
 
 
 
   
      
      
      
    
 
Fanhua Financial Leasing
(Shenzhen) Co., Ltd. 
泛华融资租赁 (深圳) 
有限公司
 
the PRC 
September 4, 2012
  USD
10,000,000    USD
10,000,000     
-     
100% 
Business 
Advisory
 
 
 
   
      
      
      
    
 
Shenzhen Fanhua Chengyu
Finance Service Co., Ltd. 
深圳泛华诚誉金融配套
服务有限公司
 
the PRC 
March 15, 2013
  RMB
10,000,000    RMB
10,000,000     
-     
100% 
Labor outsourcing
services
 
 
 
   
      
      
      
    
 
Beijing Fanhua Qilin Capital
Management Co., Ltd.
北京泛华麒麟资本管理
有限公司
 
the PRC 
December 26, 2016
  RMB 100,000,000    RMB
10,000,000     
-     
96% 
Asset Management
 
 
 
   
      
      
      
    
 
Shijiazhuang Fanhua Financial
Advisory Co., Ltd.
石家庄泛华财务咨询
有限公司
 
the PRC 
July 27, 2017
  RMB
2,000,000     
-     
-     
100% 
Financial
Consultancy
 
F-13

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
1.
DESCRIPTION
OF BUSINESS, ORGANIZATION, AND BASIS OF PRESENTATION (CONTINUED)
 
Name of company
 
Place and date of
incorporation/ 
establishment
  Registered capital    
Issued 
and fully
paid up capital    
Percentage of 
equity attributable
to the Group
 
Principal
activities
 
 
 
   
      
    
Direct
   
Indirect
   
 
 
 
 
   
      
      
    
    
 
Haikou Fanhua Financial Advisory
Co., Ltd. 海口市泛华财务咨询有
限公司
 
the PRC 
June 12, 2020
 
RMB
1,000,000
     
       -
     
       -
   
100%
 
Financial
consultancy
 
 
 
   
      
      
    
    
 
Ganzhou Shenzhen Fanlian
Financial Advisory Co., Ltd. 赣州
深泛联财务咨询有限公司
 
the PRC
August 8, 2020
 
RMB
1,000,000
     
-
     
-
   
100%
 
Financial
consultancy
 
 
 
   
      
      
    
    
 
Fanhua Jinfu (Foshan) Co., Ltd. 泛
华金服（佛山）有限公司
 
the PRC 
May 22, 2020
 
RMB 200,000,000
     
-
     
-
   
100%
 
Financial
consultancy
 
 
 
   
      
      
    
    
 
Guangzhou Nansha Weisen
Technology Co., Ltd 广州南沙区
玮森科技有限公司
 
the PRC 
March 30, 2020
 
RMB
500,000
     
-
     
-
   
100%
 
Software
development and
maintenance
 
 
 
   
      
      
    
    
 
Wuxi Shenzhen Fanlian Enterprise
Management Co., Ltd. 无锡深泛
联企业管理有限公司
 
the PRC
April 27, 2022
 
RMB
500,000
     
-
     
-
   
100%
 
Enterprise
Management
 
 
 
   
      
      
    
    
 
Ningbo Lianyi Technological
Advisory Co., Ltd. 宁波联亿科技
咨询有限公司
 
the PRC
November 24, 2022
 
RMB
50,000,000
     
-
     
-
   
100%
 
Financial
consultancy
 
 
 
   
      
      
    
    
 
Shenfanlian Eighteenth District
(Dongguan) Enterprise
Management Co., Ltd 深泛联十
八区（东莞）企业管理有限公司
 
the PRC
June 06, 2023
 
RMB
1,000,000
     
-
     
-
   
100%
 
Enterprise
Management
 
 
 
   
      
      
    
    
 
Shenfanlian Eightth District (Jinan)
Enterprise Management Co., Ltd
深泛联八区（济南）企业管理有
限公司
 
the PRC
June 13, 2023
 
RMB
1,000,000
     
-
     
-
   
100%
 
Enterprise
Management
 
 
 
   
      
      
    
    
 
Shenfanlian Second District
(Shenzhen) Enterprise
Management Co., Ltd 深泛联二
区（深圳）企业管理有限公司
 
the PRC
April 20, 2023
 
RMB
1,000,000
     
-
     
-
   
100%
 
Enterprise
Management
 
 
 
   
      
      
    
    
 
ShenfanLian (Qingdao) Enterprise
Management Co., Ltd 深泛联
（青岛）企业管理有限公司
 
the PRC
June 14, 2023
 
RMB
1,000,000
     
-
     
-
   
100%
 
Enterprise
Management
 
F-14

 
  
Name of company
 
Place and date of
incorporation/ 
establishment
  Registered capital    
Issued 
and fully
paid up capital    
Percentage of 
equity attributable
to the Group
   
Principal
activities
 
 
 
   
      
      
Direct
   
Indirect
     
 
 
 
 
   
      
      
    
      
 
Fanhua fifteenth District (Zhongshan)
Enterprise Management Co., Ltd 泛
华十五区（中山）企业管理有限
公司
 
the PRC
July 11, 2023
 
RMB
500,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfanlian eighth District (Tianjin)
Enterprise Management Co., Ltd 深
泛联八区（天津）企业管理有限
公司
 
the PRC
June 15, 2023
 
RMB
1,000,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfanlian eighth District (Beijing)
Enterprise Management Co., Ltd 深
泛联八区（北京）企业管理有限
公司
 
the PRC
June 06, 2023
 
RMB
1,000,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Fanhua fourteenth District (Shenzhen)
Enterprise Management Co., Ltd 泛
华十四区（深圳）企业管理有限
公司
 
the PRC
July 24, 2023
 
RMB
500,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfanlian seventh District
(Nanning) Enterprise Management
Co., Ltd 深泛联七区（南宁）企
业管理有限公司
 
the PRC
June 07, 2023
 
RMB
1,000,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfanlian Seventeenth District
(Hubei) Enterprise Management
Co., Ltd 深泛联十七区（湖北）
企业管理有限公司
 
the PRC
June 19, 2023
 
RMB
1,000,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Fanhua first District (Huizhou)
Enterprise Management Co., Ltd 泛
华一区（惠州）企业管理有限公
司
 
the PRC
August 04, 2023
 
RMB
200,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfanlian (Foshan) Enterprise
Management Co., Ltd 深泛联（佛
山）企业管理有限公司
 
the PRC
July 17, 2023
 
RMB
500,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Fanxianzhi (Shanghai) Enterprise
Management Co., Ltd 泛贤智（上
海）企业管理有限公司
 
the PRC
July 25, 2023
 
RMB
500,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Hefei Shenfanlian Twelveth District
Enterprise Management Co., Ltd 合
肥深泛联十二区企业管理有限公
司
 
the PRC
August 24, 2023
 
RMB
500,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfanlian (Xi'an) Enterprise
Management Co., Ltd 深泛联（西
安）企业管理有限公司
 
the PRC
June 19, 2023
 
RMB
500,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfanlian Seventeenth District
Enterprise Management Co., Ltd 深
泛联十七区（深圳）企业管理有
限公司
 
the PRC
August 15, 2023
 
RMB
1,000,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfanlian first district (Shenzhen)
Enterprise Management Co., Ltd 一
区深泛联（深圳）企业管理有限
公司
 
the PRC
June 26, 2023
 
RMB
1,000,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfanlian (Zhengzhou) Enterprise
Management Consulting Co., Ltd 深
泛联（郑州）企业管理咨询有限
公司
 
the PRC
July 28, 2023
 
RMB
500,000
     
-
     
-
   
100%
   
Enterprise
Management

F-15

 
 
Name of company
 
Place and date of
incorporation/ 
establishment
  Registered capital    
Issued and
fully
paid up capital    
Percentage of 
equity attributable
to the Group
   
Principal
activities
 
 
 
   
      
      
Direct
   
Indirect
     
 
 
 
 
   
      
      
    
      
 
Shenfanlian first District (Quanzhou)
Enterprise Management Co., Ltd 深
泛联一区 (泉州) 企业管理有限公
司
 
the PRC
August 16, 2022
 
RMB
1,000,000
     
      -
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfan Shilu District (Kunming)
Enterprise Management Co., Ltd 深
泛拾陆区（昆明）企业管理有限
公司
 
the PRC
July 05, 2023
 
RMB
200,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenzhen Fanlian (Nanjing) Financial
Consulting Services Co., Ltd 深泛
联（南京）财务咨询服务有限公
司
 
the PRC
June 27, 2023
 
RMB
500,000
     
-
     
-
   
100%
   
Financial
consultancy
 
 
 
   
      
      
    
      
 
Fanhua Fifteenth District (Chengdu)
Enterprise Management Co., Ltd 泛
华十五区（成都）企业管理有限
公司
 
the PRC
August 18, 2023
 
RMB
200,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Fanhua Sixteenth District (Tianjin)
Enterprise Management Co., Ltd 泛
华十六区（天津）企业管理有限
公司
 
the PRC
October 18, 2023
 
RMB
200,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenzhen Fanlian second district
(Beijing) Enterprise Management
Co., Ltd 深泛联二区（北京）企
业管理有限公司
 
the PRC
October 30, 2023
 
RMB
1,000,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Fanlian Investment (Xi'an) Enterprise
Management Co., Ltd 泛联投(西
安)企业管理有限公司
 
the PRC
September 20, 2023
 
RMB
500,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Guangzhou Mingsheng Capital
Management Limited Partnership
(LP) 广州明晟资本管理合伙企业
（有限合伙）
 
theThe PRC
January 1, 2024
 
RMB
40,000,000
     
-
     
   
100%
   
Financial
consultancy
 
 
 
   
      
      
    
      
 
Shenfanlian first district (Nanning)
Enterprise Management Co., Ltd.
深泛联一区（南宁）企业管理有
限公司
 
the PRC March 5,
2024
 
RMB
1,000,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfanlian sixteenth
district(Chengdu) Enterprise
Management Co., Ltd. 深泛联十六
区（成都）企业管理有限公司
Shenpanlian Shisi qu (Beijing)
Enterprise Management Co., Ltd.
深泛联十四区（北京）企业管理
有限公司
 
the PRC May 29,
2024
 
 
 
     
 
     
 
   
  
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Fanfu (Nanjing) Enterprise
Management Co., Ltd. 泛服（南
京）企业管理有限公司
  the PRC March 13,
2024
 
RMB
200,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shanghai Shenfan Enterprise
Management Co., Ltd 上海深泛企
业管理有限公司
  the PRC December
16, 2024
 
RMB
200,000
     
-
     
-
   
100%
   
Enterprise
Management
 
 
 
   
      
      
    
      
 
Shenfanlian fourteenth district
(Beijing) Enterprise Management
Co., Ltd. 深泛联十四区（北京）
企业管理有限公司
 
the PRC July 19,
2024
 
RMB
500,000
     
-
     
-
   
100%
   
Enterprise
Management
F-16

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
1.
DESCRIPTION OF BUSINESS, ORGANIZATION, AND BASIS OF PRESENTATION
(CONTINUED)
 
Name of company
 
Place and date of
incorporation/ 
establishment
  Registered capital    
Issued 
and fully
paid up capital    
Percentage of 
equity attributable
to the Group
   
Principal
activities
 
 
 
 
 
   
 
   
Direct
   
Indirect
   
 
 
 
 
   
     
       
     
   
 
Haikou Fanhua Financial Advisory
Co., Ltd. 海口市泛华财务咨询有
限公司
 
the PRC 
June 12, 2020
  RMB
1,000,000     
        -     
      -   
       100% 
Financial
consultancy
 
 
 
   
      
      
    
    
 
Ganzhou Shenzhen Fanlian
Financial Advisory Co., Ltd. 
赣州深泛联财务咨询有限公司
 
the PRC 
August 8, 2020
  RMB
1,000,000     
-     
-   
100% 
Financial
consultancy
 
 
 
   
      
      
    
    
 
Fanhua Jinfu (Foshan) Co., Ltd. 
泛华金服（佛山）有限公司
 
the PRC 
May 22, 2020
  RMB 200,000,000     
-     
-   
100% 
Financial
consultancy
 
 
 
   
      
      
    
    
 
Guangzhou Nansha Weisen
Technology Co., Ltd 
广州南沙区玮森科技有限公司
 
the PRC 
March 30, 2020
  RMB
500,000     
-     
-   
100% 
Software
development and
maintenance
 
 
 
   
      
      
    
    
 
Wuxi Shenzhen Fanlian Enterprise
Management Co., Ltd. 
无锡深泛联企业管理有限公司
 
the PRC 
April 27, 2022
  RMB
500,000     
-     
-   
100% 
Enterprise
Management
 
 
 
   
      
      
    
    
 
Ningbo Lianyi Technological
Advisory Co., Ltd. 
宁波联亿科技咨询有限公司
 
the PRC 
November 24, 2022
  RMB
50,000,000     
-     
-   
100% 
Financial
consultancy
 
 
 
   
      
      
    
    
 
Shenfanlian Eighteenth District
(Dongguan) Enterprise
Management Co.,
Ltd
深泛联十八区（东莞）企业管理
有限公司
 
the PRC
June 06, 2023
  RMB
1,000,000     
-     
-   
100% 
Enterprise
Management
 
 
 
   
      
      
    
    
 
Shenfanlian Eightth District (Jinan)
Enterprise Management Co., Ltd
深泛联八区（济南）企业管理有
限公司
 
the PRC
June 13, 2023
  RMB
1,000,000     
-     
-   
100% 
Enterprise
Management
 
 
 
   
      
      
    
    
 
Shenfanlian Second District
(Shenzhen) Enterprise
Management Co., Ltd-
深泛联二区（深圳）企业管理有
限公司
 
the PRC
April 20, 2023
  RMB
1,000,000     
-     
-   
100% 
Enterprise
Management
 
 
 
   
      
      
    
    
 
ShenfanLian (Qingdao) Enterprise
Management Co., Ltd
深泛联（青岛）企业管理有限公
司
 
the PRC
June 14, 2023
  RMB
1,000,000     
-     
-   
100% 
Enterprise
Management
 
F-17

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
1.
DESCRIPTION OF BUSINESS, ORGANIZATION, AND BASIS OF PRESENTATION
(CONTINUED)
 
Variable interest entities (“VIEs”)
 
An entity is a variable interest entity (VIE) if it meets the criteria
outlined in Accounting Standards Codification (ASC) Topic 810, Consolidation,
which are (i) the entity has equity that is insufficient
to permit the entity to finance its activities without additional subordinated financial support
from other parties; or (ii) the entity
has equity investors that cannot make significant decisions about the entity’s operations or that do not absorb
their proportionate
share of the entity’s expected losses or expected returns. The Group consolidates a VIE when it has both the power to direct the
activities that most significantly impact the VIE’s economic performance and a right to receive benefits or the obligation to absorb
losses of the
entity that could be potentially significant to the VIE (that is, the Group is the primary beneficiary). All other entities
not deemed to be VIEs with
which the Group has involvement are evaluated for consolidation under other subtopics of ASC 810.
 
In the normal course of business, the Group engages in a variety of
activities with VIEs. The Group determines whether it is the primary
beneficiary of a VIE at the time it becomes involved with the variable
interest entity and reconsiders that conclusion continually. In evaluating
whether the Group is the primary beneficiary, the Group evaluates
its economic interests in the entity. If the Group is determined to be the primary
beneficiary of a VIE, it must account for the VIE as
a consolidated subsidiary. If the Group is determined not to be the primary beneficiary of a
VIE, such VIE is not consolidated.
 
The Group has segregated its involvement with VIEs between those VIEs
which are consolidated and those VIEs which are not consolidated.
 
Consolidated VIEs
 
Structured funds
 
The Group grants loans to customers through structured funds set up
by trust companies. The assets of the structured funds can only be used to
settle obligations of consolidated VIEs. The cash of structured
funds represents that funds established by the institutional trust companies through
segregated bank accounts, including structured funds
that are partially funded by the Group’s own capital. The cash and cash equivalents of
structured funds amounted to RMB1,474,221,741
and RMB768,186,638 as of December 31, 2023 and 2024 respectively can only be used to grant
loans. The Group is general partner of the
funds, promising the expected returns for limited partners, and providing credit strengthening on the
loans to customers under the funds.
The Group is also the manager of the funds, having the approval role for the loan origination and modification
within the structured funds.
The Group is the primary beneficiary of the funds as it has the power to direct the activities that most significantly
impact the economic
performance of the funds and it has obligation to absorb losses of the funds that could potentially be significant to the funds
or the
right to receive benefits from the funds that could potentially be significant to the funds.
 
The structured funds are not income taxpayers according to PRC income
tax law. The Group consolidates the structured funds as it is the primary
beneficiary of the funds as of December 31, 2023 and 2024.
 
F-18

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
1.
DESCRIPTION OF BUSINESS, ORGANIZATION, AND BASIS OF PRESENTATION
(CONTINUED)
 
The table sets forth the investments in the consolidated VIEs by the
Group as of December 31, 2024.
 
Name of the consolidated VIEs
 
Place and date of
incorporation/
establishment
 
Principal activities
 
 
 
 
 
Jinghua Structured Fund 6 
菁华6号信托计划
 
the PRC 
September 9, 2014
 
Micro credit
 
 
 
 
 
Bohai Trust Shenfanlian Micro Finance Structured Fund 
渤海信托深泛联小微金融集合资金信托计划
 
the PRC 
September 14, 2016
 
Micro credit
 
 
 
 
 
Bohai Huihe SME Structured Fund 
渤海汇和中小微企业经营贷集合资金信托计划
 
the PRC 
September 29, 2017
 
Micro credit
 
 
 
 
 
Beijing Fanhua Micro-credit Company Limited
北京泛华小额贷款有限公司
 
the PRC 
August 10, 2012
 
Micro credit
 
 
 
 
 
Zhonghai Lanhai Structured Fund 1
中海信托蓝海1号集合资金信托计划
 
the PRC 
July 18, 2018
 
Micro credit
 
 
 
 
 
Bohai Trust No.1 Huiying Structured Fund 
渤海惠盈1号集合资金信托计划
 
the PRC 
September 10, 2018
 
Micro credit
 
 
 
 
 
Bohai Trust No.2 Shenzhen Fanhua United Structured Fund
渤海信托-深泛联2号集合资金信托计划
 
the PRC 
November 28, 2018
 
Micro credit
 
 
 
 
 
Jinghua Structured Fund 1 
外贸信托菁华1号集合资金信托计划
 
the PRC 
May 8, 2019
 
Micro credit
 
 
 
 
 
Hunan Structured Fund 2019-1 
湖南信托2019-1集合资金信托计划
 
the PRC 
September 23, 2019
 
Micro credit
 
 
 
 
 
Hunan Structured Fund 2019-2 
湖南信托2019-2集合资金信托计划
 
the PRC 
September 23, 2019
 
Micro credit
 
 
 
 
 
Shaanxi International Xinglong Structured Fund 1-1 
陕国投·兴隆1-1号集合资金信托计划
 
the PRC 
November 6, 2019
 
Micro credit
 
 
 
 
 
Shaanxi International Xinglong Structured Fund 2-1 
陕国投·兴隆2-1号集合资金信托计划
 
the PRC 
September 24, 2019
 
Micro credit
 
F-19

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
1.
DESCRIPTION OF BUSINESS, ORGANIZATION, AND BASIS OF PRESENTATION
(CONTINUED)
 
Name of the consolidated VIEs
 
Place and date of
incorporation/
establishment
 
Principal activities
 
 
 
 
 
No. 50 Jinghua Structured Fund 
外贸信托菁华50号资管计划
 
the PRC 
April 26, 2019
 
Micro credit
 
 
 
 
 
No. 70 Jinghua Structured Fund 
外贸信托菁华70号资管计划
 
the PRC 
December 25, 2020
 
Micro credit
 
 
 
 
 
Shaanxi International Xinglong Structured Fund 22-1 
陕国投·兴隆22-1号集合资金信托计划
 
the PRC 
June 22, 2020
 
Micro credit
 
 
 
 
 
No. 74 Jinghua Structured Fund 
外贸信托菁华74号资管计划
 
the PRC 
November 26, 2020
 
Micro credit
 
 
 
 
 
Hunan Structured Fund 2020-1 
湖南信托2020-1集合资金信托计划
 
the PRC 
December 8, 2020
 
Micro credit
 
 
 
 
 
Shaanxi International Xinglong Structured Fund 2-2 
陕国投·兴隆2-2号集合资金信托计划
 
the PRC 
January 26, 2021
 
Micro credit
 
 
 
 
 
Zhonghai Lanhai Structured Fund 30-X 
中海信托-蓝海30-X号集合资金信托计划
 
the PRC 
March 17, 2021
 
Micro credit
 
 
 
 
 
Bohai Trust 2020 Pucheng No. 75 
渤海信托·2020普诚75号集合资金信托计划
 
the PRC 
July 15, 2021
 
Micro credit
 
 
 
 
 
Guomin Tianshu Structured Fund 2-1 
国民信托·天枢2-1号单一资金信托
 
the PRC 
August 31, 2021
 
Micro credit
 
 
 
 
 
Shenzhen Ruishu Economic Information Technology Advisory Partnership (Limited
Partnership) 
深圳瑞枢经济信息技术咨询合伙企业（有限合伙）
 
the PRC 
September 30, 2021
 
Micro credit
 
F-20

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
1.
DESCRIPTION OF BUSINESS, ORGANIZATION, AND BASIS OF PRESENTATION
(CONTINUED)
 
Name of the consolidated VIEs
 
Place and date of
incorporation/ 
establishment
 
Principal activities
 
 
 
 
 
Shenzhen Chengshu Information Technology Advisory Partnership (Limited Partnership) 
深圳诚枢信息技术咨询合伙企业（有限合伙）
 
the PRC 
November 29, 2021
 
Micro credit
 
 
 
 
 
Zhongrong Yuanshuo No.1 Structured Fund 
中融-元烁1号集合资金信托计划
 
the PRC 
September 29, 2021
 
Micro credit
 
 
 
 
 
Tianjin Baihua Economic Information Advisory Partnership (Limited Partnership) 
天津柏华经济信息咨询合伙企业（有限合伙）
 
the PRC 
January 19, 2022
 
Micro credit
 
 
 
 
 
Bohai Trust 2021 Pucheng No. 83 
渤海信托·2021普诚83号集合资金信托计划
 
the PRC 
January 25, 2022
 
Micro credit
 
 
 
 
 
Zhongrong Yuanshuo No.2 Structured Fund 
中融-元烁2号集合资金信托计划
 
the PRC 
February 18, 2022
 
Micro credit
 
 
 
 
 
Shenzhen Huashu Information Technology Advisory Partnership (Limited Partnership) 
深圳华枢信息技术咨询合伙企业（有限合伙）
 
the PRC 
February 22, 2022
 
Micro credit
 
 
 
 
 
Zijin No.3 Business Acceleration Structured Fund 
紫金信托·助业3号集合资金信托计划
 
the PRC 
April 25, 2022
 
Micro credit
 
 
 
 
 
Zhongliang Hongrui No.1 Structured Fund 
中粮信托-弘瑞普惠1号集合资金信托计划
 
the PRC 
May 19, 2022
 
Micro credit
 
 
 
 
 
Zhongrong Yuanshuo No.3 Structured Fund 
中融-元烁3号集合资金信托计划
 
the PRC 
July 26, 2022
 
Micro credit
 
 
 
 
 
Tianjin Pinhua Economic Information Advisory Partnership (Limited Partnership) 
天津品华经济信息咨询合伙企业（有限合伙）
 
the PRC 
October 10, 2022
 
Micro credit
  
F-21

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
1.
DESCRIPTION OF BUSINESS, ORGANIZATION, AND BASIS OF PRESENTATION
(CONTINUED)
 
Name of the consolidated VIEs
 
Place and date of
incorporation/
establishment
 
Principal activities
 
 
 
 
 
Shenzhen Zeshu Information Technology Advisory Partnership (Limited Partnership) 
深圳泽枢信息技术咨询合伙企业（有限合伙）
 
the PRC 
November 19, 2022
 
Micro credit
 
 
 
 
 
Hunan Caixin - Zhongliang - Hongxin Universal Benefit No. 1 
湖南财信-中粮-弘信普惠1号集合资金信托计划
 
the PRC 
February 7, 2023
 
Micro credit
 
 
 
 
 
Shenzhen Mingshu Information Technology Advisory Partnership (Limited Partnership)   
深圳名枢信息技术咨询合伙企业（有限合伙）
 
the PRC 
April 13, 2023
 
Micro credit
 
 
 
 
 
No. 51 Jinghua Structured Fund 
外贸信托-菁华51号单一资金信托
 
the PRC 
June 29, 2023
 
Micro credit
 
 
 
 
 
No. 2 Jinghua Structured Fund 
外贸菁华2号集合资金信托计划
 
the PRC 
July 7, 2023
 
Micro credit
 
 
 
 
 
Guangzhou Ming Hao Investment Partnership (Limited Partnership) 
广州市明灏投资合伙企业（有限合伙）
 
the PRC 
Augus 28, 2023
 
Micro credit
 
 
 
 
 
Zhongliang Trust Plan- Hongjun No. 1 
中粮信托-弘鋆1号 集合资金信托计划
 
the PRC 
September 7, 2023
 
Micro credit
 
 
 
 
 
Zhongliang Trust Plan-Honghao No. 1 
中粮信托-弘浩普惠1号集合资金信托计划
 
the PRC 
September 7, 2023
 
Micro credit
 
 
 
 
 
Zhongliang Trust Plan-Hongsheng No. 1 
中粮信托-弘盛普惠1号集合资金信托计划
 
the PRC 
November 1, 2024
 
Micro credit
 
 
 
 
 
Zhongliang Trust Plan- Hongmeng No. 1 
中粮信托-弘盟1号集合资金信托计划
 
the PRC 
November 15, 2023
 
Micro credit
 
 
 
 
 
Zhongliang Trust Plan- Hongji No. 1 
中粮集合资金信托计划信托-弘济1号
 
the PRC 
December 25,2023
 
Micro credit
 
F-22

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
1.
DESCRIPTION OF BUSINESS, ORGANIZATION, AND BASIS OF PRESENTATION
(CONTINUED)
 
The table sets forth the assets and liabilities of the consolidated
VIEs included in the Group’s consolidated balance sheets after elimination of
intercompany transactions and balances:
 
 
 
December 31,
2023
   
December 31,
2024
 
 
 
RMB
   
RMB
 
 
 
 
   
 
 
Cash, cash equivalents and restricted cash
   
1,510,686,015      1,024,148,680 
Net loans principal, interest and financing service fees receivables
   
8,415,130,321      5,494,698,105 
Loans held-for-sale
   
1,296,708,106      2,013,904,758 
Investment securities
   
21,545,271     
23,000,000 
Deferred tax assets
   
384,801     
1,809,403 
Other assets
   
896,921,865     
817,414,521 
 
   
      
  
Total assets
    12,141,376,379      9,374,975,467 
 
   
      
  
Interest-bearing borrowings
   
8,231,826,368      5,873,853,217 
Income taxes payable
   
1,030,049     
2,013,889 
Deferred tax liabilities
   
-     
- 
Other liabilities
   
232,896,540     
430,265,217 
 
   
      
  
Total liabilities
   
8,465,752,957      6,306,132,323 
 
The table sets forth the results of operations of the VIEs included
in the Group’s consolidated statements of comprehensive income:
 
 
 
Year ended December 31
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
 
Revenue
    1,437,398,097      1,352,486,176      1,261,363,850 
Net income
   
381,273,670     
495,371,047     
397,516,115 
 
The table sets forth the cash flows of the VIEs included in the Group’s
consolidated statements of cash flows:
 
 
 
Year ended December 31
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
 
Net cash provided by operating activities
   
939,802,714      1,292,343,388      1,544,447,565 
Net cash provided by/(used in) investing activities
    (812,396,284)     (1,282,239,529)     1,344,524,994 
Net cash provided by/(used in) financing activities
    (377,573,931)    
234,705,208      (3,375,509,894)
 
F-23

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Principles of consolidation
 
The accompanying consolidated financial statements include the financial
statements of the Group. All intercompany transactions and balances
have been eliminated in consolidation. The Group accounts for investments
over which it has significant influence but not a controlling financial
interest using the equity method of accounting.
 
Non-controlling interests
 
Non-controlling interests are recognized to reflect the portion of
the equity of majority-owned subsidiaries and VIEs which is not attributable,
directly or indirectly, to the controlling shareholder.
(b)
Currency translation for financial statements presentation
 
The Group uses Renminbi (“RMB”) as its reporting currency.
The United States Dollar (“USD”) is the functional currency of the Company
incorporated in Cayman and the Group’s subsidiary
Sincere Fame International Limited incorporated in British Virgin Islands, and the Hong Kong
Dollar (“HKD”) is the functional
currency of the Group’s subsidiary China Financial Services Group Limited incorporated in Hong Kong and the
RMB is the functional
currency of the Group’s PRC subsidiaries.
 
The financial statements of the Group are translated from the functional
currency to the reporting currency, RMB. Assets and liabilities of the
subsidiaries are translated into RMB using the exchange rate in
effect at each balance sheet date. Income and expenses items are generally
translated at the average exchange rates prevailing during
the fiscal year. Foreign currency translation adjustments arising from these are
accumulated as a separate component of shareholders’
deficit on the consolidated financial statements. The resulting exchange differences are
recorded in the consolidated statements of other
comprehensive income/(losses).
(c)
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 and disclosure
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. Actual results could differ from those estimates.
Significant items subject to such estimates and assumptions
include, allowance for credit losses on loans principal, interest and financing service
fee receivables, debt securities, guarantee assets,
the valuation allowance for deferred tax assets, unrecognized tax benefits, the indefinite
reinvestment assertion and the fair value of
short term investments and share-based compensation.
(d)
Revenue recognition
 
Interest and financing service fees on loans which are amortized over
the contractual life of the related loans are recognized in consolidated
statements of comprehensive income in accordance with ASC 310
using the effective interest method.
 
F-24

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
The Group considered relevant accounting guidance and concluded
that arrangements for its guarantee services provided for its off-balance sheet
loans under commercial bank partnership model are out
of scope of ASC 606, Revenue from Contracts with Customers. Therefore, “Gains/losses
from guarantee liabilities” included
in “Net revenue under commercial bank partnership model” on the Consolidated Statements of
Comprehensive income should be
accounted for in accordance with ASC 460, Guarantees. The other revenue streams under commercial bank
partnership model are accounted
for in accordance with ASC 606.
 
The criteria of revenue recognition as they relate to each
of the following major revenue generating activities are described below:
 
(i)
Interest and financing service fees on loans
 
Interest and financing service fees on loans, which include
financing service fees on loans, are collected from borrowers for loans and related
services.
 
Interest and financing service fees on loans include the
amortization of any discount or premium or differences between the initial carrying amount
of an interest-bearing asset and its amount
at maturity calculated using the effective interest basis.
 
The effective interest method is a method of calculating
the amortized cost of a financial asset and of allocating the interest and financing service
fees on loans over the years. The effective
interest rate is the rate that exactly discounts estimated future cash payments or receipts through the
expected life of the financial
instrument. When calculating the effective interest rate, the Group estimates cash flows considering all contractual
terms of the financial
instrument but does not consider future credit losses. Interest on the individually evaluated financial assets is recognized
using the
rate of interest used to discount future cash flows. The Group applies an exemption from the effective interest rate method for ‌short-term
loans‌ with original maturities of ‌12 months or less
 
(ii)
Interest income on debt securities
 
Interest income on debt securities
is calculated by applying the effective interest rate to the gross carrying amount of debt securities to unrelated
companies plus any
interest received from corporate debt securities.
 
(iii)
Interest income charged to sales partners
 
In the event of loans issued to
the borrowers are in default, one of the sales partners options is to repurchase the defaulted loan in instalments.
Interest income charged
to sales partners is calculated by applying the total unpaid principal and the accrued overdue interests of defaulted loans
plus deferred
interest as stated in the collaboration agreement.
 
(iv)
Revenue under commercial bank partnership model
 
In accordance with the relevant guidance in ASC Topic 606,
the amounts associated with guarantee services under commercial bank partnership
model is within the scope of ASC Topic 460 and should
be accounted for in accordance with the provisions of that Topic. The services not within
the scope of other Topics should be accounted
for in accordance with the remaining provisions of ASC Topic 606 and the applicable revenue
recognition guidance.
 
F-25

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
The Group considers loan facilitation services under commercial
bank partnership model (covering matching of commercial banks to borrowers
and facilitating the execution of loan agreement between commercial
banks and borrowers) and post-facilitation services under commercial bank
partnership model (covering cash processing services and collection
services) as two distinctive performance obligations in accordance with ASC
Topic 606. The transaction price is first allocated to guarantee
services under commercial bank partnership model, if any, which is recorded at fair
value and recognized during the guarantee term in
accordance with ASC Topic 460.
 
Then the remaining considerations are allocated to the
loan facilitation services and post-facilitation services under commercial bank partnership
model using their relative standalone selling
prices. When estimating total consideration, the Group considers early termination scenarios based on
historical early payment and other
termination scenarios as the Group can not receive the full contractual service fee amount under early
termination, given the service
fee is collected on a pro-rata basis upon early loan termination. Such service fee is determined to be variable
consideration that meets
the “probable of not reversing” threshold. As such, the Group recognizes revenue related to early termination based on its
best estimate and true up adjustments are made from time to time. The Group does not have observable standalone selling price for the
loan
facilitation services or post-facilitation services because it does not provide loan facilitation services or post-facilitation services
on a standalone
basis in similar circumstances to similar customers. There is no direct observable standalone selling price for similar
services in the market that is
reasonably available to the Group.
 
The Group uses an expected cost plus margin approach to
estimate the standalone selling prices of loan facilitation services and post facilitation
services as the basis of revenue allocation.
When estimating the selling prices, the Group considers the cost related to such services, profit margin,
customer demand, effect of competition
on services, and other market factors, among which estimates of the cost of providing the services is the
most significant.
 
The transaction price allocated to loan facilitation services
is recognized as revenue upon execution of loan agreements between commercial banks
and borrowers; the consideration allocated to post-facilitation
services is recognized over the period of the loan on a straight-line method, which
approximates the pattern of when the underlying services
are performed.
 
Remaining performance
obligations‌ represent the transaction price allocated to ‌undelivered services‌ under post-facilitation services.
The
associated revenue‌ will be recognized until the services are performed and the revenue recognition criteria under ASC
Topic 606 is satisfied. The
Group collects service fees monthly. The aggregate amounts of the transaction price allocated to
performance obligations that are unsatisfied
pertaining to post-origination services were RMB 17.53 million and RMB 6.26 million for
the years ended December 31, 2023 and 2024,
respectively. Among the aggregate transaction price, approximately 100% and 100% of the
remaining performance obligations will be recognized
over the following 12 months for the years ended December 31, 2023 and 2024,
respectively.
 
(v)
Realized gains/(losses) on sales of investments
 
Realized gains/(losses) consist of realized gains and losses
from the sale of investment securities, presented on a net basis.
 
(vi)
Net gains/(losses) on sales of loans
 
Net gains/(losses) on sales of loans refer to any gains
and losses from the disposal of loans which is accounted for as a sale under ASC 860.
 
F-26

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
(vii)
Gains on confiscation of CRMPs
 
Gains on confiscation of credit risk mitigation positions
are recognized to the extent confiscated CRMPs exceed previously recognized allowance
for credit losses and guarantee asset when sales
partners surrender the CRMPs and the obligation of refunding the CRMPs is released.
 
(e)
Loans
 
(i)
On-balance sheet loans
 
Loans are reported at their outstanding principal balances
net of any unearned income and unamortized deferred fees and costs. Loan origination
fees and certain direct origination costs are generally
deferred and recognized as adjustments to income over the lives of the related loans.
 
The Group facilitates credit to borrowers through structured
funds which are considered as consolidated VIEs and the Group evaluated VIEs for
consolidation in accordance with ASC 810 in the Consolidated
VIEs Section of Note 1. Providing credit strengthening arrangement since March
2018 for the loans to customers under the funds is one
of the key factors to determine that the Group should consolidate the structured funds as it
is the primary beneficiary of the funds.
As a result, the loan principal remains on the Group’s consolidated balance sheets, whilst the funds
received from senior tranches
holders are recorded as Other Borrowings in the Group’s consolidated balance sheets as disclosed in Note 12(b)(i).
 
Non-accrual policies
 
Loans principal, interest and financing service fee receivables
are placed on non-accrual status when payments are 90 days contractually past due.
When a loan principal, interest and financing service
fee receivable is placed on non-accrual status, interest and financing service fees accrual
cease. If the loan is non-accrual, the cost
recovery method is used and cash collected is applied to first reduce the carrying value of the loan.
Otherwise, interest income may be
recognized to the extent cash is received. Loans principal, interest and financing service fee receivables may be
returned to accrual
status when all of the borrower’s delinquent balances of loans principal, interest and financing service fee have been settled and
the borrower continue to perform in accordance with the loan terms for a period of at least six months.
 
F-27

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Charge-off policies
 
For the years ended December 31, 2023 and 2024, the charge-off
policies in Group are presented as follows:
 
Principal, interest and financing service fee receivables
are charged down to net realizable value (fair value of collaterals, less estimated costs to
sell) when the Group has determined the remaining
balance is uncollectable after exhausting all collection efforts. In order to comply with ASC
310 and ASC 326, the Group considers loans
principal, interest and financing service fee receivables meeting any of the following conditions as
uncollectable and charged-off: (i)
death of the borrower; (ii) identification of fraud, and the fraud is officially reported to and filed with relevant
law enforcement departments;
(iii) sales of loans to third parties; (iv) settlement with the borrower, where the Group releases irrecoverable loans
through private
negotiations with the borrower where the borrower cannot repay the loan in full through self-funding or voluntary sale of the
collateral;
(v) disposal through legal proceedings, including but not limited to online arbitrations, judicial auctions and court enforcements; or
(vi)
loans are 180 days past due unless both well-secured and in the process of collection.
 
Allowance for credit losses
 
Allowance for credit losses represents management’s
best estimate of probable losses inherent in the portfolio.
 
Commencing January 1, 2020, the Group adopted ASC 326,
“Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments”, which replaced
the incurred loss methodology for determining the provision for credit losses and allowance for credit
losses with a current expected
credit loss methodology (“ACL”) , which is based on past events, current conditions and reasonable and supportable
forecasts
over the life of the loans. ASC 326 defines the ACL as a valuation account that is deducted from, or added to the amortized cost of a
financial asset to present the net amount that management expects to collect on the financial asset over its expected life. All financial
assets carried
at amortized cost are in the scope of ASC 326, while assets measured at fair value are excluded. The allowance for credit
losses is adjusted each
period for changes in expected lifetime credit losses. When credit expectations change, the valuation account
is adjusted with changes reported in
provision for credit losses. If amounts previously charged off are subsequently expected to be collected,
the Group may recognize a negative
allowance, which is limited to the amount that was previously charged off.
 
The ACL includes collectively evaluated
(“collective ACL”) and individually evaluated (“individual ACL”) allowance for credit losses. The
Group aggregates
loans sharing similar risk characteristics into pools for purposes of measuring expected credit losses. Pools are reassessed
periodically
to confirm that all loans within each pool continue to share similar risk characteristics. Expected credit losses for loans that do not
share similar risk characteristics with other financial assets are measured individually.
 
F-28

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
The collective ACL is measured based on loans that share
similar risk characteristics and includes both quantitative and qualitative components.
The collective ACL utilizes probability of default
(PD) and loss given default (LGD) models, and is the product of multiplying PD, LGD, and
exposure at default (EAD) for nondelinquent loans,
delinquent loans within 90 days. The PD is computed based on the historical delinquency data,
adjusted for a macroeconomic forecast, which
considers selected economic variables and the weighting of multiple macroeconomic forecast
scenarios over the life of the loans. These
macroeconomic scenarios include variables that have historically been key drivers of increases and
decreases in credit losses. These variables
include, but are not limited to, gross-domestic product, total retail sales of consumer goods and urban
per capita disposable income and
are updated at least quarterly. The LGD model considers historical loss experience period. The qualitative
component of the collective
ACL represents the Group’s judgment of additional considerations to account for external risk factors that are not
adequately measured
in the quantitative component of the collective ACL, including consideration of idiosyncratic risk factors, conditions that
may not be
reflected in quantitatively derived results, or other relevant factors.
 
The individual ACL is estimated on an individual basis
for loans whose payments are contractually past due more than 90 days or do not share
similar risk characteristics. A financial asset
is collateral-dependent when the borrower is experiencing financial difficulty and repayment is
expected to be provided substantially
through the sale or operation of the collateral. When a collateral-dependent financial asset is probable of
foreclosure, the Group will
utilize the discounted cash flow (“DCF”) model to determine the expected credit loss for the loan by comparing the
amortized
cost of the loan with the present value of the projected cashflow for the underlying collateral. The projected cashflow is calculated
based on fair value of collateral provided by third-party appraisers, adjusted for the estimated disposal discounts on the collateral
and cost to sell.
 
Under the trust lending model, when the Group grants a
loan through a trust plan, the loan is with the borrower and guarantee is entered into with
a separate counterparty (the sales partner).
As such, under the definition of ASC 326-20-20, the guarantee arrangement and lending arrangement
would be considered freestanding arrangements.
As sale partners will provide guarantee of the entire loan to the Group, collection for loss is
probable and estimable when a loss on
an insured loan is incurred and recognized. In this case, the Group will recognize guarantee loss
recoverable asset in the amount that
the Group determines is probable to receive from the guarantor with an offsetting entry to “provision for
credit losses” when
the Group concludes that the loss recovery is collectible. However, potential recovery that exceeds the recognized loss, if any,
(gain
contingency) will not be recognized until cash is received. Therefore, the amounts estimated to be recoverable from the proceeds of
guarantees
will be reported as a separate asset (guarantee asset) in the balance sheet. The increase in guaranteed recoverable assets are included
in
the income statement as a reduction of the “provision for credit losses”, separate disclosure of the increase in guaranteed
recoverable assets is
included in the roll forward of the “allowance for credit losses”. The income statement caption was
disclosed as “Provision for credit losses, net of
increase in increase in guaranteed recoverable assets”.
 
F-29

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Loans held-for-sale
 
Loans held-for-sale are measured at the lower of cost or
fair value, with valuation changes recorded in noninterest revenue. The valuation is
performed on an individual loan basis. Loan origination
fees or costs and purchase price discounts or premiums are deferred in a contra loan
account until the related loan is sold. The deferred
fees or costs and discounts or premiums are adjustments to the basis of the loan and therefore
are included in the periodic determination
of the lower of cost or fair value adjustments.
 
The loan is derecognized if the Group does not retain any
risk and rewards after transferring the loan. Such transfer would be recorded as sales
according to ASC 860-10-40-5. At the time of derecognition,
any related allowance for credit losses is released. Gains and losses on loans transfer
as a sale are recognized in the non-interest income.
 
(ii)
Off-balance sheet loans
 
For loans funded by the proceeds from third-party commercial
banks, each underlying loan and borrower has to be approved by the third-party
commercial banks individually. Once the loan is approved
by and originated by the third-party commercial bank, the fund is provided by the third-
party commercial bank to the borrower and a lending
relationship between the borrower and the third-party commercial bank is established
through a loan agreement. Effectively, the Group
offers loan facilitation services to the borrowers who have credit needs and the commercial
banks who originate loans directly to borrowers
referred by the Group. The Group continues to provide post-facilitation services to the borrowers
over the term of the loan agreement.
Under this scenario, the Group determines that it is not the legal lender or borrower in the loan origination
and repayment process. Accordingly,
the Group does not record loans principal, interest and financing service fee receivables arising from these
loans nor interest-bearing
borrowings to the third-party commercial banks.
 
Under the commercial bank partnership model, when the third-party
commercial banks grant loans, the Group provides guarantee services to
commercial banks and takes on all of the credit risk of the borrowers.
Also, if the loan is referred to the Group by a separate counterparty (the sales
partner), the credit risk of the borrower will be transferred
to the sales partner. As such, under the definition of ASC 326-20-20, the guarantee
arrangement between the third-party commercial banks
and the Group and between the Group and the sales partner would be considered
freestanding arrangements. As sale partners will provide
guarantee of the entire loan to the Group, collection for loss is probable and estimable
when a loss on an insured loan is incurred and
recognized. In this case, the Group will recognize guarantee loss recoverable asset in the amount
that the Group determines is probable
to receive from the guarantor with an offsetting entry to “provision for credit losses” when the Group
concludes that the
loss recovery is collectible. However, potential recovery that exceeds the recognized loss, if any, (gain contingency) will not be
recognized
until cash is received. Therefore, the amounts estimated to be recoverable from the proceeds of guarantees will be reported as a
separate
asset (guarantee asset) in the balance sheet. The income statement caption was disclosed as “Provision for credit losses, net of
increase in
increase in guaranteed recoverable assets”.
 
(f)
Cash, cash equivalents and restricted cash
 
Cash and cash equivalents primarily consist of cash, deposits
which are highly liquid and all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
The Group considers highly liquid investments that are readily convertible to known
amounts of cash.
 
Restricted cash are cash and cash equivalents that are not
readily available for normal disbursement and mainly represents cash and cash
equivalents from structured funds. Such restricted cash
is not available to fund the general liquidity needs of the Group and could only be used to
grant new loans and activities as mentioned
in Note 1.
 
F-30

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
(g)
Investment securities
 
Short term investments
 
Short term investments consist of wealth management products.
Short term investments are recorded at fair value and included in the profit and
loss of changes in fair value. Realized gains and losses
from the sale of short term investments are determined on a specific identification basis
and are recorded as realized gains/(losses)
on sales of investments. Interest and investment income are recognized when earned.
 
Debt securities
 
Debt securities consist of held-to-maturity debt securities
that the Group has the positive intent and ability to hold the security to maturity and are
recorded at amortized cost.
 
The Group reviews its investments in held-to-maturity debt
securities for impairment periodically, recognizing an allowance, if any, by applying
an estimated loss rate. The Group considers available
quantitative and qualitative evidence in evaluating the potential impairment of its
investments in held-to-maturity debt securities. The
allowance for credit losses is a valuation account that is deducted from the amortized cost
basis of the financial assets to present the
net carrying value at the amount expected to be collected on the held-to-maturity debt securities.
 
Convertible bonds
 
The Group has elected the fair value option for investment
in convertible bonds in accordance with ASC Subtopic 825-10 (“ASC 825-10”),
Recognition and Measurement of Financial Assets
and Financial Liabilities. The financial instruments guidance in ASC 825-10 permits reporting
entities to apply the fair value option
on an instrument-by-instrument basis. The investments accounted for under the fair value option are carried
at fair value with realized
gains or losses recorded in “Realized gains on sales of investments, net” and unrealized gains or losses recorded in
“other
gains/(losses), net” on the consolidated statements of comprehensive income/(loss).
 
(h)
Property and equipment
 
Property and equipment are stated at cost. Depreciation
on equipment is calculated on the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are amortized
over the shorter of the economic useful life of the improvement or the term of the lease. The
estimated useful life of office and other
equipment range from 1 to 5 years, the estimated useful life of leasehold improvements or the term of the
lease range from 1 to 6 years,
while the estimated useful lives of motor vehicles range from 3 to 8 years.
 
(i)
Intangible assets
 
Indefinite-lived intangible assets are assets that are
not amortized because there is no foreseeable limit to cash flows generated from them.
Intangible assets with finite useful lives are
amortized on a straight-line basis over their estimated useful lives.
 
The Group categorizes trademarks as indefinite-lived intangible
assets, whose carrying value is RMB2.97 million. If it is more likely than not that
the asset is impaired, the Group records the amount
that the carrying value exceeds the fair value as an impairment expense. The Group performed
its annual impairment review of indefinite-lived
intangible assets on December 31, 2023 and 2024 and determined that it is more likely than not
that the carrying value was less than the
fair value.
 
Intangible assets with finite useful lives represent software
and cooperation agreements, the estimated useful lives of which are 1 to 3 years and 3
years, respectively.
 
F-31

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
(j)
Income taxes
 
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax
bases and for operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in
which the deferred tax assets or liabilities are expected to be realized or settled. The effect on deferred tax
assets and liabilities
of a change in tax rates is recognized in income in the period that includes the enactment date. The Group recognizes the
effect of income
tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured as
the
largest amount that is greater than 50 percent likely of being realized. Changes in recognition or measurement are reflected in the period
in
which the change in judgment occurs. The Group classifies interest and penalties related to income taxes as income tax expense.
 
(k)
Employee benefit plans
 
Pursuant to relevant PRC regulations, the Group is required
to make contributions to various employee benefit plans organized by municipal and
provincial PRC governments. The contributions are made
for each PRC employee at statutory rates as determined by local social security bureau.
Contributions to the employee benefit plans are
charged to the consolidated statements of income. The Group has no obligations for payment of
pension benefits associated with the plans
beyond the amount it is required to contribute.
 
(l)
Long-lived assets
 
Long-lived assets, such as property and equipment, and
purchased intangible assets subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived
asset or asset group be tested for
possible impairment, the Group first compares undiscounted cash flows expected to be generated by that asset or
asset group to its carrying
amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow
basis, an impairment
is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation
techniques
including discounted cash flow models, quoted market value and third-party independent appraisals, as considered necessary.
 
(m)
Share-based compensation
 
The Group measures the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of
the award and recognizes the cost over the period
the employee is required to provide service in exchange for the award, which generally is the
vesting period. The Group recognizes compensation
cost using a front-loading approach for an award with only service conditions that have a
graded vesting schedule over the requisite service
period for the entire award, net of estimated forfeitures, provided that the cumulative amount of
compensation cost recognized at any
date at least equals the portion of the grant-date value of such award that is vested at that date. Forfeiture
rates are estimated based
on historical and future expectations of employee turnover rates.
 
In 2024, the Group extended the expiration date of its
2018 Options to December 31, 2027, resulting in an incremental fair value of share options.
The associated compensation cost was fully
recognized in 2024.
 
F-32

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
(n)
Operating leases
 
Leases where substantially all the rewards and risks of
ownership of assets remain with the lessor are accounted for as operating leases. The
Group’s lease liability is measured at the
present value of future operating lease payments, discounted using the incremental borrowing rate. Right
of use asset is measured at the
amount of lease liabilities plus prepaid rent and direct costs, less any lease incentives. The operating lease expense
is recognized on
a straight-line basis over the lease term. Certain of the operating lease agreements contain rent holidays, which are considered in
determining
the straight-line operating lease expense to be recorded over the lease term.
 
(o)
Guarantee liabilities
 
Starting from 2021, the Group started to cooperate with
third-party financing guarantee corporations that provides guarantee services to
commercial banks. According to relevant financial guarantee
arrangements, third-party financing guarantee corporations will fulfil its obligations
to purchase defaulted loans. However, the Group
is required to provide deposits and replenish such deposits from time to time to third-party
financing guarantee corporations for its
obligations of purchasing defaulted loans. Effectively, the Group provides back-to-back guarantee to third-
party financing guarantee corporations
and takes on all of the credit risk of the borrowers. These financial guarantee contracts are accounted for as
guarantee liabilities under
ASC 460, Guarantees.
 
The Group adopted ASC 326, Financial Instruments—Credit
Losses, which requires gross accounting for guarantee liability. As a result, at
inception of these financial guarantee provided for off-balance
sheet loans under commercial bank partnership model, the Group will recognize
both a stand-ready guarantee liability under ASC 460 with
an associated guarantee receivable, and a contingent guarantee liability with an
allowance for credit losses of the underlying loans under
current expected credit loss methodology, which includes both quantitative and
qualitative components. The collective ACL utilizes probability
of default (PD) and loss given default (LGD) models, and is the product of
multiplying PD, LGD, and exposure at default (EAD) for guarantee
liabilities. The PD is computed based on the historical delinquency data,
adjusted for a macroeconomic forecast, which considers selected
economic variables and the weighting of multiple macroeconomic forecast
scenarios over the life of the off-balance sheet loans. The LGD
model considers historical loss experience period. The qualitative component of
the collective ACL represents the Group’s judgment
of additional considerations to account for external risk factors that are not adequately
measured in the quantitative component of the
collective ACL, including consideration of idiosyncratic risk factors, conditions that may not be
reflected in quantitatively derived
results, or other relevant factors.
 
Subsequent to the initial recognition, the ASC 460 stand-ready
guarantee is released into gains from guarantee liabilities on a straight-line basis
over the term of the guarantee, while the contingent
guarantee is reduced by the pay-outs made by the Group to compensate the investors upon
borrowers’ default.
 
(p)
Repurchase agreements
 
Financial assets sold under agreements to repurchase do
not constitute a sale of the underlying financial assets for accounting purposes and are
treated as collateralized financing transactions.
Financial assets sold under agreements to repurchase are recorded at the amount of cash received
plus accrued interest. Interest paid
on agreements to repurchase is recorded in interest expense at the contractually specified rate.
 
(q)
Commitments and contingencies
 
Liabilities for loss contingencies arising
from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is
probable that a liability has been
incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies
are expensed as incurred.
 
F-33

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
(r)
Fair value measurements
 
The Group uses valuation approaches that maximize the use
of observable inputs and minimize the use of unobservable inputs to the extent
possible. The Group determines fair value based on assumptions
that market participants would use in pricing an asset or liability in the principal
or most advantageous market. When considering market
participant assumptions in fair value measurements, the following fair value hierarchy
distinguishes between observable and unobservable
inputs, which are categorized in one of the following levels in accordance with ASU 2011-04
(see Note 3 to the consolidated financial
statements):
 
●
Level 1 Inputs: Unadjusted quoted prices in active markets
for identical assets or liabilities accessible to the reporting entity at the
measurement date.
 
●
Level 2 Inputs: Other than quoted prices included in Level
1 inputs that are observable for the asset or liability, either directly or indirectly, for
substantially the full term of the asset
or liability.
 
●
Level 3 Inputs: Unobservable inputs for the asset or liability
used to measure fair value to the extent that observable inputs are not available,
thereby allowing for situations in which there is
little, if any, market activity for the asset or liability at measurement date.
 
The level in the fair value hierarchy within which a fair
value measurement in its entirety falls is based on the lowest level input that is significant
to the fair value measurement in its entirety.
In situations where there is little, if any, market activity for the asset or liability at the measurement
date, the fair value measurement
reflects management’s own judgments about the assumptions that market participants would use in pricing the
asset or liability.
Those judgments are developed by management based on the best information available in the circumstances.
 
(s)
Earnings per share
 
Basic earnings per share is computed by dividing net income
attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the period. Diluted earnings
per share is calculated by dividing net income attributable to ordinary shareholders by the
weighted average number of ordinary and dilutive
ordinary equivalent shares outstanding during the period.
 
Ordinary equivalent shares are not included in the denominator
of the diluted earnings per share calculation when inclusion of such shares would
be anti-dilutive.
 
(t)
Segment reporting
 
The Group uses management approach to determine operation
segment. The management approach considers the internal organization and
reporting used by the Group’s chief operating decision
maker (“CODM”) for making decisions, allocation of resource and assessing performance.
 
The Group’s CODM has been identified as the Chief
Executive Officer who reviews the consolidated results of operations when making decisions
about allocating resources and assessing performance
of the Group. The Group operates and manages its business as a single segment.
 
All of the Group’s revenue for the years ended December
31, 2022, 2023 and 2024 were generated from the Chinese Mainland. As the Group
generates all of its revenues in the PRC, no geographical
segments are presented.
 
The Group generates revenues primarily from (i) Interest
and financing service fees on loans collected from borrowers for loans and related
services.; (ii) loan facilitation services under commercial
bank partnership model (covering matching of commercial banks to borrowers and
facilitating the execution of loan agreement between commercial
banks and borrowers) and post-facilitation services under commercial bank
partnership model (covering cash processing services and collection
services).
 
The accounting policies of the segment profit or loss and
assets are the same as those described in the summary of significant accounting policies.
The Group’s CODM assesses performance
for the segment and decides how to allocate resources based on net income that also is reported on the
consolidated statement of comprehensive
income (loss) as net income. The measure of segment assets is reported on the consolidated balance
sheet as total assets. The regularly
provided significant segment expense information is the same as that included in the consolidated statement of
comprehensive income (loss).
The Group’s CODM uses net income to evaluate income generated from segment assets in deciding whether to
reinvest profits into
the segment or to pay dividends.
 
F-34

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
(u)
Recently adopted accounting standards
 
In 2024, the Group adopted the following new accounting
guidance:
 
ASU 2023-07 - Segment Reporting (Topic 280)—Improvements
to Reportable Segment Disclosures
 
ASU 2023-07 was adopted on January 1, 2024 on a retrospective
basis. The Group applied ASU 2023-07 retrospectively to all prior periods
presented in the consolidated financial statements. The adoption
had no material impact on reportable segments identified and had no effect on the
Group’s consolidated financial position, results
of operations, or cash flows
 
(v)
Recently issued accounting standards
 
ASU 2023-09 - Income Taxes (Topic 740) - Improvements
to Income Tax Disclosures
 
In December 2023, the FASB issued ASU No. 2023-09, Income
Taxes (Topic 740) - Improvements to Income Tax Disclosures, which provides
more transparency about income tax information through improvements
to income tax disclosures primarily related to the rate reconciliation and
income taxes paid information. This ASU 2023-09 is to be adopted
on a prospective basis and will be effective for the Group on January 1, 2025,
although early adoption is permitted.
 
ASU 2024-03 - Income Statement - Reporting Comprehensive
Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of
Income Statement Expenses In November 2024, the
FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income -
Expense Disaggregation Disclosures (Subtopic 220-40):
Disaggregation of Income Statement Expenses, which requires additional disclosure of
the nature of expenses included in the income statement
as well as disclosures about specific types of expenses included in the expense captions
presented in the income statement.
 
ASU 2025-01 - Income Statement - Reporting Comprehensive
Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the
Effective Date
 
In January, the FASB issued ASU No. 2025-01, Income Statement
– Reporting Comprehensive Income – Expense Disaggregation Disclosures
(Subtopic 220-40): Clarifying the Effective Date, clarified
that ASU 2024-03 is effective for annual reporting periods beginning after December
15, 2026, and interim periods within annual reporting
periods beginning after December 15, 2027. Both early adoption and retrospective
application are permitted.
 
The Group is currently evaluating the impact of this accounting
standard update on its consolidated financial statements and related disclosures.
The Group does not believe other recently issued but
not yet effective accounting standards, if currently adopted, would have a material effect on
the consolidated financial statements.
 
F-35

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
3
Fair value measurements
 
Fair Value Hierarchy
 
ASC 820 defines fair value, establishes a framework for
measuring fair value, and establishes a hierarchy of fair value inputs. Fair value is the
price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. A fair value measurement
assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or
liability or,
in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income
or
cost approach, as specified by ASC 820, are used to measure fair value.
 
Assets recorded at fair value on a recurring basis mainly
include marketable securities. Additionally, from time to time, the Group records fair
value adjustments on a nonrecurring basis. These
nonrecurring adjustments typically involve application of the lower of cost or fair value
(“LOCOM”) accounting, write-downs
of individual assets or application of the measurement alternative for non-marketable equity securities.
 
Fair Value Measurements
 
A description of the valuation techniques applied to the
Group’s major categories of assets and liabilities measured at fair value is as follows.
 
The Group determines fair value primarily based on pricing
sources with reasonable levels of price transparency. Where quoted prices are
available in an active market, the Group classifies the
assets and liabilities within Level 1 of the valuation hierarchy. If quoted market prices are
not available, fair value is primarily determined
using pricing models using observable trade data, market data, quoted prices of securities with
similar characteristics or discounted
cash flows. Such instruments would generally be classified within Level 2 of the valuation hierarchy. When
observable data is unavailable,
the Group estimates fair value using internal models, unobservable inputs, or material adjustments to available
data. Such instruments
would generally be classified within Level 3 of the valuation hierarchy.
 
F-36

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
3
Fair value measurements (continued)
 
The following table presents the Group’s fair value hierarchy for those
assets measured at fair value on a recurring basis as of December 31, 2023
and 2024.
 
 
 
December 31, 2024
 
 
 
Fair value
   
Level 1
   
Level 2
   
Level 3
 
 
 
RMB
   
RMB
   
RMB
   
RMB
 
 
 
    
    
    
  
Wealth management products
   
38,695,647     
38,695,647     
-     
- 
Convertible bonds
   
40,876,080     
-     
-     
40,876,080 
Total
   
79,571,727     
38,695,647     
   -     
40,876,080 
 
 
 
December 31, 2023
 
 
 
Fair value
   
Level 1
   
Level 2
   
Level 3
 
 
 
RMB
   
RMB
   
RMB
   
RMB
 
 
 
    
    
    
  
Wealth management products
   
146,486,668     
22,202,910     
124,283,758     
- 
Convertible bonds
   
35,499,500     
-     
-     
35,499,500 
Total
   
181,986,168     
22,202,910     
124,283,758     
35,499,500 
 
The following table presents the Group’s fair value hierarchy for those
assets and liabilities measured at fair value on a non-recurring basis as of
December 31, 2023 and 2024.
 
 
 
December 31, 2024
 
 
 
Fair value
   
Level 1
   
Level 2
   
Level 3
 
 
 
RMB
   
RMB
   
RMB
   
RMB
 
Assets
 
    
    
    
  
Loans(1)
   
204,920,625     
      -     
204,920,625     
      - 
Loans held-for-sale(2)
    3,529,585,983     
-      3,529,585,983     
- 
Equity securities(3)
   
13,178,264     
-     
13,178,264     
- 
Total Assets
    3,747,684,872     
-      3,747,684,872     
- 
Liabilities
   
      
      
      
  
Guarantee liabilities(4)
   
4,197,264     
-     
-     
4,197,264 
Total Liabilities
   
4,197,264     
-     
-     
4,197,264 
 
F-37

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
3
Fair value measurements (continued)
 
 
 
December 31, 2023
 
 
 
Fair value
   
Level 1
   
Level 2
   
Level 3
 
 
 
RMB
   
RMB
   
RMB
   
RMB
 
Assets
 
    
    
    
  
Loans(1)
   
28,016,224     
-     
28,016,224     
- 
Loans held-for-sale(2)
    2,471,413,744     
-      2,471,413,744     
- 
Equity securities(3)
   
38,178,264     
-     
38,178,264     
- 
Total Assets
    2,537,608,232     
-      2,537,608,232     
- 
Liabilities
   
      
      
      
  
Guarantee liabilities(4)
   
57,132,678     
-     
-     
57,132,678 
Total Liabilities
   
57,132,678     
    -     
-     
57,132,678 
 
(1) Loans are recorded at amortized cost, while the Group records
nonrecurring fair value adjustments to reflect partial write-downs that are based on the
observable market price of the loan or current
appraised value of the collateral.
 
(2) Loans held-for-sale are held at LOCOM which may be written down
to fair value on a nonrecurring basis.
 
(3) Non-marketable equity securities are accounted for using the
measurement alternative and can be subject to nonrecurring fair value adjustments to
record impairment.
 
(4) Guarantee liabilities are accounted for stand-ready guarantee
liabilities of the Group’s guarantee services for its off-balance sheet loans under the
commercial bank partnership model at fair
value.
 
During the years ended December 31, 2023 and 2024, there were no transfers
between instruments in Level 1 and Level 2.
 
4
Cash, cash equivalents and restricted cash
 
Cash and cash equivalents represent cash on hand and bank deposits.
To limit exposure to credit risk relating to bank deposits, the Group primarily
places bank deposits with large financial institutions
in the PRC with acceptable credit rating. As of December 31, 2023 and 2024, the Group had
cash balances at one and one PRC individual
financial institutions, respectively, that held cash balances in excess of 10% of the Group’s total cash
balances. These bank deposits
collectively accounted for 66.8% and 84.4% of the Group’s total cash balances as of December 31, 2023 and 2024,
respectively.
 
The nominal holders of certain bank accounts of the Group are employees
of the Group. The Group has entered into agreements with these
employees which stipulate that the funds held in these bank accounts are
owned and managed by the Group. Cash balances of such accounts
collectively accounted for0.02% and 0.86% of the Group’s total cash
balances as of December 31, 2023 and 2024, respectively.
 
Restricted cash represents cash and cash equivalents from structured
funds, which are established by the institutional trust companies through
segregated bank accounts, including structured funds that are
partially funded by the Group’s own capital. Restricted cash amounted to
RMB1,474,221,741 and RMB 768,186,638 as of December 31,
2023 and 2024 respectively, which can only be used to grant loans and is not
available to fund the general liquidity needs of the Group.
 
F-38

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
5
Loans principal, interest and financing service fee receivables
 
 
 
Note
 
December 31,
2023
   
December 31,
2024
 
 
 
 
 
RMB
   
RMB
 
 
 
 
 
    
  
Home equity loans:
 
(a)
    9,189,524,787      6,510,850,772 
Loans principal, interest and financing service fee receivables
 
 
   
      
  
 
 
 
   
      
  
Less: allowance for credit losses
 
(i)
   
      
  
- Individually evaluated
 
 
   
(39,913,947)    
(79,208,134)
- Collectively evaluated
 
 
    (685,916,740)     (548,717,233)
Subtotal
 
     (725,830,687)     (627,925,367)
Net loans principal, interest and financing service fee receivables of home equity loan
 
     8,463,694,100      5,882,925,405 
Corporate loans:
 
(e)
   
      
  
Loans principal, interest and financing service fee receivables
 
 
   
626,229,041      1,034,432,534 
 
 
 
   
      
  
Less: allowance for credit losses
 
 
   
(55,964,409)    
(50,094,979)
Net loans principal, interest and financing service fee receivables of corporate loan
 
    
570,264,632     
984,337,555 
Net loans principal, interest and financing service fee receivables
 
 
    9,033,958,732      6,867,262,960 
 
(a)
Home equity loans
 
 
 
 
 
December 31, 2023
  
December 31, 2024
   
 
 
 
Note
 
First lien
   Second lien   
Subtotal
  
First lien
   Second lien   
Subtotal
 
 
 
 
 
RMB
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
 
Loans principal, interest and financing
service fee receivables
 
 
  3,477,208,979   5,712,315,808   9,189,524,787   2,475,754,706   4,035,096,066  6,510,850,772 
 
 
 
  
    
    
    
    
    
 
Less: allowance for credit losses
 
(i)
  
    
    
    
    
    
 
- Individually evaluated
 
 
  
(13,099,754)  
(26,814,193)  
(39,913,947)  
(43,242,069)  
(35,966,065) 
(79,208,134)
- Collectively evaluated
 
 
   (272,173,960)   (413,742,780)   (685,916,740)   (201,671,557)   (347,045,676)  (548,717,233)
Subtotal
 
 
   (285,273,714)   (440,556,973)   (725,830,687)   (244,913,626)   (383,011,741)  (627,925,367)
Net loans principal, interest and
financing service fee receivables
 
 
  3,191,935,265   5,271,758,835   8,463,694,100   2,230,841,080   3,652,084,325  5,882,925,405 
 
F-39

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
5
Loans principal, interest and financing service fee receivables (continued)
 
(i)
Allowance for credit losses
 
The allowance for credit losses for home equity loans as of December
31, 2024 was RMB641 million, a decrease from RMB726 million at
December 31, 2023. The decrease was primarily driven by the combined effect
of a decrease in allowances that are collectively evaluated and an
increase in allowances that are individually evaluated. The decrease
in allowances that are collectively evaluated are mainly due to the decrease of
the Company’s outstanding loan principal. As there
are still uncertainties associated with China’s real estate market, the Company chose to contain
the volume of facilitation to mitigate
risks. The increase of allowances that are individually evaluated are mainly because the Company remained
conservative in evaluating the
risks associated with loans that are 90 or more days past due.
 
The table below presents the components of allowances for credit losses
for loans principal, interest and financing service fee receivables by
impairment methodology with the recorded investment as of December
31, 2023 and 2024.
 
 
 
December 31, 2024
 
 
 
Allowance for credit losses
on loans collectively evaluated
   
Allowance
for credit losses
on loans individually evaluated 
   
 
 
 
 
First lien
   
Second lien    
Subtotal
   
First lien
   
Second lien    
Subtotal
   
Total
 
 
 
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
RMB
 
As of January 1
 
272,173,960   
413,742,780   
685,916,740   
13,099,754   
26,814,193   
39,913,947   
725,830,687 
Provision for credit losses
   
11,834,337     
(7,544,697)    
4,289,640     
11,155,428     
29,701,572     
40,857,000     
45,146,640 
Charge-offs
   
-     
-     
-      (93,774,223)     (136,921,530)     (230,695,753)     (230,695,753)
(Decrease)/Increase in
guaranteed recoverable
assets
   
(82,336,740)    
(59,152,407)     (141,489,147)     100,995,026      103,550,359      204,545,385     
63,056,238 
Recoveries
   
-     
-     
-     
11,766,084     
12,821,471     
24,587,555     
24,587,555 
As of December 31
   
201,671,557     
347,045,676     
548,717,233     
43,242,069     
35,966,065     
79,208,134     
627,925,367 
 
   
      
      
      
      
      
      
  
Net loans principal, interest
and financing service fee
receivables
    2,050,453,834      3,359,618,482      5,410,072,316      180,387,247      292,465,842      472,853,089      5,882,925,405 
 
   
      
      
      
      
      
      
  
Recorded investment
    2,252,125,391      3,706,664,158      5,958,789,549      223,629,316      328,431,907      552,061,223      6,510,850,772 
 
F-40

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
5
Loans principal, interest and financing service fee receivables (continued)
 
 
 
December 31, 2023
 
 
 
Allowance
for credit losses
on loans collectively evaluated
   
Allowance for credit losses
on loans individually evaluated
   
  
 
 
First lien
   
Second lien    
Subtotal
   
First lien
    Second lien    
Subtotal
   
Total
 
 
 
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
RMB
 
As of January 1
   
286,300,001     
440,755,236     
727,055,237     
3,836,350     
8,411,486     
12,247,836     
739,303,073 
Provision for credit losses
   
(9,998,235)    
3,075,268     
(6,922,967)    
16,910,650     
28,005,798     
44,916,448     
37,993,481 
Charge-offs
   
(51,262)    
(258,155)    
(309,417)     (20,447,394)     (25,852,778)     (46,300,172)    
(46,609,589)
Decrease in guaranteed
recoverable assets
   
(4,076,544)    
(29,829,569)    
(33,906,113)    
4,240,046     
2,358,226     
6,598,272     
(27,307,841)
Recoveries
   
-     
-     
-     
8,560,102     
13,891,461     
22,451,563     
22,451,563 
As of December 31
   
272,173,960     
413,742,780     
685,916,740     
13,099,754     
26,814,193     
39,913,947     
725,830,687 
 
   
      
      
      
      
      
      
  
Net loans principal, interest
and financing service fee
receivables
    3,156,893,741      5,244,998,702      8,401,892,443     
35,041,524     
26,760,133     
61,801,657      8,463,694,100 
 
   
      
      
      
      
      
      
  
Recorded investment
    3,429,067,701      5,658,741,482      9,087,809,183     
48,141,278     
53,574,326      101,715,604      9,189,524,787 
 
The Group charges off loans principal, interest and financing service
fee receivables if the remaining balance is considered uncollectable.
Recovery of loans principal, interest and financing service fee
receivables previously charged off would be recorded when received.
 
For the description of the Group’s related accounting policies of allowance
for credit losses, see Note 2(e) Loans.
 
The following tables present the aging of allowance for credit losses
as of December 31, 2024.
 
 
 
Total current    
1 - 30 days
past due
   
31 - 90 days
past due
   
91 - 180 days
past due
   
Total loans
 
 
 
RMB
   
RMB
   
RMB
   
RMB
   
RMB
 
 
 
    
    
    
    
  
First lien
   
52,219,677     
55,042,038     
94,409,842     
43,242,069     
244,913,626 
Second lien
   
86,004,370     
93,605,389     
167,435,918     
35,966,065     
383,011,741 
Allowance for credit losses
   
138,224,047     
148,647,427     
261,845,760     
79,208,134     
627,925,367 
 
F-41

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
5
Loans principal, interest and financing service fee receivables (continued)
 
The following tables present the aging of allowance for credit losses
as of December 31, 2023.
 
 
 
Total current    
1 - 30 days
past due
   
31 - 90 days
past due
   
91 - 180 days
past due
   
Total loans
 
 
 
RMB
   
RMB
   
RMB
   
RMB
   
RMB
 
 
 
    
    
    
    
  
First lien
   
129,317,384     
68,099,373     
74,757,203     
13,099,754     
285,273,714 
Second lien
   
216,620,880     
93,622,706     
103,499,194     
26,814,193     
440,556,973 
Allowance for credit losses
   
345,938,264     
161,722,079     
178,256,397     
39,913,947     
725,830,687 
 
(b)
Loan delinquency and non-accrual details
 
The following tables provides information on delinquency, which is
the primary credit quality indicator for loan principal and financing service
fee receivables as of December 31, 2024.
 
 
  Total current   
1 - 30 days
past due
  
31 - 90 days
past due
  
91 - 180
days
past due
  
181 - 270
days
past due
  
271 - 360
days
past due   
361 days
past due
  
Total loans   
Total
non-accrual 
 
 
RMB
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
 
 
 
   
   
   
   
   
   
   
   
  
First lien
  1,743,448,927   211,649,445   297,027,019   152,995,572    70,512,116   
-   
121,628   2,475,754,706   223,629,316 
Second lien
  2,821,925,668   359,606,965   525,131,525   194,145,026   134,211,678   
-   
75,203   4,035,096,066   328,431,907 
Loans principal,
interest and
financing service
fee receivables
  4,565,374,595   571,256,410   822,158,544   347,140,598   204,723,794   
-   
196,831   6,510,850,772   552,061,223 
 
F-42

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
5
Loans principal, interest and financing service fee receivables (continued)
 
The following tables provides information on delinquency, which is
the primary credit quality indicator for loan principal and financing service
fee receivables as of December 31, 2023.
 
 
  Total current    
1 - 30 days
past due
   
31 - 90 days
past due
   
91 - 180
days
past due    
181 - 269
days
past due    
270 - 360
days
past due    
361 days
past due    
Total loans
   
Total
non-accrual  
 
 
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
RMB
 
 
 
    
    
    
    
    
    
    
    
  
First lien
    2,871,408,359      287,844,375      269,814,967      28,055,593      5,119,297      5,309,947      9,656,441      3,477,208,979     
48,141,278 
Second lien
    4,888,992,128      395,912,366      373,836,988      41,784,891      4,009,534      2,479,591      5,300,310      5,712,315,808     
53,574,326 
Loans
principal,
interest and
financing
service fee
receivables     7,760,400,487      683,756,741      643,651,955      69,840,484      9,128,831      7,789,538      14,956,751      9,189,524,787      101,715,604 
 
Loans principal, interest and financing service fee receivables are
placed on non-accrual status when payments are 90 days contractually past.
 
Any interest accrued on non-accrual loans is reversed at 90 days and
charged against current earnings, and interest is thereafter included in
earnings only to the extent actually received in cash. When there
is doubt regarding the ultimate collectability of principal, all cash receipts are
thereafter applied to reduce the recorded investment
in the loan.
 
F-43

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
5
Loans principal, interest and financing service fee receivables (continued)
 
(c)
Non-accrual loans
 
(1)
Non-accrual loans summary
 
 
 
    
Recorded investment
   
  
 
 
Unpaid
principal
balance
   
Non-accrual
loans
   
Non-accrual
loans with
related
allowance for
credit losses    
Non-accrual
loans without
related
allowance for
credit losses    
Related
allowance for
credit losses  
 
 
RMB
   
RMB
   
RMB
   
RMB
   
RMB
 
 
 
    
    
    
    
  
First lien
    2,470,162,350     
223,629,316     
152,995,572     
70,633,744     
43,242,069 
Second lien
    4,025,845,985     
328,431,907     
194,145,026     
134,286,881     
35,966,065 
As of December 31, 2024
    6,496,008,335     
552,061,223     
347,140,598     
204,920,625     
79,208,134 
 
   
      
      
      
      
  
First lien
   
42,315,372     
48,141,278     
27,245,188     
20,902,542     
13,099,754 
Second lien
   
49,134,017     
53,574,326     
40,927,852     
12,640,022     
26,814,193 
As of December 31, 2023
   
91,449,389     
101,715,604     
68,173,040     
33,542,564     
39,913,947 
 
Individually evaluated loans are those loans where the Group, based
on current information and events, believes it is probable all amounts due
according to the contractual terms of the loan will not be
collected. All amounts due according to the contractual terms means that both the
contractual interest payments and the contractual principal
payments of a loan will be collected as scheduled in the loan agreement. Individually
evaluated loans without an allowance generally represent
loans that the fair value of the underlying collateral meets or exceeds the loan’s
amortized cost.
 
(2)
Average recorded investment in non-accrual loans
 
 
 
Year ended
December 31,
2023
   
Year ended 
December 31,
2024
 
 
 
Average
recorded
investment
   
Interest and 
fees income 
recognized
   
Average 
recorded 
investment
   
Interest and 
fees income 
recognized
 
 
 
RMB
   
RMB
   
RMB
   
RMB
 
 
 
    
    
    
  
First lien
   
55,368,819     
118,164,396     
131,831,654     
149,067,173 
Second lien
   
74,194,759     
135,686,886     
201,779,809     
170,331,545 
Non-accrual loans
   
129,563,578     
253,851,282     
333,611,463     
319,398,718 
 
(i)
Average recorded investment represents ending balance for the
last four quarters and does not include the related allowance for credit losses.
 
(ii) The interest and fees income recognized are those interest and
financing service fees recognized related to Individually evaluated loans. All the
amounts are recognized on cash basis.
 
F-44

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
5
Loans principal, interest and financing service fee receivables (continued)
 
No debt restructuring in which contractual terms of loans are modified,
has occurred during 2023 and 2024.
 
The Group transferred loans with carrying amounts of RMB3,090,579,581
and RMB1,674,043,872 to unrelated third party investors and recorded
the transfers as sales for the years ended December 31, 2023 and
2024, respectively. The Group recognized net losses of 17,190,545 and
RMB6,497,731 from transfers accounted for as sales of loans for
the years ended December 31, 2023 and 2024, respectively.
 
The Group carries out pre-approval, review and credit approval of loans
by professionals for credit risk arising from micro credit business. During
the post-transaction monitoring process, the Group conducts
a visit of customers regularly after disbursement of loans and conducts on-site
inspection when the Group considers it is necessary. The
review focuses on the status of the collateral.
 
The Group adopts a loan risk classification approach to manage the
loan portfolio risk. Loans are classified as collectively evaluated and
individually evaluated based on the different risk characteristics.
When one or more events demonstrates there is objective evidence of changes in
risk characteristics and causes losses, corresponding loans
are considered to be classified as individually evaluated. The individually evaluated
component is calculated on an individual basis for
the loans whose payments are contractually past due more than 90 days or which do not share
similar risk characteristics.
 
The Group applies a series of criteria in determining the classification
of loans. The loan classification criteria focus on a number of factors,
including (i) the borrower’s ability to repay the loan;
(ii) the borrower’s repayment history; (iii) the borrower’s willingness to repay; (iv) the net
realizable value of any collateral;
and (v) the prospect for the support from any financially responsible guarantor. The Group also takes into
account the length of time
for which payments of principal and interest on a loan are overdue.
 
(d)
Loans held-for-sale
 
Loans held-for-sale are measured at the lower of cost or fair value,
with valuation changes recorded in noninterest revenue. The valuation is
performed on an individual loan basis. Loans transferred to held-for-sale
category were RMB2,471,413,744 and RMB 3,529,585,983 as of
December 31, 2023 and 2024, respectively.
 
(e)
Corporate loans
 
Corporate loans are unsecured loans granted to unrelated entities in
order to fulfil their normal operating and capital requirement. Loans principal,
interest and financing service fee receivables of corporate
loan were RMB626,229,041 and RMB1,034,432,534 as of December 31, 2023 and
December 31, 2024 and the Allowance for credit losses assessed
on a collective basis were RMB55,964,409 as of December 31, 2023 and
RMB50,094,979 as of December 31, 2024, respectively.
 
F-45

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
6
Investment securities
 
Investment securities consist of short term investments ,debt
securities and convertible bonds.
 
 
 
Note
 
December 31,
2023
   
December 31,
2024
 
 
 
 
 
RMB
   
RMB
 
Short term investments
 
(a)
   
146,486,668     
38,695,647 
Debt securities
 
(b)
   
231,922,043     
187,357,047 
Convertible bonds
 
(c)
   
35,499,500     
40,876,080 
Total
 
 
   
413,908,211     
266,928,774 
 
(a)
Short term investments
 
The carrying amount and fair value of the investment securities by
major security type and class of security as of December 31, 2023 and 2024
was as follows:
 
 
 
Aggregate
cost basis
   
Profits and
losses from
fair value
changes
   
Aggregate
fair value
 
 
 
RMB
   
RMB
   
RMB
 
As of December 31, 2024:
 
    
    
  
Wealth management products
   
38,695,647     
-     
38,695,647 
Total
   
38,695,647     
-     
38,695,647 
 
 
 
Aggregate
cost basis
   
Profits and
losses from
fair value
changes
   
Aggregate
fair value
 
 
 
RMB
   
RMB
   
RMB
 
As of December 31, 2023:
 
    
    
  
Wealth management products
   
151,456,194     
(4,969,526)    
146,486,668 
Total
   
151,456,194     
(4,969,526)    
146,486,668 
 
Wealth management products are investment products issued by commercial
banks and other financial institutions in China. The wealth
management products invest in a pool of liquid financial assets in the interbank
market or exchange, including debt securities, asset backed
securities, interbank lending, reverse repurchase agreements and bank deposits.
The Group did not recognize any profits and losses from fair value
changes since the dominance of Wealth management products the Group
had in 2024 are Short-Term with fixed return.
 
F-46

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
6
Investment securities (continued)
 
(b)
Debt securities
 
The debt securities are in the form of an investment in partnerships,
made in December 2021 and 2022 and held- to-maturity corporate debt
securities purchased in 2022. The partnership will return RMB10,000,000
to the Group quarterly, along with an 8% interest. The principal and
interests are required to be fully repaid within 3 years. The investment
has an amortized cost of RMB237,171,123 and RMB 196,098,179 with an
allowance for credit loss of RMB8,195,326 and RMB 8,741,132 for the
years ended December 31 2023 and 2024 respectively. The held-to-
maturity debt securities have an amortized cost of RMB4,510,285 and Nil
with an allowance for credit loss of RMB1,564,039 and Nil for the
years ended December 31 2023 and 2024 respectively.
 
(c)
Convertible bonds
 
In November, 2023, the Group invested in the convertible bonds of US$5,000,000
of CNF FAMILY OFFICE LIMITED, an unrelated party
company, which is accounted for at the fair value option. In 2024, the Group invested
another US$600,000 to CNF FAMILY OFFICE LIMITED.
The fair value of the convertible bonds as at December 31, 2024 has not changed significantly
from its date of investment. The convertible bonds
are equivalent to RMB35,499,500 and 40,876,080 as of December 31, 2023 and 2024.
 
7
Property and equipment
 
 
 
December 31,
2023
   
December 31,
2024
 
 
 
RMB
   
RMB
 
 
 
    
  
Office and other equipment
   
20,395,676     
15,525,093 
Leasehold improvements
   
16,192,039     
14,225,255 
Motor vehicles
   
3,095,131     
3,257,768 
Building
   
-     
183,775,478 
Less:	accumulated depreciation
   
(31,523,896)    
(29,305,673)
Total
   
8,158,950     
187,477,921 
 
The Group paid RMB 177,325,555 in 2023 for the purchase of
an office building, which was recorded as a prepayment as of December 31, 2023.
The office building was placed into service and was recognized
as a fixed asset in January, 2024. Total depreciation expense for the years ended
December 31, 2023 and 2024 was RMB1,234,129 and RMB11,540,877,
respectively, which were recorded in other expenses in each year.
 
F-47

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
8
Deposits
 
Deposits include security deposits to landlords of rental premises
and deposits to the China Trust Protection Fund. In accordance with relevant
rules of the China Trust Protection Fund, 1% of the size
of trust plans subscribed is deposited in the Fund.
 
9
Guaranteed assets
 
As described in Note 13, sales partners submit CRMPs to the Group as
a guarantee for the loans under the collaboration model. When allowance
for credit losses is recognized and accrued, the Group will evaluate
if the loan increase in guaranteed recoverable assets guaranteed by the CRMPs
is probable and estimable. If the increase in guaranteed
recoverable assets is probable and estimable, the amount guaranteed by the CRMPs is
recognized as guaranteed assets.
 
10
Other assets
 
 
 
Note
 
December 31,
2023
   
December 31,
2024
 
 
 
 
 
RMB
   
RMB
 
 
 
 
 
    
  
Guarantee deposits
 
(i)
   
385,472,848     
423,441,637 
Receivables from sales of loans
 
(ii)
   
269,284,889     
152,225,024 
Prepayments
 
(iii)
   
278,261,279     
111,079,096 
Purchased loans with credit deterioration
 
(iv)
   
135,274,471     
419,519,965 
Receivables for default guarantee payments
 
(v)
   
4,171,474     
28,519,198 
Receivables from loan facilitation service
 
(vi)
   
71,113,890     
45,703,316 
Receivables of guarantee service
 
(vii)
   
57,030,910     
4,197,264 
Non-marketable equity securities
 
(viii)
   
38,178,264     
13,178,264 
Amounts due from employees
 
(ix)
   
5,172,406     
7,741,156 
Other receivables
 
 
   
30,130,988     
345,293,660 
Total
 
 
    1,274,091,419      1,550,898,580 
 
(i)
Guarantee deposits are deposits that the Group provided, through Guangdong Nanfeng Financial Guarantee Group Co., Ltd (“Guangzhou
Nanfeng”), a company that holds a financial guarantee license, for loans granted (a) under its consolidated VIE Zhonghai Lanhai
Structured
Fund 30-X, which is not structured in a stratified way and requires guarantee from a third party, and (b) under the cooperation
with
commercial banks for loan facilitation, post-facilitation and guarantee services, refer to Note 2(e)(ii) Off-balance sheet loans.
 
(ii) As mentioned in Note 5, the Group transferred the delinquent loans to third parties so that the Group could collect the payment more
quickly
than to simply dispose the collaterals through litigation. The loan is derecognized if the Group does not retain any risk and
rewards after
transferring the loan. Such transfer would be recorded as sales according to ASC 860-10-40-5. There is no constrain on the
transferee’s rights
to pledge or exchange, and the Group will not maintain effective control on the transferred loans for which the transferred
loans are accounted
for as sales without repurchase agreements.
 
F-48

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
10
Other Assets (continued)
 
(iii) Prepaid accounts mainly include litigation fees, rent, water, electricity and property management and network charges prepaid in the
daily
operation of the Group. Another important component is the prepayment of building purchase.
 
 
(iv) The purchased loans with credit deterioration are overdue loans repurchased at par value by the Group from commercial banks under the
commercial bank partnership model. In 2023, the Group started purchasing loans with credit deterioration. As of 31 December 2024, the
purchased loans with credit deterioration amounted to RMB608,297,516 and allowance for credit loss amounted to RMB188,777,551.
 
The following tables provides information on delinquency,
which is the primary credit quality indicator for purchased loans with credit
deterioration as of December 31, 2024.
 
 
 
31 - 90 days
past due
   
91 - 180 days
past due
   
181+ days
past due
   
Total
 
 
 
RMB
   
RMB
   
RMB
   
RMB
 
 
 
    
    
    
  
Purchased loans with credit deterioration
   
33,042,549     
88,589,648     
486,665,319     
608,297,516 
   
The table below sets forth the movement of allowance for
credit loss for the years ended December 31, 2024:
 
 
 
2024
 
 
 
RMB
 
As of January 1
   
61,389,167 
Provision for credit losses
   
133,136,043 
Charge-offs
   
(5,747,659)
As of December 31
   
188,777,551 
 
(v)
Under the commercial bank partnership model when a borrower is overdue for a certain number of days, the Group pays interest to the
bank
on behalf of the borrower, which is subsequently charged to the borrower, and this amount accounts for the receivables for default
guarantee
payments.
 
(vi)
Under the commercial bank partnership model, the Group provides loan facilitation services and post-facilitation services.
 
(vii) Under the commercial bank partnership model, the Group calculates the guarantee obligation and recognizes the guarantee fee receivable.
 
(viii) The measurement alternative is selected for the non-marketable equity securities. Under the measurement alternative, the equity securities
without readily determinable fair value are measured at cost minus impairment and adjusted for changes in observable prices.
 
In June 2016, the Group invested 10,003,334 shares at RMB3.00
per share, which represents 2.14% of the paid-in capital, in Guangdong
Qingyuan Rural Commercial Bank (“Qingyuan Rural”).
The Group transferred 2 million shares to an unrelated third party at RMB3.00 per share
which is same as the investment cost on September
18, 2019. The Group transferred 1.7 million shares to an unrelated third party at RMB2.00 per
share and recognized an investment loss
of RMB1,524,159 on December 26, 2023. In 2023, the Group recognized an impairment of
RMB5,907,577. As of December 31, 2024, the Group
has invested RMB13,178,264 in Qingyuan Rural.
 
(ix)
Amounts due from employees mainly include temporary advances to employees for payments on behalf of the Group.
 
F-49

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
11
Interest-bearing borrowings
 
(a)
Borrowings under agreements to repurchase
 
Financial assets sold under agreements to repurchase are effectively
short-term collateralized borrowings. In these transactions, the Group receives
cash in exchange for transferring financial assets as
collateral and recognizes an obligation to reacquire the financial assets for cash at the
transaction’s maturity. These types of transactions
create risks, including (1) fair value of the financial assets transferred may decline below the
amount of obligation to reacquire the
financial assets, and therefore create an obligation to pledge additional amounts, or to replace collaterals
pledged, and (2) the Group
does not have sufficient liquidity to repurchase the financial assets at the transaction’s maturity.
 
 
 
Note
 
Fixed interest
rate per annum  
Term
 
December 31,
2023
   
December 31,
2024
 
 
 
 
 
  
  
RMB
   
RMB
 
Repurchase agreements
 
 
 
  
  
    
  
 
 
 
 
  
  
    
  
Funds obtained from financial institutions
 
(i)
 
8.0% to 13.8%  
Within 3 years    
681,556,262      1,663,401,923 
Interest payable to financial institutions
 
(i)
 
  
    
5,025,192     
5,830,327 
Total repurchase agreements
 
 
 
  
    
686,581,454      1,669,232,250 
 
Funds obtained from financial institutions
 
In 2022, the Group transferred loan
principals, interests and financing service fee receivables with carrying amount of RMB5,965,977 to an
unrelated third-party
transferee, Pingan Puhui Lixin Asset Management Co., Ltd (“Pingan Puhui”), with a 13.8% per annum rate of return. In
2023, the Group transferred additional loan principals, interests and financing service fee receivables with carrying amount of
RMB78,506,284 to
Pingan Puhui, with a 12.8% to 13.8% per annum rate of return. In 2024, the Group transferred additional loan
principals, interests and financing
service fee receivables with carrying amount of RMB 197,573,465 to Pingan Puhui, with a 12.8% to
13.8% per annum rate of return, a portion of
them with carry amount of RMB101,872,043 is settled and repurchased back by the Group.
However, in accordance with ASC 860, Transfers and
Servicing, the right to earnings is not derecognized upon transfer as the Group
is required to repurchase: (a) the transferred loans which become
overdue more than 360 days; (b) the remaining loan principals
which are not matured upon the end of the term of the transfer. As of December 31,
2024, the amount of funds obtained from Pingan
Puhui and the interest payable are RMB 154,094,997 and RMB 3,266,900, respectively.
 
In 2022, the Group transferred loan principals, interests
and financing service fee receivables with carrying amount of RMB113,053,053 to an
unrelated third-party transferee, China Foreign Economy
and Trade Trust Co.,Ltd (“FOTIC”) , with a 12.5% per annum rate of return. In 2023, the
Group transferred additional loan
principals, interests and financing service fee receivables with carrying amount of RMB1,442,034,780 to
FOTIC, with a 11.5% to 12.5% per
annum rate of return. In 2024, the Group transferred additional loan principals, interests and financing service
fee receivables with
carrying amount of RMB1,220,808,014 to FOTIC, with a 11.5% to 12.5% per annum rate of return, a portion of them with
carry amount of RMB1,506,610,663
is settled and repurchased back by the Group. However, in accordance with ASC 860, Transfers and
Servicing, the right to earnings is not
derecognized upon transfer as the Group is required to repurchase: (a) the transferred loans which become
overdue more than 913 days;
(b) the remaining loan principals which are not matured upon the end of the term of the transfer. As of December 31,
2024, the amount
of funds obtained from FOTIC and the interest payable are RMB604,731,147 and RMB732,799, respectively.
 
In 2023, the Group transferred loan principals, interests
and financing service fee receivables with carrying amount of RMB60,330,828 to an
unrelated third-party transferee, Shanghai Xingbo Enterprise
Management Partnership (Limited Partnership) (“Shanghai Xingbo”), with a 12.5%
per annum rate of return. In 2024, a portion
of them with carry amount of RMB43,436,307 is settled and repurchased back by the Group.
However, in accordance with ASC 860, Transfers
and Servicing, the right to earnings is not derecognized upon transfer as the Group is required to
repurchase the remaining loan principals
which are not matured two years after the date of transfer. As of December 31, 2024, the amount of funds
obtained from Shanghai Xingbo
and the interest payable are RMB15,483,298 and RMB 384,798 , respectively.
 
F-50

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
11
Interest-bearing borrowings (continued)
 
In 2023, the Group transferred loan principals, interests and financing
service fee receivables with carrying amount of RMB143,964,403 to an
unrelated third-party transferee, Zhonghai Trust Co.,Ltd. (“Zhonghai
Trust”), with a 11.3% to 13.2% per annum rate of return. In 2024, the Group
transferred additional loan principals, interests and
financing service fee receivables with carrying amount of RMB 253,263,591 to Zhonghai Trust
Co.,Ltd. (“Zhonghai Trust”), with
a 11.3% to 13.2% per annum rate of return, a portion of them with carry amount of RMB132,241,088 is settled
and repurchased back by the
Group. However, in accordance with ASC 860, Transfers and Servicing, the right to earnings is not derecognized
upon transfer as the Group
is required to repurchase: (a) the transferred loans which become overdue more than 720 days; (b) the remaining loan
principals which
are not matured upon the end of the term of the transfer. As of December 31, 2024, the amount of funds obtained from Zhonghai
Trust and
the interest payable are RMB264,986,906 and RMB188,600,000 , respectively.
 
In 2023, the Group transferred loan principals, interests and financing
service fee receivables with carrying amount of RMB206,493,005 to an
unrelated third-party transferee, Cofco Trust Co. Ltd. (“Cofco
Trust”), with a 11.5% to 12.3% per annum rate of return. In 2024, the Group
transferred additional loan principals, interests and
financing service fee receivables with carrying amount of RMB 902,523,554 to Cofco Trust
Co. Ltd. (“Cofco Trust”), with a
11.5% to 12.3% per annum rate of return, a portion of them with carry amount of RMB310,475,497 is settled and
repurchased back by the
Group. However, in accordance with ASC 860, Transfers and Servicing, the right to earnings is not derecognized upon
transfer as the Group
is required to repurchase if the repayment of the transferred loans is not satisfactory for which the payback of the pledged
assets is
less than 10%, 20%, 30% and 70% of the initial remaining principal amount of the pledged assets at the agreed date. As of December 31,
2024, the amount of funds obtained from Cofco Trust and the interest payable are RMB 565,930,616 and RMB 194,750 , respectively.
 
In 2023, the Group transferred loan principals, interests and financing
service fee receivables with carrying amount of RMB56,038,750 to an
unrelated third-party transferee, Changzhou Huitong Investment Co.
(“Changzhou Huitong”), with a 11.5% to 13.0% per annum rate of return. In
2024, a portion of them with carry amount of RMB26,311,503
is settled and repurchased back by the Group. However, in accordance with ASC
860, Transfers and Servicing, the right to earnings is not
derecognized upon transfer as the Group is required to repurchase the remaining loan
principals which are not matured two years after
the date of transfer. As of December 31, 2024, the amount of funds obtained from Changzhou
Huitong and the interest payable are RMB10,993,097
and RMB 64,401 , respectively.
 
In 2024, the Group transferred loan principals, interests and financing
service fee receivables with carrying amount of RMB 26,169,926 to an
unrelated third-party transferee,
Guangxi Jinkong Asset Management Co., Ltd. (“Guangxi Asset”), with
a 12.0% to 12.5% per annum rate of
return, a portion of them with carry amount of RMB6,581,146 is settled and repurchased back by the
Group. However, in accordance with ASC
860, Transfers and Servicing, the right to earnings is not derecognized upon transfer as the Group
is required to repurchase the remaining loan
principals which are not matured two years after the date of transfer. As of December 31,
2024, the amount of funds obtained from Guangxi Asset
and the interest payable are RMB13,540,106 and RMB300,077, respectively.
 
In 2024, the Group transferred loan principals, interests and financing
service fee receivables with carrying amount of RMB50,000,000 to an
unrelated third-party transferee,
Ruijing Financial Assets Management Company (“Jiangxi Ruijin”), with a 12.5% per annum rate of return.
However, in
accordance with ASC 860, Transfers and Servicing, the right to earnings is not derecognized upon transfer as the Group is required to
repurchase the remaining loan principals which are not matured two years after the date of transfer. As of December 31, 2024, the amount
of funds
obtained from Jiangxi Ruijin and the interest payable are RMB29,993,546 and RMB104,144, respectively.
 
F-51

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
11
Interest-bearing borrowings (continued)
 
In 2024, the Group transferred loan principals, interests and financing
service fee receivables with carrying amount of RMB52,850,000 to an
unrelated third-party transferee,
Nanjing Zijin Asset Management Co., Ltd (“Zijin Asset”), with a 10.0% per annum rate of return. However, in
accordance
with ASC 860, Transfers and Servicing, the right to earnings is not derecognized upon transfer as the Group is required to repurchase
the remaining loan principals which are not matured two years after the date of transfer. As of December 31, 2024, the amount of funds
obtained
from Zijin Asset and the interest payable are RMB37,920,000 and RMB11,951, respectively.
 
In 2024, the Group transferred loan principals, interests and financing
service fee receivables with carrying amount of RMB81,660,000 to an
unrelated third-party transferee,
Jiantou Holding Limited Liability Company (“Jiantou Holding”), with a 10.0% per annum rate of return, a portion
of them with
carry amount of RMB2,951,072 is settled and repurchased back by the Group. However, in accordance with ASC 860, Transfers and
Servicing,
the right to earnings is not derecognized upon transfer as the Group is required to repurchase the remaining loan principals which are
not matured two years after the date of transfer. As of December 31, 2024, the amount of funds obtained from Jiantou Holding and the interest
payable are RMB42,115,116 and RMB372,784, respectively.
 
 
 
December 31,
2023
   
December 31,
2024
 
 
 
RMB
   
RMB
 
Underlying collateral types of gross obligations
 
    
  
Repurchase agreements:
 
    
  
Loans principal, interest and financing service fee receivables
   
681,556,262      1,663,401,923 
Total repurchase agreements
   
681,556,262      1,663,401,923 
 
The below table provides the contractual maturities of the gross obligations
under repurchase agreements.
 
 
 
Overnight
   
Up to 30 
days
   
30 to 90 
days
   
Greater than 
90 days
   
Total gross 
obligations
 
 
 
RMB
   
RMB
   
RMB
   
RMB
   
RMB
 
 
 
    
    
    
    
  
Repurchase agreements
 
    
    
    
    
  
As of December 31, 2024
   
2,781,180     
7,955,491     
10,308,988      1,642,356,264      1,663,401,923 
As of December 31, 2023
   
-     
-     
-     
681,556,262     
681,556,262 
 
F-52

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
11
Interest-bearing borrowings (continued)
(b)
Other borrowings
 
Other borrowings
 
Note
  
Fixed 
interest rate 
per
annum
 
Term
 
December 31,
2023
  
December 31,
2024
 
 
 
 
  
 
 
 
 
RMB
  
RMB
 
Short-term:
 
 
  
  
  
   
  
Investors of consolidated VIEs
  
(i)
  
6.0% to 8.5% 
Less than 1 year  6,428,349,468   5,354,881,238 
 
  
 
  
  
   
    
  
Long-term:
  
 
  
  
   
    
  
Investors of consolidated VIEs
  
(i)
  
8.0% to 8.7% 
1 - 5 years  1,679,000,689   
459,550,000 
 
  
 
  
  
   
    
  
Commercial bank A
  
(ii)
  
4.5% 
10 years  
74,870,833   
67,320,834 
 
  
 
  
  
   
    
  
Commercial bank B
  
(iii)
  
4.1% 
30 years  
22,250,000   
21,830,983 
 
  
 
  
  
   
    
  
Interest payable to
  
 
  
  
   
    
  
Investors of consolidated VIEs
  
(i)
  
  
   
39,144,391   
29,703,862 
Total
  
 
  
  
   8,243,615,381   5,933,286,917 
 
1.
The financial liabilities arising from the VIEs with underlying investments in loans to customers are classified as payable in these
consolidated
financial statements. It is because the Group has an obligation to pay senior tranches holders upon maturity dates based
on the related terms of those
consolidated structured funds. As of December 31, 2024, the borrowings from VIEs have principal RMB 5,814,431,238,
bearing interests from 6.0%
to 8.7% per year.
 
2.
In December 2022, the Group entered into a 10-year loan agreement with a commercial bank in the PRC, with total principal of RMB75,500,000.
The
borrowing bear annual interest rate of 4.5% in 2024 and were secured by the Group’s recently purchased office buildings. As
of December 31, 2024,
the outstanding loan principal was RMB 67,320,834.
 
3.
In November 2023, the Group entered into a 30-year loan agreement with a commercial bank in the PRC, with total principal of RMB22,250,000.
The
borrowing bear annual interest rate of 4.1% and were secured by the Group’s recently purchased real estate property. As of December
31, 2024, the
outstanding loan principal was RMB 21,830,983.
 
F-53

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
11
Interest-bearing borrowings (continued)
 
Aggregate annual maturities of long-term borrowing obligations (based
on final maturity dates) are as follows:
 
 
 
December 31, 2024
 
 
 
2025
  
2026
  
2027
  
2028
  
2029
   Thereafter   
Total
 
 
 
RMB
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
 
Investors of consolidated VIEs
  
     435,100,000   
-   
-   
-   
24,450,000    459,550,000 
 
  
    
    
    
    
    
    
  
Commercial bank A
  
7,550,000   
7,550,000   
7,550,000   
7,550,000   
7,550,000   
29,570,834   
67,320,834 
 
  
    
    
    
    
    
    
  
Commercial bank B
  
402,531   
419,349   
436,869   
455,121   
1,290,140   
18,826,973   
21,830,983 
 
  
    
    
    
    
    
    
  
Total
  
7,952,531    443,069,349   
7,986,869   
8,005,121   
8,840,140   
72,847,807    548,701,817 
  
 
 
December
31, 2023
 
 
 
2024
  
2025
  
2026
  
2027
  
2028
   Thereafter   
Total
 
 
 
RMB
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
  
RMB
 
Investors of consolidated VIEs
  
    -   1,240,300,000   
98,400,000   
2,350,689   
-    337,950,000   1,679,000,689 
 
  
    
    
    
    
    
    
  
Commercial bank A
  
7,550,000   
7,550,000   
7,550,000   
7,550,000   
7,550,000   
37,120,833   
74,870,833 
 
  
    
    
    
    
    
    
  
Commercial bank B
  
386,388   
402,531   
419,349   
436,869   
455,121   
20,149,742   
22,250,000 
 
  
    
    
    
    
    
    
  
Total
  
7,936,388   1,248,252,531    106,369,349   
10,337,558   
8,005,121    395,220,575   1,776,121,522 
 
F-54

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
11
Interest-bearing borrowings (continued)
(c)
Pledged assets
 
The Group pledges certain assets to secure borrowings under agreements
to repurchase and other borrowings. The table provides the total carrying
amounts of pledged assets by asset types.
 
 
 
December 31,
2023
   
December 31,
2024
 
 
 
RMB
   
RMB
 
Loans principal, interest and financing service fee receivables
    2,163,917,080      2,760,756,311 
 
   
      
  
Office buildings
   
151,111,771      1,347,933,178 
 
   
      
  
Real estate property
   
44,500,000     
43,071,871 
Total
    2,359,528,851      2,938,621,500 
 
12
Credit risk mitigation position
 
 
 
December 31,
2023
   
December 31,
2024
 
 
 
RMB
   
RMB
 
Balance at the beginning of the year
    1,354,653,070      1,589,183,564 
Increase during the year
   
767,794,395     
713,133,747 
Decrease during the year
    (533,263,901)     (931,643,232)
Balance at the end of the year
    1,589,183,564      1,370,674,079 
 
Under the collaboration model, the Group collaborates with sales partners
who are dedicated to introduce the Group’s loan services to prospective
borrowers. The sales partners need to place security deposits
ranging from 5%-25% of the loans issued to the borrowers introduced by them (such
contribution, the “credit risk mitigation position”
or “CRMP”) to the Group. The credit risk mitigation position will be transferred into an account
designated by the Group and
is fully refundable upon repayment of the loan the credit risk mitigation position is associated with.
 
F-55

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
13
Other liabilities
 
 
 
Note
 
December 31,
2023
   
December 31,
2024
 
 
 
 
 
RMB
   
RMB
 
Guarantee repayments from sales partner
 
(i)
   
745,949,231     
903,573,569 
Guarantee liabilities
 
(ii)
   
348,687,842     
355,474,674 
Settlement and clearing accounts
 
(iii)
   
185,879,704     
222,315,820 
Collaboration cost payable
 
(iv)
   
77,772,200     
54,131,483 
Other tax payable
 
(v)
   
67,039,714     
49,744,896 
Receipt in advance
 
(vi)
   
39,640,024     
30,613,918 
Customer pledged deposits
 
(vii)
   
39,136,313     
41,857,183 
Amounts due to third parties
 
(viii)
   
15,634,165     
7,252,415 
Accrued expenses
 
(ix)
   
7,308,342     
11,868,417 
Others
 
(x)
   
3,644,317     
9,622,431 
Total
 
 
    1,530,691,852      1,686,454,806 
 
(i)
Under the collaboration model, sales partners are required to provide a certain level of guarantee of repayment for loans recommended.
Guarantee
repayments from sales partner mainly consist of repayments collected from sales partners who exercise the guarantee, and those
repayments will be
returned to trust company.
 
(ii) In 2021, the Group started to cooperate with a third-party financing guarantee corporation, Guangzhou Nanfeng, that directly provides
guarantee
services to commercial banks. According to relevant financial guarantee arrangements, Guangzhou Nanfeng will fulfil its obligations
to purchase
defaulted loans. However, the Group is required to provide deposits and replenish such deposits from time to time to Guangzhou
Nanfeng for its
obligations of purchasing defaulted loans. Effectively, the Group provides back-to-back guarantee to Guangzhou Nanfeng
and takes on all of the credit
risk of the borrowers. These financial guarantee contracts are accounted for as guarantee liabilities under
ASC 460, Guarantees. Maximum potential
undiscounted future payment that the Group
would be required to make were RMB4.06 billion and RMB1.86 billion, as of December 31, 2023 and
December 31, 2024, respectively. The
Group recognized both a stand-ready guarantee liability under ASC 460 with an associated guarantee receivable,
amounting
RMB57,132,677 and RMB4,197,264 for fiscal year 2023 and 2024, respectively, and a contingent guarantee liability with an allowance
for
credit losses of the underlying loans under current expected credit loss (“ACL”) model for these financial guarantee
provided for off-balance sheet
loans, amounting RMB291,555,165 and RMB351,277,409
for fiscal year 2023 and 2024, respectively. The increase in contingent guarantee liabilities
under ACL model from December 31,
2023 to December 31, 2024 is mainly due to the increase of loans defaulted which was guaranteed by
Guangzhou Nanfeng.
 
(iii) The Group transferred loans to third party investors and recorded these transactions as sales in Note 5(c). After the transfer, the
contract terms related
to payment proceeds from the loans remain the same: The Group collects payments of loans and then disburses the
proceeds from the relevant loans to
third-party transferees.
 
F-56

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
13
Other Liabilities (continued)
 
(iv)
The collaboration cost for sales partners is a percentage
of the loan principal amount that the sales partners recommended to the Group and
is calculated by subtracting the project cost, a cost
which is agreed between the Group and the sales partners that will vary based on different
terms of loans, from interest and fees income
received from borrowers.
 
(v)
Other tax payables mainly represent value-added tax and surcharges
payables.
 
(vi)
Receipt in advance consists of advance for interest and financing
service fees on loans and down payments of loans held-for-sale by loan
transferees.
 
(vii) Customer pledged deposits mainly consist of the deposits collected
from certain customers to reduce the risk of failure to make payments on
schedule.
 
(viii) Amounts due to third parties are payments to be paid for third
parties.
 
(ix)
Accrued expenses mainly consist of promotional costs relating
to building the collaboration model and expenses payable to consultants such
as the auditor and lawyer.
 
(x)
Other liabilities are expected to be settled or recognized
as income within one year or are repayable on demand.
 
14
Ordinary shares
 
On January 8, 2014, the Company was incorporated in the
Cayman Islands with authorized share capital of HKD 380,000 divided into
3,800,000,000 shares of a nominal or par value of HKD
0.0001 each. Upon the incorporation of the Company, one subscriber’s share was allotted
and issued to Kevin Butler at a
consideration of HKD 0.0001, representing 100% of the entire ordinary share of the Company. On the same date,
such share was
transferred to Complete Joy Investments Limited (“Complete Joy”) at Nil consideration. As a result, Complete Joy was the
sole
owner of the Company.
 
On July 11, 2018, the Company repurchased of a total of
1,230,434,041 shares of HKD 0.0001 each share, following by issuing a total of
1,230,434,040 shares of USD 0.0001 each share. As the
result of the above redenomination, the par value of the Company’s shares has been
changed from HKD 0.0001 to USD 0.0001, and
its authorized share capital has been increased to USD 380,000 divided into 3,800,000,000 shares
of USD 0.0001 each.
 
Upon the IPO on November 7, 2018 and exercise of the
green shoes options, the Company issued 130,000,000 and 8,500,000 ordinary shares,
equal to 6,500,000 ADSs and 425,000 ADSs,
respectively, priced at USD 7.5 per ADS. The Company issued 2,709,200 ordinary shares, equal to
135,460 ADSs, upon a follow-on
exercise of the green shoes options on November 21, 2018, priced at USD 7.5 per ADS. As of December 31,
2024, the Company in total
issued 1,371,643,240 outstanding ordinary shares.
 
As disclosed in Note 27, on July 19, 2021, 187,933,720 ordinary shares
were issued to JPMorgan Chase Bank N.A. (the “Depositary”) as a reserve
pool for future issuances upon the exercise of share
options granted under the 2018 Option to the Group’s management members and employees.
All shareholder rights of these 187,933,720
ordinary shares including but not limited to voting rights and dividend rights are unconditionally
waived until the corresponding shares
are exercised. While the ordinary shares were legally issued to the Depositary, the Depositary does not have
any of the rights associated
with the ordinary shares, as such the Group accounted for these shares as issued but not outstanding until the waiver is
released by the
Group, which occur when the share options are exercised and ordinary shares are transferred to the management members and
employees.
 
15
Additional paid-in capital
 
Additional paid-in capital represents (1) the difference between the
nominal value of share capital and the paid-up capital of the Group; (2) the
difference between the purchase price and the proportionate
share of the identifiable net assets of Guangzhou Anyu when the Group acquired its
remaining shares to take full ownership; (3) the portion
of the grant date fair value of unexercised share options granted to employees of the Group
that has been recognized.
 
F-57

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
16
Retained earnings
 
 
 
Note
 
December 31,
2023
   
December 31,
2024
 
 
 
 
 
RMB
   
RMB
 
 
 
 
 
    
  
PRC statutory reserves
 
(i)
   
258,654,052     
258,654,052 
PRC surplus reserves
 
(ii)
   
173,958,994     
190,082,835 
Unreserved retained earnings
 
 
    2,671,343,496      2,693,004,101 
Total
 
 
    3,103,956,542      3,141,740,988 
 
(i)
With effect from July 1, 2012, pursuant to the “Administrative
Measures on Accrual of Provisions by Financial Institutions” issued by the
Ministry of Finance in March 2012, the Group is required,
in principle, to set aside a general reserve not lower than 1.5% of the ending
balance of its gross risk-bearing assets.
 
(ii)
In accordance with the Company’s PRC subsidiaries’
articles of associate, the subsidiaries are required to appropriate 10% of their net
incomes, upon approval by board of directors.
 
17
Accumulated other comprehensive losses
 
 
 
Balance as
of
January 1,
2023
   
Other
comprehensive
loss, net
   
Balance as
of 
December 31,
2023
 
 
 
RMB
   
RMB
   
RMB
 
Foreign currency translation adjustment
   
(10,211,997)    
867,116     
(9,344,881)
Total
   
(10,211,997)    
867,116     
(9,344,881)
 
 
 
Balance as of
January 1,
2024
   
Other
comprehensive
income, net
   
Balance as of 
December 31,
2024
 
 
 
RMB
   
RMB
   
RMB
 
Foreign currency translation adjustment
   
(9,344,881)    
524,148     
(8,820,733)
Total
   
(9,344,881)    
524,148     
(8,820,733)
 
18
Interest and fees income
 
 
 
 
   
Year
ended December 31,
 
 
 
Note
   
2022
   
2023
   
2024
 
 
 
 
   
RMB
   
RMB
   
RMB
 
Interest and financing service fees on loans
   
(i)
      1,574,074,534      1,580,001,675      1,343,738,056 
- Interest income
   
 
      1,573,405,364      1,579,868,355      1,343,738,056 
- Financing service fees
   
 
     
669,170     
133,320     
- 
Interest income charged to sales partners
   
(ii)
     
122,019,472     
134,542,337     
162,566,756 
Interest income on debt securities
   
(iii)
     
22,195,046     
20,468,849     
16,842,567 
Interest on deposits with banks
   
 
     
13,063,523     
19,582,159     
15,472,736 
Total
   
 
      1,731,352,575      1,754,595,020      1,538,620,115 
 
(i)
Interest and financing service fees on loans, which include
financing service fees on loans, are recognized in the consolidated statements of
comprehensive income using the effective interest method.
Financing service fees on loans, are deferred and amortized over the contractual
life of the related loans utilizing the effective interest
method.
 
(ii)
Interest income charged to sales partners refers to the cost
of and interest on the partner’s instalment repurchase options under collaboration
model.
 
(iii)
Interest income on debt securities in forms of partnership
investment and corporate debt securities. Please refer to note 6(b).
 
F-58

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
19
Net revenue under the commercial bank partnership model
 
The Group has started to collaborate with commercial banks since 2021
and such collaboration grew and scaled in the second half of 2022. Net
revenue under the commercial bank partnership model representing
fees charged to commercial banks for services including introducing
borrowers, initial credit assessment, facilitating loans from the
banks to the borrower and providing technical assistance to the borrower and
banks, net of fees paid to third-party financing guarantee
corporations.
 
Revenues from loan facilitation services are recognized at the time
a loan is originated, at which time the facilitation service is considered
completed. Revenues from loan facilitation services, covering
matching of commercial banks to borrowers and facilitating the execution of loan
agreement between commercial banks and borrowers are
RMB43,320,048 and RMB 27,215,101 for the years ended December 31, 2023 and
2024, respectively.
 
Revenues from post-origination services are recognized on a straight-line
basis over the term of the underlying loans as the services are provided.
Revenues from post-facilitation services, covering cash processing
services and collection services are RMB27,233,014 and RMB18,143,623 for
the years ended December 31, 2023 and 2024, respectively.
 
Refer to Note 14, the Group provided guarantee services for its off-balance
sheet loans under the commercial bank partnership model. As a result,
at inception of the guarantee, the Group recognized a stand-ready
guarantee liability under ASC 460 at fair value. Subsequently, the stand-ready
guarantee is released into gains from guarantee liabilities
on a straight-line basis over the term of the guarantee. Gains from guarantee liabilities
are RMB139,449,648 and RMB124,689,007 for the
years ended December 31, 2023 and 2024, respectively.
 
The total amount of net fees paid to third-party financing guarantee
corporations for providing guarantee services to commercial banks and
commission fee to local sales channels are RMB122,066,705 and RMB
72,920,424 for the years ended December 31, 2023 and 2024, respectively.
 
20
Collaboration cost for sales partners
 
The Group collaborates with sales partners who are dedicated to introduce
the Group and its loan services to prospective borrowers. The
collaboration cost for sales partners is a percentage of the loan principal
amount that the sales partners recommended to the Group and is
calculated by subtracting the project cost, a cost which is agreed between
the Group and the sales partners that will vary based on different terms
of loans, from interest and fees income received from borrowers.
The unique feature of this collaboration model is that the sales partners will be
required to deposit an amount equal to 5% - 25% of the
loans issued to the borrowers introduced by them. In return, the Group will pay
collaboration cost as sales incentives to the sales partners.
 
21
Provision for credit losses, net of increase in guaranteed recoverable assets
 
 
 
Year ended December 31,
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
 
 
 
 
   
    
  
Home equity loans
   
(55,755,647)    
57,110,646     
(45,146,640)
Corporate loans
   
(24,693,114)    
(31,271,295)    
5,869,429 
Debt securities
   
(10,565,475)    
6,209,195     
(545,807)
Guarantee liabilities
    (145,049,258)     (149,512,430)    
147,228,939 
Interest and financing service fee receivables
   
7,947,030     
5,020,090     
(85,233,977)
Other assets
   
(9,968,399)    
(64,839,204)     (127,388,384)
Total
    (238,084,863)     (177,282,998)     (105,216,440)
 
F-59

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
22
Realized gains on sales of investments, net
 
The gross realized gains on sales of investments are RMB28,330,375,
RMB38,169,360 and RMB3,646,607 for the years ended December 31,
2022, 2023 and 2024, respectively. The gross realized losses on sales
of investments are RMB7,763,703, RMB31,620,876 and RMB7,771,643 for
the years ended December 31, 2022, 2023 and 2024, respectively.
 
23
Net losses on sales of loans
 
As mentioned in Note 5(c), the Group transferred the delinquent loans
to third parties. Net losses on sale of loans which summarizes the received
from sales of loans are net losses of RMB44,554,948, RMB17,190,545
and RMB 6,497,731 for the years ended December 31, 2022, 2023 and
2024, respectively.
 
24
Other gains/(losses), net
 
 
 
 
 
Year ended December 31,
 
 
 
Note
 
2022
   
2023
   
2024
 
 
 
 
 
RMB
   
RMB
   
RMB
 
 
 
 
 
    
    
  
Foreign exchange gains
 
(i)
   
7,355,135     
3,589,629     
5,933,998 
Net gains/(losses) on confiscated credit risk mitigation positions
 
(ii)
   
71,380,536     
422,763     
(27,365,653)
Profits/(losses) from fair value changes
 
(iii)
   
(362,855)    
(5,765,113)    
- 
Net loss on disposal of property and equipment
 
 
   
(30,742)    
(147,644)    
39,563 
Others
 
 
   
11,571,964     
6,747,962     
(3,008,821)
 
 
 
   
      
      
  
Total
 
 
   
89,914,038     
4,847,597     
(24,400,913)
  
(i)
The changes of foreign exchange gain are mainly due to exchange
rate changes in cash and cash equivalents held by the Group, including US
dollar account and Hong Kong dollar account.
 
(ii) Sales partners provide CRMPs as security deposits. Pursuant
to the collaboration agreements if the debtor’s loan principal repayments or
accrued interests are past due or the loan is in default,
sales partners are obliged to fulfill their guaranteed responsibility by selecting among
different approaches, otherwise the CRMPs deposited
by sales partners are confiscated by the Group, refer to Note 1.
 
(iii) Profits/(losses) from fair value change refers to gains or
losses resulting from changes in the fair value of investment securities.
 
F-60

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
25
Other expenses
 
 
 
Year ended December 31
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
 
Advertising and promotion expenses
   
32,412,727     
49,828,134     
13,653,838 
Consulting fees
   
12,016,260     
17,480,308     
12,058,142 
Entertainment and travelling expenses
   
9,740,873     
15,252,790     
14,811,438 
Office and commute expenses
   
7,791,694     
10,792,783     
10,117,559 
Post-loan management expenses
   
-     
10,481,523     
99,368,411 
Directors and officers liability insurance
   
3,474,151     
3,613,489     
919,443 
Communication expenses
   
2,424,242     
2,826,369     
2,784,808 
Research and development expenses
   
760,465     
1,791,754     
1,010,223 
Depreciation and amortization
   
2,244,279     
1,753,032     
11,540,878 
Litigation and attorney fees
   
7,680,633     
1,714,117     
18,877,828 
Others
   
7,344,173     
5,986,473     
2,180,166 
 
   
      
      
  
Total
   
85,889,497     
121,520,772     
187,322,734 
  
26
Income tax expense
 
Cayman Islands
 
Under the current laws of the Cayman Islands, the Company is not subject
to tax on income or capital gains.
 
British Virgin Islands (BVI)
 
Pursuant to the rules and regulations of the British Virgin Islands,
the Group is not subject to any income tax in the British Virgin Islands.
 
Hong Kong
 
No provision for Hong Kong Profits Tax has been made for the subsidiary
located in Hong Kong as the subsidiary has not derived any income
subject to Hong Kong Profits Tax during the years.
 
F-61

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
26
Income tax expense (continued)
 
Peoples Republic of China (PRC)
 
According to the PRC Corporate Income Tax (“CIT”) Law,
the Group’s PRC subsidiaries are subject to PRC income tax at the statutory tax rate of
25%, unless otherwise specified.
 
Some subsidiaries within the Group are small-scale and micro-profit
enterprises, paying corporate income tax at a rate of 20% based on 25% of
the actual taxable amount resulting in a 5% statutory income
tax rate.
 
The effect of the Group’s tax holiday on income tax expense is
RMB7.2 million and RMB3.4 million in 2023 and 2024, respectively. The basic
earnings per ordinary share effect of the Group’s tax
holiday for the years ended December 31, 2023 and 2024 was RMB0.005 and RMB0.002,
respectively. The diluted earnings per ordinary share
effect of the Group’s tax holiday for the years ended December 31, 2023 and 2024 was
RMB0.005 and RMB0.003, respectively.
 
Income tax expense, all of which relates to the PRC, consists of the
following for the years ended December 31, 2022, 2023 and 2024:
 
 
 
Year ended December 31
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
 
 
 
    
    
  
Current tax expense
   
171,146,093     
57,510,432     
48,548,105 
Deferred tax benefit
    (133,913,450)    
(16,493,414)    
(38,044,032)
 
   
      
      
  
Total income tax expense
   
37,232,643     
41,017,018     
10,504,073 
 
F-62

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
26
Income tax expense (continued)
 
The principal components of the deferred tax assets and liabilities
are as follows:
 
 
 
Year ended December 31
 
 
 
2023
   
2024
 
 
 
RMB
   
RMB
 
Deferred tax assets:
 
    
  
Allowance for credit losses
   
299,171,819     
379,327,404 
Debt securities
   
2,439,841     
2,103,374 
Guarantee liabilities
   
78,276,760     
87,819,352 
Net operating loss carry-forwards
   
10,041,747     
12,183,421 
Lease liabilities
   
6,518,368     
5,347,435 
Receivables from sales of loans
   
2,861,697     
1,495,934 
Other deferred tax assets
   
707,887     
252,144 
 
   
      
  
Total deferred tax assets
   
400,018,119     
488,529,064 
 
   
      
  
Valuation allowance
   
(10,041,747)    
(12,183,421)
 
   
      
  
Deferred tax assets, net of valuation allowance
   
389,976,372     
476,345,643 
 
   
      
  
Net deferred tax assets
   
92,224,714     
131,112,019 
 
   
      
  
Deferred tax liabilities:
   
      
  
Intangible assets
   
(742,500)    
(742,500)
Short term investments
   
(20,756)    
- 
Right-of-use assets
   
(6,956,985)    
(6,262,498)
Intercompany receivables
   
(41,453,522)    
(41,453,522)
Guarantee assets
    (218,757,757)     (311,497,133)
Undistributed earnings from structured funds
    (102,398,753)    
(58,699,859)
 
   
      
  
Total deferred tax liabilities
    (370,330,273)     (418,655,512)
 
   
      
  
Net deferred tax liabilities
   
(72,578,615)    
(73,421,888)
 
F-63

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
26
Income tax expense (continued)
 
Movement of valuation allowance:
 
 
 
Year ended December 31
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
 
 
 
    
    
  
At the beginning of year
   
15,226,575     
9,116,290     
10,041,747 
Current year additions
   
613,314     
2,096,152     
8,090,197 
Current year reversals
   
(6,722,726)    
(722,911)    
(3,884,082)
Current year expiration of carry-forwards
   
(873)    
(447,784)    
(2,064,441)
 
   
      
      
  
Net change in the valuation allowance
   
(6,110,285)    
925,457     
2,141,674 
 
   
      
      
  
At the end of year
   
9,116,290     
10,041,747     
12,183,421 
 
In assessing the recoverability of its deferred tax assets, management
considers whether some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Management
considers reversing taxable temporary differences, carryback availability, projected
future income and tax-planning strategies in making
this assessment. Recovery of a substantial majority of the Group’s deferred tax assets is
supported by reversing taxable temporary
differences.
 
Based upon the level of historical taxable income and projections for
future taxable income over the periods in which the deferred tax assets are
recoverable, management believes that it is more likely than
not that the Group will realize the benefits of its deferred tax assets, net of valuation
allowance, as of December 31, 2023 and 2024.
 
Valuation allowances have been provided for certain deferred tax assets
due to the uncertainty surrounding their realization. As of December
31,2023 and 2024, the valuation allowance on deferred tax assets,
mainly arising from operating loss carryforwards, were provided because it was
more likely than not that the Group will not be able to
utilize the operating loss carryforwards generated by certain unprofitable subsidiaries.
 
The Group operates through its subsidiaries and VIEs. Since each entity
files a separate tax return, the valuation allowance is considered on an
individual entity basis.
 
As of December 31, 2024, the Group had net operating loss carryforwards
of RMB 48,733,683 from its subsidiaries registered in the PRC, which
can be carried forward to offset future taxable income. The Group
had deferred tax assets related to these net operating loss carryforwards of RMB
12,183,421. The net operating losses will expire in years
in 2024 to 2028 if not utilized.
 
F-64

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
26
Income tax expense (continued)
 
Management intends to indefinitely reinvest the undistributed earnings
of the subsidiaries located in the PRC. The amount of the temporary
difference in respect of investments in PRC subsidiaries is RMB2,991,238,191
as of December 31, 2024. Upon repatriation of the subsidiaries’
and the VIE’s earnings, in the form of dividends or otherwise,
the Group would be subject to 10% PRC withholding income tax when making
distribution to foreign parent companies. However, the Group
was not subject to withholding income tax in 2024 because the Group did not make
any distribution to foreign parent companies. The related
unrecognized deferred tax liabilities were RMB299,123,819.
 
Income before income tax expense is as follows:
 
 
 
Year ended December 31
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
 
 
 
    
    
  
Cayman Islands
   
(477,322)    
(9,006,814)    
(6,407,208)
BVI
   
(20,803)    
4,407,292     
10,672,841 
Hong Kong
   
2,773,547     
(1,168,618)    
2,344,219 
PRC
   
170,308,632     
211,402,719     
41,678,667 
 
   
      
      
  
Total
   
172,584,054     
205,634,579     
48,288,519 
 
The reconciliation of the PRC statutory income tax rate of 25%, the
income tax rate of the jurisdiction where the Group has substantially all of its
operations, to the effective income tax rate is as follows:
 
 
 
Year ended December 31
 
 
 
2022
 
 
2023
 
 
2024
 
 
 
RMB
 
 
RMB
 
 
RMB
 
 
 
  
 
  
 
  
PRC statutory income tax rate
   
25.00%    
25.00%    
25.00%
(Decrease)/increase in effective income tax rate resulting from:
   
  
   
  
   
  
 
   
  
   
  
   
  
Tax holiday
   
(1.42)%   
(3.48)%   
(7.04)%
Tax-free income
   
(1.36)%   
(2.64)%   
(9.82)%
Non-deductible share option expense
   
0.84%    
0.91%    
7.71%
Other non-deductible expenses
   
0.67%    
0.42%    
0.83%
Zero tax rate in foreign countries
   
0.07%    
0.84%    
(2.21)%
Differential and preferential tax rates
   
(0.4)%   
(0.11)%   
(1.09)%
Changes in valuation allowance
   
(3.54)%   
0.67%    
8.71%
Research and development super-deduction
   
- 
   
(1.01)%   
(0.58)%
Changes in unrecognized tax benefits
   
0.31%    
(0.82)%   
0.34%
Others
   
1.40%    
0.17%    
(0.11)%
 
   
  
   
  
   
  
Effective income tax rate
   
21.57%    
19.95%    
21.74%
 
F-65

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
26
Income tax expense (continued)
 
The Group’s only major jurisdiction is China where tax returns
generally remain open and subject to examination by tax authorities for tax years
1999 onwards.
 
The Group did not have any significant unrecognized tax benefits, and
no significant interest and penalty expenses related to income taxes were
recorded for the years ended December 31, 2022, 2023 and 2024.
As of the reporting date, the Group has no uncertain tax positions.
 
27
Earning per share
 
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31, 2022, 2023 and 2024:
 
 
 
Year ended December 31
 
 
 
2022
   
2023
   
2024
 
 
 
RMB
   
RMB
   
RMB
 
 
 
    
    
  
Net income
   
135,351,411     
164,617,561     
37,784,446 
Basic weighted average number of common shares outstanding
    1,371,643,240      1,371,643,240      1,371,643,240 
Effect of dilutive share options
   
155,453,871     
74,254,198     
(88,867,427)
Dilutive weighted average number of ordinary shares
    1,527,097,111      1,445,897,438      1,282,775,813 
Basic earnings per share
   
0.10     
0.12     
0.03 
Diluted earnings per share
   
0.09     
0.11     
0.03 
 
In 2021, the Group issued 187,933,720 ordinary shares to the Depositary.
No consideration was received by the Group for the issuance. As of
December 31, 2024, no share out of the total 187,933,720 ordinary shares
were used to settle share-based compensation. The 187,933,720
ordinary shares are legally issued and not outstanding, and do not affect
the computation of earnings per share.
 
28
Material related party transactions
 
The Group did not have any related party transactions in
the year ended December 31, 2022, 2023 and 2024.
 
F-66

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
29
Condensed financial information of the parent company
 
The Group’s PRC VIEs and PRC subsidiaries are restricted in their
ability to transfer a portion of their net assets to the Group. The payment of
dividends by entities organized in China is subject to
limitations, procedures and formalities. Regulations in the PRC currently permit payment of
dividends only out of accumulated profits
as determined in accordance with accounting standards and regulations in China. The Group’s
subsidiaries are also required to set
aside at least 10% of its net income based on PRC accounting standards each year to its statutory reserves
account until the accumulative
amount of such reserves reaches 50% of its respective registered capital. The aforementioned reserves can only be
used for specific purposes
and are not distributable as cash dividends.
 
In addition, the Group’s operations and revenues are conducted
and generated in China, all of the Group’s revenues being earned and currency
received are denominated in RMB. RMB is subject to
the foreign exchange control regulation in China, and, as a result, the Group may be unable
to distribute any dividends outside of China
due to PRC foreign exchange control regulations that restrict the Group’s ability to convert RMB into
US Dollars.
 
Regulation S-X requires the condensed financial information of registrant
shall be filed when the restricted net assets of consolidated subsidiaries
exceed 25 percent of consolidated net assets as of the end
of the most recently completed fiscal year. For purposes of the above test, restricted net
assets of consolidated subsidiaries shall mean
that amount of the registrant’s proportionate share of net assets of consolidated subsidiaries (after
intercompany eliminations)
which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the
form of loans,
advances or cash dividends without the consent of a third party. The condensed parent company financial statements have been
prepared
in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the Group’s PRC subsidiary and VIE exceed
25% of the consolidated net assets of the Group.
 
The condensed financial information of the parent company has been
prepared in accordance with SEC Regulation S-X Rule 5-04 and Rule 12-04,
using the same accounting policies as set out in the Group’s
consolidated financial statements, except that the Group uses the equity method to
account for investments in its subsidiaries. The footnote
disclosures generally included in financial statements prepared in accordance with U.S.
GAAP have been condensed and omitted. The footnote
disclosures contain supplemental information relating to the operations of the Group, as
such, these statements are not the general-purpose
financial statements of the reporting entity and should be read in conjunction with the notes to
the consolidated financial statements
of the Group.
 
On January 8, 2014, the Group was incorporated in the Cayman Islands
with one subscriber’s share allotted and issued at par value of
HKD0.0001, representing 100% of the entire ordinary share of the
Group. The shareholder as well as shareholder’s equity remained the same until
the reorganization with Sincere Fame.
 
F-67

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
29
Condensed financial information of the parent company (continued)
 
Condensed balance sheets
 
 
 
December 31,
2023
   
December 31,
2024
 
 
 
RMB
   
RMB
 
Assets
 
    
  
 
 
    
  
Cash and cash equivalents
   
12,927,318     
5,011,068 
investment securities
   
5,305,137     
- 
Investments in subsidiaries
   
392,559,403      3,865,503,139 
Other assets
   
196,071,985     
203,820,467 
 
   
      
  
Total assets
   
606,863,843      4,074,334,674 
 
   
      
  
Liabilities and shareholders’ equity
   
      
  
 
   
      
  
Accrued employee benefits
   
425,994     
437,958 
Other operating liabilities
   
12,485,706     
16,338,215 
 
   
      
  
Total liabilities
   
12,911,700     
16,776,173 
 
   
      
  
Ordinary shares (USD0.0001 par value; 3,800,000,000 shares authorized; 1,559,576,960 shares issued and
1,371,643,240 shares outstanding as of December 31, 2023 and December 31, 2024, respectively)
   
916,743     
916,743 
Treasury stock
    (101,277,607)     (122,897,896)
Additional paid-in capital
   
705,422,445     
727,042,734 
Retained earnings
   
(16,951,566)     3,461,317,652 
Accumulated other comprehensive losses
   
5,842,128     
(8,820,732)
 
   
      
  
Total shareholders’ equity
   
593,952,143      4,057,558,501 
 
   
      
  
Total liabilities and shareholders’ equity
   
606,863,843      4,074,334,674 
 
F-68

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
29
Condensed financial information of the parent company (continued)
 
Condensed statements of comprehensive income
 
 
 
Year ended December 31
 
 
 
2023
   
2024
 
 
 
RMB
   
RMB
 
Interest and fees income
 
    
  
Interest income on debt securities
   
-     
- 
Interest on deposits with banks
   
11,254     
- 
 
   
      
  
Total interest and fees income
   
11,254     
- 
 
   
      
  
Equity in earnings of subsidiaries
   
-     
51,677,272 
Equity in earnings of subsidiaries
   
-     
51,677,272 
 
   
      
  
Realized gains/(losses) on sales of investments, net
   
(5,691,380)    
(5,305,137)
Other (losses)/gains, net
   
987,920     
(479)
 
   
      
  
Total non-interest income/(losses)
   
(4,703,460)    
(5,305,616)
 
   
      
  
Operating expenses
   
      
  
Employee compensation and benefits
   
(892,811)    
(880,653)
Other expenses
   
(3,421,797)    
(7,706,556)
 
   
      
  
Total operating expenses
   
(4,314,608)    
(8,587,209)
 
   
      
  
Income/(losses) before income tax expense
   
(9,006,814)    
37,784,446 
 
   
      
  
Net income/(losses)
   
(9,006,814)    
37,784,446 
 
   
      
  
Other comprehensive income
   
      
  
Foreign currency translation adjustment
   
6,457,187     
524,149 
 
   
      
  
Comprehensive income/ (losses)
   
(2,549,627)    
38,308,595 
 
F-69

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
29
Condensed financial information of the parent company (continued)
 
Condensed statements of cash flows
 
 
 
Year ended December 31
 
 
 
2023
   
2024
 
 
 
RMB
   
RMB
 
Cash flows from operating activities:
 
    
  
 
 
    
  
Net income/(losses)
   
(9,006,814)    
37,784,446 
Other operating assets
   
22,579,797     
(50,089,318)
Other operating liabilities
   
1,463,075     
3,864,473 
 
   
      
  
Net cash provided by/(used in) operating activities
   
15,036,058     
(8,440,399)
 
   
      
  
Cash flows from financing activities:
   
      
  
 
   
      
  
Repurchase of ordinary shares
   
(13,646,132)    
- 
 
   
      
  
Net cash used in financing activities
   
(13,646,132)    
- 
 
   
      
  
Net (decrease)/ increase in cash and cash equivalents
   
1,389,926     
(8,440,399)
Cash and cash equivalents at the beginning of year
   
5,080,204     
12,927,318 
Effect of exchange rate change on cash and cash equivalents
   
6,457,188     
524,149 
 
   
      
  
Cash and cash equivalents at the end of year
   
12,927,318     
5,011,068 
 
30
Commitments and contingencies
 
As of December 31, 2024, the Group has not entered into
any financial guarantees or other commitments to guarantee the payment obligations of
any unconsolidated third parties. In addition,
the Group has not entered into any derivative contracts that are indexed to the Group’s shares and
classified as shareholders’
equity, or that are not reflected in the Group’s 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. Moreover, 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.
 
F-70

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
31
Concentration of Risks
 
The Group commenced its loan service business in 2006, adopted its
previous business model in 2014 and introduced the collaboration model in
December 2018. To expand on its financing channels, the Group
launched a new funding model in 2021 by collaborating with the commercial
banks.
 
As of December 31, 2024, one of the Group’s main funding resources
is borrowing from trust companies, among them, majority of the borrowings
were acquired from Trust company A, B and C, each accounted
for more than 10% of the Group’s total interest-bearing borrowing.
 
Interest-bearing borrowing
 
 
  December 31,  
  December 31,  
　
 
2023
 
 
2024
 
　
 
%
 
 
%
 
Trust company A
   
56.4%    
38.7%
Trust company B
   
22.2%    
29.1%
Trust company C
   
14.4%    
26.8%
　
   
　 
   
　 
Total
   
93.0%   
94.6%
 
In 2022, the Group started to collaborate with sales partner
A under the trust lending model, and also involved into business with sales partner
A and its subsidiaries B and C in the commercial bank
partnership model since the first quarter of 2023.
 
As of December 31, 2024, the outstanding principal balance
of loans to borrowers introduced by sales partner A and its subsidiary B under the
trust lending model represented 43.1% of the Group’s
total balance of outstanding loan principal. Sales partners A and B provided 32.9% and
10.2%, respectively.
 
The trust lending model
 
 
  December 31,     December 31,  
　
 
2023
   
2024
 
 
 
%
   
%
 
Sales partners A and B
   
37.4%   
43.1%
 
F-71

 
 
CNFINANCE HOLDINGS LIMITED
 
Notes to the consolidated financial statements
 
(Amount in Renminbi(“RMB”) unless
otherwise stated)
 
31
Concentration of Risks (continued)
 
As of December 31, 2024, the outstanding principal balance of loans
to borrowers introduced by sales partners A and its subsidiaries B and C
under the commercial bank partnership model represented 67.3%
of the Group’s total balance of outstanding loan principal. Sales partners A, B,
and C provided 0.6%, 43.0%, and 23.8% respectively.
 
The commercial bank partnership model
 
 
  December 31,     December 31,  
　
 
2023
   
2024
 
　
 
%
   
%
 
Sales partners A, B, and C
   
63.1%   
67.3%
 
As of December 31, 2023 and December 31, 2024, Sales Partner
A’s Affiliate Financing Guarantee Corporation A held a financial guarantee
license and individually provided guarantee services for greater
than 90% or more of the total outstanding off-balance under the commercial bank
partnership model loans.
 
Guarantee services
 
 
  December 31,     December 31,  
　
 
2023
   
2024
 
　
 
%
   
%
 
Financing Guarantee Corporation A
   
98.2%   
97.2%
 
32
Subsequent events
 
The Group has considered subsequent events through April
29, 2025, which was the date of these consolidated financial statements were issued,
and has determined none of these events were required
to be recognized or disclosed in the consolidated financial statements and related notes.
 
 
F-72
 

Exhibit 8.1
 
LIST OF SUBSIDIARIES AND
CONSOLIDATED VARIABLE INTEREST ENTITY OF 
CNFINANCE HOLDINGS LIMITED
 
Subsidiaries
 
Jurisdiction of Incorporation
Sincere Fame International Limited 诚名国际有限公司
 
British Virgin Islands
China Financial Services Group Limited 泛华金融服务集团有限公司
 
Hong Kong
Fanhua Chuang Li Information Technology (Shenzhen) Co., Ltd. 泛华创利信息技术(深圳)有限公司*
 
PRC
Shenzhen Fanhua United Investment Group Co., Ltd. 深圳泛华联合投资集团有限公司*
 
PRC
Guangzhou Chengze Information Technology Co., Ltd. 广州诚泽信息技术有限公司*
 
PRC
Chongqing Liangjiang New Area Fanhua Micro-credit Co., Ltd. 重庆市两江新区泛华小额贷款有限公
司*
 
PRC
Beijing Lianxin Chuanghui Information Technology Co., Ltd. 北京联鑫创辉信息技术有限公司*
 
PRC
Shenzhen Fanlian Investment Co., Ltd. 深圳泛联投资有限公司*
 
PRC
Guangzhou Fanze Information Technology Co., Ltd. 广州泛泽信息科技有限公司*
 
PRC
 
Consolidated Variable Interest Entity
 
Jurisdiction of Incorporation
Jinghua Structured Fund 1外贸信托菁华1号集合资金信托计划*
 
PRC
Zhonghai Lanhai Structured Fund 1 中海信托蓝海1号集合资金信托计划*
 
PRC
Jinghua Structured Fund 50外贸信托菁华50号资管计划*
 
PRC
Zhongliang Hongrui Structured Fund 1 中粮信托-弘瑞普惠1号集合资金信托计划*
 
PRC
Jinghua Structured Fund 2外贸菁华2号集合资金信托计划*
 
PRC
 
*
The English name of this subsidiary or consolidated variable
interest entity, as applicable, has been translated from its Chinese name.
 

Exhibit 11.2
 
 
 
 
 
 
 
 
 
 
 
CNFINANCE
HOLDINGS LIMITED
 
Amended and Restated Statement of Policy Concerning
Trading in Company Securities
(Initially adopted in December 2018 and amended and restated in August 2019, and further amended
and restated in March 2025)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
TABLE OF CONTENTS
 
 
 
  Page No.
 
 
 
 
I.
SUMMARY OF POLICY CONCERNING TRADING IN COMPANY SECURITIES
1
 
 
 
 
II.
THE USE OF INSIDE INFORMATION IN CONNECTION WITH TRADING IN SECURITIES
1
 
 
 
 
 
A.
General Rule.
1
 
 
 
 
 
B.
Who Does the Policy Apply To?
3
 
 
 
 
 
C.
Other Companies’ Stock.
3
 
 
 
 
 
D.
Hedging and Derivatives.
3
 
 
 
 
 
E.
Pledging of Securities, Margin Accounts.
4
 
 
 
 
 
F.
General Guidelines.
4
 
 
 
 
 
G.
Applicability of U.S. Securities Laws to International Transactions.
6
 
 
 
 
III.
OTHER LIMITATIONS ON SECURITIES TRANSACTIONS
7
 
 
 
 
 
A.
Public Resales – Rule 144.
7
 
 
 
 
 
B.
Private Resales.
8
 
 
 
 
 
C.
Restrictions on Purchases of Company Securities.
8
 
 
 
 
 
D.
Filing Requirements.
8
 
i

 
 
I.
SUMMARY OF POLICY CONCERNING TRADING IN COMPANY SECURITIES
 
Reference is made to the Statement of Policy Concerning Trading in
Company Securities adopted by CNFinance Holdings Limited in December 2018 and
amended and restated on August 2019 (together, the “Original
Insider Trading Policy“). This Amended and Restated Statement
of Policy Concerning
Trading in Company Securities shall replace and supersede the Original Insider Trading Policy in its entirety, and
the Original Insider Trading Policy shall
be of no further force or effect upon the date hereof.
 
It is the policy of CNFinance Holdings Limited and its subsidiaries
 (collectively, the “Company”) that it will, without exception, comply with all
applicable laws and regulations in conducting
its business. Each employee, each officer and each director is expected to abide by this policy. When carrying
out Company business, employees,
officers and directors must avoid any activity that violates applicable laws or regulations. In order to avoid even an
appearance of impropriety,
the Company’s directors, officers and certain other employees are subject to pre-approval requirements and other limitations on
their ability to enter into transactions involving the Company’s securities. Although these limitations do not apply to transactions
pursuant to written plans
for trading securities that comply with Rule 10b5-1 under the Securities Exchange Act of 1934 (the “Exchange
Act”), the entry into, amendment or
termination of any such written trading plan is subject to pre-approval requirements and
other limitations.
 
II. THE USE OF INSIDE INFORMATION IN CONNECTION WITH TRADING IN SECURITIES
 
A.
General Rule.
 
The U.S. securities laws regulate the sale and purchase of securities
in the interest of protecting the investing public. U.S. securities laws give the Company,
its officers and directors, and other employees
the responsibility to ensure that information about the Company is not used unlawfully in the purchase and
sale of securities.
 
All employees, officers and directors should pay particularly close
attention to the laws against trading on “inside” information. These laws are based upon
the belief that all persons trading
in a company’s securities should have equal access to all “material” information about that company. For example, if
an
employee, an officer or a director of a company knows material non-public financial information, that employee, officer or director
is prohibited from
buying or selling shares in the company until the information has been disclosed to the public. This is because the
employee, officer or director knows
information that will probably cause the share price to change, and it would be unfair for the employee
or director to have an advantage (knowledge that the
share price will change) that the rest of the investing public does not have. In
fact, it is more than unfair; it is considered to be fraudulent and illegal. Civil
and criminal penalties for this kind of activity are
severe.
 
The general rule can be stated as follows: It is a violation of federal
securities laws for any person to buy or sell securities if he or she is in possession of
material inside information. Information is
material if there is a substantial likelihood that a reasonable investor would consider it important in making an
investment decision.
It is inside information if it has not been publicly disclosed in a manner making it available to investors generally on a broad-based
non-exclusionary basis. Furthermore, it is illegal for any person in possession of material inside information to provide other people
with such information
or to recommend that they buy or sell the securities (This is called “tipping”). In that case,
they may both be held liable.
 
1

 
 
Information is considered to be “material” if its disclosure
would be reasonably likely to affect (1) an investor’s decision to buy or sell the securities of the
company to which the information
 relates, or (2) the market price of that company’s securities. While it is not possible to identify in advance all
information that
will be deemed to be material, some examples of such information would include the following: earnings; financial results or projections;
dividend actions; mergers and acquisitions; capital raising and borrowing activities; major dispositions; major new customers, projects
 or products;
significant advances in product development; new technologies; major personnel changes in management or change in control;
 expansion into new
markets; unusual gains or losses in major operations; major litigation or legal proceedings; granting of stock options;
 and major sales and marketing
changes. When doubt exists, the information should be presumed to be material. If you are unsure whether
information of which you are aware is inside
information, you should consult with the Company’s Chief Executive Officer or the
 Chief Financial Officer1.   No individuals
 other than specifically
authorized personnel may release material information to the public or respond to inquiries from the media, analysts
or others. If you are contacted by the
media or by a research analyst seeking information about the Company and if you have not been expressly
authorized by the Company’s Chief Executive
Officer or the Chief Financial Officer to provide information to the media or to analysts,
you should refer the call to the Chief Executive Officer or the
Chief Financial Officer.  On occasion, it may be necessary for
legitimate business reasons to disclose inside information to outside persons. Such persons
might include investment bankers, lawyers,
 auditors or other companies seeking to engage in a potential transaction with the Company. In such
circumstances, the information should
not be conveyed until an express understanding has been reached that such information is not to be used for trading
purposes and may not
be further disclosed other than for legitimate business reasons. 
 
The Securities and Exchange Commission (the “SEC”),
the stock exchanges and plaintiffs’ lawyers focus on uncovering insider trading. A breach of the
insider trading laws could expose
the insider to criminal fines up to three times the profits earned and imprisonment up to ten years, in addition to civil
penalties (up
to three times of the profits earned), and injunctive actions. In addition, punitive damages may be imposed under applicable state laws.
Securities laws also subject controlling persons to civil penalties for illegal insider trading by employees, including employees located
outside the United
States. Controlling persons include directors, officers, and supervisors. These persons may be subject to fines up
to the greater of $1,000,000 or three times
profit (or loss avoided) by the insider trader.
 
Inside information does not belong to the individual directors, officers
or other employees who may handle it or otherwise become knowledgeable about it.
It is an asset of the Company. For any person to use
such information for personal benefit or to disclose it to others outside the Company violates the
Company’s interests. More particularly,
in connection with trading in the Company’s securities, it is a fraud against members of the investing public and
against the Company.
 
All directors, officers and employees of the Company must observe these
policies at all times. Your failure to do so will be grounds for internal disciplinary
action, up to and including termination of your
employment or directorship.
 
 
1
Note: Company to confirm.
 
2

 
 
B.
Who Does the Policy Apply To?
 
The prohibition against trading on inside information applies to directors,
officers and all other employees, and to other people who gain access to that
information, including contractors and consultants. The
 prohibition applies to both domestic and international employees of the Company and its
subsidiaries as well as the spouses, domestic
 partners, minor children (even if financially independent) of such directors, officers or employees
(collectively, “Family Members”),
anyone to whom Company directors, officers or employees provide significant financial support, and any entity or
account over which directors,
officers or employees, Family Members, or the persons listed above, have or share the power, directly or indirectly, to make
investment
decisions (whether or not such persons have a financial interest in the entity or account) and those entities or accounts established
or maintained
by such persons with their consent or knowledge and in which such persons have a direct or indirect financial interest.
 
Because of their access to confidential information on a regular basis,
Company policy subjects its directors and certain employees (the “Window Group”)
to additional restrictions on trading
in Company securities. The restrictions for the Window Group are discussed in Section F below. In addition, directors
and certain employees
with inside knowledge of material information may be subject to ad hoc restrictions on trading from time to time.
 
In addition, the Company itself must comply with U.S. securities laws
applicable to its own securities trading activities, and will not effect transactions in
respect of its securities, or adopt any securities
repurchase plans, when it is in possession of material non-public information concerning the Company,
other than in compliance with applicable
law, subject to the policies and procedures adopted by the Companyand attached as Annex A hereto, if applicable,
and the prior
approval of the Chief Executive Officer or Chief Financial Officer.
 
C.
Other Companies’ Stock.
 
Employees, officers and directors who learn material information about
suppliers, customers, or competitors through their work at the Company, should
keep it confidential and not buy or sell stock in such
companies until the information becomes public. Employees, officers and directors should not give
tips about such stock.
 
D.
Hedging and Derivatives.
 
Employees, officers and directors are prohibited from engaging in any
hedging and derivatives transactions (including transactions involving options, puts,
calls, prepaid variable forward contracts, equity
swaps, collars and exchange funds or other derivatives) that are designed to hedge or speculate on any
change in the market value of the
Company’s equity securities.
 
Trading in options or other derivatives is generally highly speculative
and very risky. People who buy options are betting that the stock price will move
rapidly. For that reason, when a person trades in options
in his or her employer’s stock, it will arouse suspicion in the eyes of the SEC that the person was
trading on the basis of inside
information, particularly where the trading occurs before a company announcement or major event. It is difficult for an
employee, officer
or director to prove that he or she did not know about the announcement or event.
 
If the SEC or the NYSE were to notice active options trading by one
or more employees, officers or directors of the Company prior to an announcement,
they would investigate. Such an investigation could
be embarrassing to the Company (as well as expensive), and could result in severe penalties and
expense for the persons involved. For
all of these reasons, the Company prohibits its employees, officers and directors from trading in options or other
derivatives involving
the Company’s stock. This policy does not pertain to employee stock options granted by the Company. Employee stock options
cannot
be traded.
 
3

 
 
E.
Pledging of Securities, Margin Accounts.
 
Pledged securities may be sold by the pledgee without the pledgor’s
consent under certain conditions. For example, securities held in a margin account may
be sold by a broker without the customer’s
consent if the customer fails to meet a margin call. Because such a sale may occur at a time when an employee,
officer or a director has
 material inside information or is otherwise not permitted to trade in Company securities, the Company prohibits employees,
officers and
directors from pledging Company securities in any circumstance, including by purchasing Company securities on margin or holding Company
securities in a margin account.
 
F.
General Guidelines.
 
The following guidelines should be followed in order to ensure compliance
with applicable antifraud laws and with the Company’s policies:
 
1. Nondisclosure.
Material inside information must not be disclosed to anyone, except to persons within the Company whose positions
require them to know
it. Tipping refers to the transmission of inside information from an insider to another person. Sometimes this involves a
deliberate conspiracy
in which the tipper passes on information in exchange for a portion of the “tippee’s” illegal trading profits. Even
if there
is no expectation of profit, however, a tipper can have liability if he or she has reason to know that the information may be
misused. Tipping
inside information to another person is like putting your life in that person’s hands. So the safest choice is:
Don’t tip.
 
2. Trading
in Company Securities. No employee, officer or director should place a purchase or sale order, or recommend that another
person place
a purchase or sale order in the Company’s securities when he or she has knowledge of material information concerning the
Company
that has not been disclosed to the public. This includes orders for purchases and sales of stock and convertible securities, including
engaging in any “short sales” of the Company’s securities. The exercise of employee stock options is not subject to
this policy. However, stock
that was acquired upon exercise of a stock option will be treated like any other stock, and may not be sold
by an employee who is in possession
of material inside information. Any employee, officer or director who possesses material inside information
should wait until the start of the
third business day after the information has been publicly released before trading.
 
3. Avoid
Speculation. Investing in the Company’s common stock provides an opportunity to share in the future growth of the Company.
But
investment in the Company and sharing in the growth of the Company does not mean short range speculation based on fluctuations in the
market. Such activities put the personal gain of the employee, officer or director in conflict with the best interests of the Company
and its
stockholders. Although this policy does not mean that employees, officers or directors may never sell shares, the Company encourages
employees, officers and directors to avoid frequent trading in Company stock. Speculating in Company stock is not part of the Company
culture.
 
4

 
 
4. Trading
in Other Securities. No employee, officer or director should place a purchase or sale order, or recommend that another person
place
 a purchase or sale order, in the securities of another corporation (such as a supplier, an acquisition target or a competitor), if the
employee, officer or director learns in the course of his or her employment confidential information about the other corporation that
is likely to
affect the value of those securities. For example, it would be a violation of the securities laws if an employee, officer
or director learned
through Company sources that the Company intended to purchase assets from a company, and then placed an order to buy
or sell stock in that
other company because of the likely increase or decrease in the value of its securities.
 
5. Restrictions
on the Window Group. The Window Group consists of (i) directors and officers of the Company and their assistants and
household members,
(ii) subset of employees in the financial reporting, business development or legal groups and (iii) such other persons as
may be designated
from time to time and informed of such status by the Company’s Chief Executive Officer and Chief Financial Officer or an
officer
with similar duties and responsibilities of the Company2.
The Window Group is subject to the following restrictions on trading in
Company securities:
 
●
trading is permitted from the start of the third business day following the release of the Company’s quarterly and annual earnings
until the
last calendar day of the last month of the then current fiscal quarter (the “Window”), subject to the restrictions
below;
 
●
all trades are subject to prior review;
 
●
The Window Group must submit a request for approval in a form set forth in Annex B hereto from the Company’s Chief Executive
Officer or Chief Financial Officer before making any trade in Company Securities; requests for approval of trades by the Chief Financial
Officer should be submitted to the Chief Executive Officer;
 
●
no trading is permitted outside the Window except for reasons of exceptional personal hardship and subject to prior review by the Chief
Executive Officer and the Chief Financial Officer; provided that, if one of these individuals wishes to trade outside the Window,
it shall
be subject to prior review by the other; and
 
●
individuals in the Window Group are also subject to the general restrictions on all employees.
 
Note that at times the Chief Executive Officer and the Chief Financial
Officer may determine that no trades may occur even during the Window when
clearance is requested. No reasons may be provided and the
closing of the Window itself may constitute material inside information that should not be
communicated.
 
The foregoing Window Group restrictions do not apply to transactions
pursuant to written plans for trading securities that comply with Rule 10b5-1 under
the Exchange Act (“10b5-1 Plans”)
described in Annex A hereto. However, Window Group members may not enter into, amend or terminate a 10b5-1
Plan relating to Company
securities without the prior approval of the Chief Executive Officer and the Chief Financial Officer, which will only be given
during
a Window period.
 
 
2
Company to confirm
 
5

 
 
The Company from time to time may also impose an ad hoc trading
freeze on all officers, directors, and other members of the Window Group due to
significant unannounced corporate developments. These
trading freezes may vary in length.
 
Officers, directors or any other member of the Window Group must promptly
report to the Chief Executive Officer and the Chief Financial Officer any
transaction in any of the Company’s securities by his
or her or any of their respective assistants or family members other than transactions made pursuant to
an approved 10b5-1 Plan (as defined
below).
 
IN SUMMARY, EVERY EMPLOYEE
OF THE COMPANY IS SUBJECT TO TRADING RESTRICTIONS WHEN IN POSSESSION OF INSIDE
INFORMATION REGARDING THE COMPANY. IN ADDITION, OFFICERS,
 DIRECTORS, AND OTHER MEMBERS OF THE WINDOW
GROUP ARE SUBJECT TO PARAGRAPH 5 ABOVE RESTRICTING THEIR TRADING TO WINDOW PERIODS AND REQUIRING
 PRE-
CLEARANCE.
 
YOU MUST PROMPTLY REPORT
TO THE CHIEF EXECUTIVE OFFICER AND THE CHIEF FINANCIAL OFFICER ANY TRADING IN THE
COMPANY’S SECURITIES BY ANYONE OR DISCLOSURE OF
 INSIDE INFORMATION BY COMPANY PERSONNEL THAT YOU HAVE
REASON TO BELIEVE MAY VIOLATE THIS POLICY OR THE SECURITIES LAWS OF THE UNITED STATES.
 
G.
Applicability of U.S. Securities Laws to International Transactions.
 
All directors, officers and employees of the Company’ and its
subsidiaries are subject to the restrictions on trading in Company securities and the securities
of other companies. The U.S. securities
laws may be applicable to the securities of the Company’s subsidiaries or affiliates, even if they are located outside
the United
States. Transactions involving securities of PRC subsidiaries or affiliates should be carefully reviewed by counsel for compliance not
only with
applicable PRC law but also for possible application of U.S. securities laws.
 
6

 
 
III. OTHER LIMITATIONS ON SECURITIES TRANSACTIONS
 
A.
Public Resales – Rule 144.
 
The U.S. Securities Act (the “Securities Act”) requires
every person who offers or sells a security to register such transaction with the SEC unless an
exemption from registration is available.
Rule 144 under the Securities Act is the exemption typically relied upon for (i) public resales by any person of
“restricted securities”
(i.e., unregistered securities acquired in a private offering or sale) and (ii) public resales by directors, officers and other
control
persons of a company (known as “affiliates”) of any of the Company’s securities, whether restricted or
unrestricted.
 
The exemption in Rule 144 may only be relied upon if certain conditions
are met. These conditions vary based upon whether the Company has been subject
to the SEC’s reporting requirements for 90 days (and
is therefore a “reporting company” for purposes of the rule) and whether the person seeking to sell the
securities is an affiliate
or not. Application of the rule is complex and Company employees, officers and directors should not make a sale of Company
securities
in reliance on Rule 144 without obtaining the approval of the Chief Executive Officer or Chief Financial Officer, who may require the
employee,
officer or director to obtain an outside legal opinion satisfactory to the Chief Executive Officer or Chief Financial Officer
concluding that the proposed sale
qualifies for the Rule 144 exemption.
 
1. Holding Period. Restricted
securities issued by a reporting company (i.e., a company that has been subject to the SEC’s reporting
requirements for at least
90 days) must be held and fully paid for a period of six months prior to their sale. Restricted securities issued by a non-
reporting company
are subject to a one-year holding period. The holding period requirement does not apply to securities held by affiliates that
were acquired
either in the open market or in a public offering of securities registered under the Securities Act. Generally, if the seller acquired
the
securities from someone other than the Company or an affiliate of the Company, the holding period of the person from whom the seller
acquired
such securities can be “tacked” to the seller’s holding period in determining if the holding period has been
satisfied.
 
2. Current Public Information.
Current information about the Company must be publicly available before the sale can be made. The
Company’s periodic reports filed
with the SEC ordinarily satisfy this requirement. If the seller is not an affiliate of the Company issuing the
securities (and has not
been an affiliate for at least three months) and one year has passed since the securities were acquired from the issuer or an
affiliate
of the issuer (whichever is later), the seller can sell the securities without regard to the current public information requirement.
 
Rule 144 also imposes the following additional
conditions on sales by persons who are “affiliates.” A person or entity is considered an
“affiliate,” and therefore
subject to these additional conditions, if it is currently an affiliate or has been an affiliate within the previous three
months:
 
3. Volume Limitations. The amount
of debt securities which can be sold by an affiliate during any three-month period cannot exceed 10%
of a tranche (or class when the securities
are non-participatory preferred stock), together with all sales of securities of the same tranche sold for the
account of the affiliate.
The amount of equity securities that can be sold by an affiliate during any three-month period cannot exceed the greater of
(i) one percent
of the outstanding shares of the class or (ii) the average weekly reported trading volume for shares of the class during the four
calendar
weeks preceding the time the order to sell is received by the broker or executed directly with a market maker.
 
7

 
 
4. Manner of Sale. Equity securities
held by affiliates must be sold in unsolicited brokers’ transactions, directly to a market-maker or in
riskless principal transactions.
 
5. Notice of Sale. An affiliate
seller must file a notice of the proposed sale with the SEC at the time the order to sell is placed with the
broker, unless the amount
to be sold neither exceeds 5,000 shares nor involves sale proceeds greater than $50,000. See “Filing Requirements”.
 
Bona fide gifts are not deemed to involve sales of shares for
purposes of Rule 144, so they can be made at any time without limitation on the amount of the
gift. Donees who receive restricted securities
from an affiliate generally will be subject to the same restrictions under Rule 144 that would have applied to
the donor, depending on
the circumstances.
 
B.
Private Resales.
 
Directors and officers also may sell securities in a private transaction
without registration pursuant to Section 4(a)(7) of the Securities Act, which allows
resales of shares of reporting companies to accredited
investors, provided that the sale is not solicited by any form of general solicitation or advertising.
There are a number of additional
requirements, including that the seller and persons participating in the sale on a remunerated basis are not “bad actors”
under Rule 506(d)(1) of Regulation D or otherwise subject to certain statutory disqualifications; the Company is engaged in a business
 and not in
bankruptcy; and the securities offered have been outstanding for at least 90 days and are not part of an unsold underwriter’s
allotment. Private resales must
be reviewed in advance by the Company’s Chief Executive Officer or Chief Financial Officer and
may require the participation of outside counsel.
 
C.
Restrictions on Purchases of Company Securities.
 
In order to prevent market manipulation, the SEC adopted Regulation
M under the U.S. Exchange Act. Regulation M generally restricts the Company or
any of its affiliates from buying Company stock, including
 as part of a share buyback program, in the open market during certain periods while a
distribution, such as a public offering, is taking
place. You should consult with the Company’s Chief Executive Officer or Chief Financial Officer, if you
desire to make purchases
of Company stock during any period that the Company is making conducting an offering or buying shares from the public.
 
D.
Filing Requirements.
 
1. Schedule
13D and 13G. Section 13(d) of the Exchange Act requires the filing of a statement on Schedule 13D (or on Schedule 13G, in
certain limited
circumstances) by any person or group that acquires beneficial ownership of more than five percent of a class of equity securities
registered
under the Exchange Act. The threshold for reporting is met if the stock owned, when coupled with the amount of stock subject to
options
exercisable within 60 days, exceeds the five percent limit.
 
8

 
 
A report on Schedule 13D is required to be filed
 with the SEC and submitted to the Company within five business days after the reporting
threshold is reached. If a material change occurs
in the facts set forth in the Schedule 13D, such as an increase or decrease of one percent or more in the
percentage of stock beneficially
owned, an amendment disclosing the change must be filed within two business days. A decrease in beneficial ownership to
less than five
percent is per se material and must be reported.
 
A limited category of persons (such as banks, broker-dealers
and insurance companies) may file on Schedule 13G, which is a much abbreviated
version of Schedule 13D, as long as the securities were
acquired in the ordinary course of business and not with the purpose or effect of changing or
influencing the control of the issuer. Under
rules adopted in 2023, beginning on September 30, 2024, which is the date the new Schedule 13G deadlines
become effective, a report on
Schedule 13G is required to be filed with the SEC and submitted to the Company within 45 days after the end of the calendar
quarter in
which the reporting threshold is reached.
 
A person is deemed the beneficial owner of securities
for purposes of Section 13(d) if such person has or shares voting power (i.e., the power to
vote or direct the voting of the securities)
or dispositive power (i.e., the power to sell or direct the sale of the securities). As is true under Section 16(a) of
the Exchange Act,
a person filing a Schedule 13D may disclaim beneficial ownership of any securities attributed to him or her if he or she believes there
is
a reasonable basis for doing so.
 
2. Form
144. As described above under the discussion of Rule 144, an affiliate seller relying on Rule 144 must file a notice of proposed
sale
with the SEC at the time the order to sell is placed with the broker unless the amount to be sold during any three months period neither
exceeds 5,000 shares nor involves sale proceeds greater than $50,000.
 
9

 
 
Annex A
 
All 10b5-1 Plans entered into by any member of the Window Group (each,
a “Window Group Member”) and any amendment, suspension or termination
must comply with Rule 10b5-1 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s Statement of Policy Concerning
Trading in
 Company Securities, as amended from time to time (the “Policy”) and other Company policies and must meet the following
 conditions.
Capitalized terms not defined herein shall have the meanings given to them under the Policy.
 
Overview of 10b5-1 Plans
 
Under Rule 10b5-1, an insider who regularly possesses MNPI but who
nonetheless wish to buy or sell the issuer’s securities may establish an affirmative
defense to an illegal insider trading charge
by adopting a written plan to buy or sell at a time when they are not in possession of MNPI, i.e. a 10b5-1 Plan.
A 10b5-1 Plan typically
takes the form of a contract between the insider and his or her broker.
 
A 10b5-1 Plan must be entered into at a time when the insider has no
MNPI about the issuer or its securities (even if no trades will occur until after the
release of the MNPI). The plan must:
 
1.
specify the amount, price (which may include a limit price) and specific dates of purchases or sales; or
 
2.
include a formula or similar method for determining amount, price and date; or
 
3.
give the broker the exclusive right to determine whether, how and when to make purchases and sales, as long as the broker does so
without being
aware of MNPI at the time the trades are made.
 
Under the first two alternatives, the 10b5-1 plan cannot give the broker
any discretion as to trade dates. As a result, a plan that requests the broker to sell
1,000 shares per week would have to meet the requirements
under the third alternative. On the other hand, under the second alternative, the date may be
specified by indicating that trades should
be made on any date on which the limit price is hit. The affirmative defense is only available if the trade is in fact
made pursuant to
the preset terms of the 10b5-1 plan (unless the terms are revised at a time when the insider is not aware of any MNPI and could therefore
enter into a new plan). Trades are deemed not to have been made pursuant to the plan if the insider later enters into or alters a corresponding
or hedging
transaction or position with respect to the securities covered by the plan (although hedging transactions could be part of
the plan itself).
 
Participants
 
The Window Group Members are eligible to adopt a 10b5-1 Plan.
 
Plan and Approval
 
The 10b5-1 Plan must be in writing and signed by the Window Group Member,
and the Window Group Member must provide a copy to the Company’s
compliance department. The Company shall keep a copy of each 10b5-1
Plan in its files. The form of each 10b5-1 Plan and any subsequent amendment
must be consistent with these guidelines. Each 10b5-1 Plan
must be approved in writing by the responsible officer prior to the adoption, amendment,
suspension or termination of such plan. A 10b5-1
Plan must not permit a Window Group Member to exercise any subsequent influence over how, when or
whether to effect purchases or sales.
Sales under a 10b5-1 Plan must be via an approved broker.
 
10

 
 
The Window Group Member must act in good faith with respect to a 10b5-1
Plan when the Plan is adopted and for the duration of the Plan, and must not
enter into a 10b5-1 Plan as part of a plan or scheme to evade
the prohibitions of Rule 10b-5. In addition, each 10b5-1 Plan must include a representation in
writing by the Window Group Member certifying
that (a) such person is not in possession of MNPI about the Company or its securities, and (b) the 10b5-1
Plan is being adopted in good
faith and not as part of a plan to evade the prohibitions of Rule 10b-5.
 
Timing and Term of Plan; Cooling-Off Period
 
Each 10b5-1 Plan must be adopted (a) during an open trading window
under the Policy, and (b) when the Window Group Member does not otherwise
possess MNPI about the Company. Each 10b5-1 Plan must provide
for delayed effectiveness after adoption or amendment (a “Cooling-Off Period”). For
Window Group Members who are directors
or officers ( “D&Os”), each 10b5-1 Plan must specify that trades may not execute under the 10b5-1 Plan until
the
later of (a) 90 days after the date of adoption or amendment of the 10b5-1 Plan; and (b) three (3) business days following the Company’s
filing of a
quarterly, semi-annual or annual report covering the financial reporting period in which the 10b5-1 Plan was adopted or amended,
but in no event later than
120 days after the date of adoption or amendment of the 10b5-1 Plan. For all other Window Group Members, each
10b5-1 Plan must specify that trades
may not execute under the 10b5-1 Plan for a period of at least 30 days after the date of adoption
or amendment of the 10b5-1 Plan.
 
Plan Specifications
 
Discretion Regarding Trades. The 10b5-1 Plan must either (a) specify
the amount of Company Securities to be purchased or sold and the price at which and
the date on which the Company Securities are to be
purchased or sold, or (b) specify or set an objective formula or algorithm for determining the amount of
Company Securities to be purchased
or sold and the price at which and the date on which Company Securities are to be purchased or sold.
 
Amendment, Suspension and Termination
 
Amendments, suspensions, and terminations of 10b5-1 Plans must be approved
in advance in writing by the responsible officer. In addition, a Window
Group Member may voluntarily amend a 10b5-1 Plan only (a) during
an open trading window under the Policy and (b) when such Window Group Member
does not otherwise possess MNPI about the Company. Window
Group Members may make amendments to 10b5-1 Plans without triggering a Cooling-Off
Period so long as the amendment does not change the
pricing provisions of the 10b5-1 Plan, the amount of securities covered under the 10b5-1 Plan or the
timing of trades under the 10b5-1
Plan, or where a broker executing trades on behalf of the Window Group Members is substituted by a different broker (so
long as the purchase
or sales instructions remain the same).
 
Mandatory Suspension
 
Each 10b5-1 Plan must provide for suspension of trades under such plan
if legal, regulatory or contractual restrictions are imposed on the Window Group
Members, or if these guidelines are amended, or other
events occur, that would prohibit sales under such 10b5-1 Plan.
 
11

 
 
Results of Termination of a Plan
 
If a Window Group Member terminates a 10b5-1 Plan prior to its stated
duration, such Window Group Member may not trade in Company securities (other
than pursuant to another 10b5-1 Plan already in place) for
a period of at least 30 days following such termination; provided, however, that any trades
following such termination shall comply with
the Company’s Trading Policy. If an existing 10b5-1 Plan is terminated early and another 10b5-1 Plan is
already in place, the first
trade under the later-commencing plan must not be scheduled to occur until after the end of the effective Cooling-Off Period
following
the termination of the earlier 10b5-1 Plan.
 
Sales to Cover
 
A Window Group Member may have only one 10b5-1 Plan in effect at any
time, except that a written, irrevocable election (an “Election”) by a Window
Group Member to sell a portion of Company
Securities as necessary to satisfy statutory tax withholding obligations arising solely from the vesting of
compensatory awards (not including
options) (“Sales to Cover”) is permitted even if not included in the directions in the Window Group Member’s
10b5-1
Plan, provided that (a) the Election is made during an open trading window under the Policy, (b) at the time of the Election, the
Window Group Member is
not aware of any MNPI with respect to the Company or Company Securities, (c) the Sales to Cover are made in good
faith and not as part of a plan or
scheme to evade the prohibitions of Rule 10b-5, (d) the Window Group Member does not have, and will
not attempt to exercise, authority, influence or
control over any such Sales to Cover, and (e) the Election contains appropriate representations
as to clauses (b)-(d).
 
No Overlapping Plans
 
A Window Group Member may adopt a new 10b5-1 Plan to replace an existing
10b5-1 Plan before the scheduled termination date of such existing 10b5-1
Plan, so long as the first scheduled trade under the new 10b5-1
Plan does not occur until after all trades under the existing 10b5-1 Plan are completed or
expire without execution (subject to any Cooling-Off
Periods).
 
However, where the first trade under a later-commencing plan is scheduled
during what would have been the Cooling-off Period for that plan assuming the
termination date of the earlier-commencing plan were deemed
to be the date of adoption of the later-commencing plan, then Rule 10b5-1 would not be
available for the later-commencing plan. For example,
a Window Group Member who is not an officer or director has in place an existing Rule 10b5-1 plan
with a scheduled date for the latest
authorized trade of May 31, 2023. On May 1, 2023, that Window Group Member adopts a later-commencing plan,
intended to qualify for the
affirmative defense under Rule 10b5-1, with a scheduled date for the first authorized trade of June 1, 2023. If that Window
Group Member
terminates the earlier-commencing plan on May 15, the later-commencing plan will not receive the benefit of the affirmative defense,
because
June 1 is within 30 days of May 15, the date of termination of the earlier-commencing plan, and thus June 1 is during the “effective
cooling-off
period.” However, if the later-commencing plan were scheduled to begin trading on July 1, 2023, it could still receive
the benefit of the affirmative defense
because July 1, 2023 is more than 30 days after May 15 and thus is outside the “effective
cooling-off period.”
 
A series of separate contracts with different brokers to execute trades
under a 10b5-1 Plan may be treated as a single plan, provided the contracts as a whole
meet the conditions under Rule 10b5-1, and provided
further that any amendment of one contract is treated as an amendment of all of the contracts under
the plan.
 
12

 
 
Limitation on Single-Trade Arrangements
 
In any 12-month period, a Window Group Member is limited to one “single-trade
plan” — one designed to effect the open market purchase or sale of the
total amount of the securities subject to the plan
as a single transaction. The following do not constitute single-trade plans: (a) a 10b5-1 Plan that gives
discretion to an agent over
whether to execute the 10b5-1 Plan as a single transaction or that provides the agent’s future acts depend on facts not known at
the time the 10b5-1 Plan’s adoption and might reasonably result in multiple transactions and (b) Sales to Cover.
 
No Hedging
 
As described in the Policy, individuals subject to the policy are prohibited
from engaging in any hedging or similar transactions designed to decrease the
risks associated with holding Company Securities. Further
to this end, a Window Group Member adopting a 10b5-1 Plan may not have entered into or
altered a corresponding or hedging transaction
or position with respect to the securities subject to the 10b5-1 Plan and must agree not to enter into any such
transaction while the
10b5-1 Plan is in effect.
 
Compliance with Rule 144
 
All sales made under a 10b5-1 Plan must be made in reliance on an exemption
 from registration under the Securities Act of 1933, as amended (the
“Securities Act”) and may not be made pursuant
to a registration statement. To the extent that sales made under a 10b5-1 Plan are made pursuant to Rule
144 under the Securities Act,
such 10b5-1 Plan must provide for specific procedures to comply with Rule 144, including the filing of Forms 144.
 
Required Footnote Disclosure
 
Window Group Member must footnote trades disclosed on Forms 144 to
indicate that the trades were made pursuant to a 10b5-1 Plan.
 
13

 
 
Annex B
 
Request for Approval to Trade in the Securities
of CNFinance Holdings Limited
 
To: Chief Executive Officer / Chief Financial
Officer
 
From:
 
Print Name
 Finance Holdings Limited are directed
by me or are subject to my influence or control) to execute the following transaction relating to the securities
of CNFinance Holdings
Limited.
 
Type of transaction (check one):
 
☐PURCHASE
 
☐SALE
 
☐EXERCISE OPTION (AND SELL SHARES)
 
☐OTHER
 
Securities involved in transaction:                                                                   
 
Number of securities:                                                                                        
 
Other (please explain):                                                                                      
 
Name of beneficial owner if other than yourself:	                                          
 
Relationship of beneficial owner to yourself                                                    
 
Signature:
_____________
Date:
__________
 
This Authorization is valid until
 the earlier of thirty (30) calendar days after the date of this Approval or until the commencement of a
“blackout” period.
 
Approved by:
 
 
 
 
Name:
 
 
 
 
Date:
 
 
Time:  
 
14

Exhibit 12.1
 
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
 
I, Bin Zhai, certify that:
 
1.
I have reviewed this annual report on Form 20-F of CNFinance Holdings Limited (the “Company”);
 
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 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:
 
 
(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 29, 2025
 
 
By:
/s/ Bin Zhai
 
Name:  Bin Zhai
 
Title:
Chief Executive Officer
 

Exhibit 12.2
 
Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
 
I, Jing Li, certify that:
 
1.
I have reviewed this annual report on Form 20-F of CNFinance Holdings Limited (the “Company”);
 
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 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:
 
 
(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 29, 2025
 
 
By:
/s/ Jing Li
 
Name:  Jing Li
 
Title:
Chief Financial Officer
 

Exhibit 13.1
 
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
In connection with the annual report of CNFinance
Holdings Limited (the “Company”) on Form 20-F for the year ended December 31, 2024 as filed
with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Bin Zhai, 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 29, 2025
 
 
 
 
 
 
By:
/s/ Bin Zhai
 
Name:  Bin Zhai
 
Title:
Chief Executive Officer
 

Exhibit 13.2
 
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
In connection with the annual report of CNFinance
Holdings Limited (the “Company”) on Form 20-F for the year ended December 31, 2024 as filed
with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Jing Li, 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 29, 2025
 
 
 
 
 
 
By:
/s/ Jing Li
 
Name:  Jing Li
 
Title:
Chief Financial Officer
 

Exhibit 15.1
 
 
Date:
April 29, 2025
 
CNFinance Holdings Limited
 
22/F, South Finance Center, No. 6 Wuheng Road
Tianhe District, Guangzhou City
Guangdong Province
People’s Republic of China
 
Dear Sirs/Madams,
 
We hereby consent to the reference to our firm
in CNFinance Holdings Limited’s annual report on Form 20-F for the fiscal year ended December 31, 2024
(the “Annual
Report”), which will be filed by CNFinance Holdings Limited in April 2025 with the Securities and Exchange Commission (the “SEC”)
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and further consent to the incorporation by reference of the
summaries of our
opinions that appear in the Annual Report on Form 20-F into the Registration Statement (No. 333-230955) on Form S-8 and
the Registration Statement
(No. 333-259304) on Form F-3.
 
We also consent to the filing of this consent
letter with the SEC 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 Sincerely,
 
/s/ 王艺
 
Global Law Office
 
 
 

Exhibit 15.2
 
 
29 April 2025
Our Ref: MRC/BLUI/C6410-H18817
 
 
The Board of Directors
CNFinance Holdings Limited
22/F, South Finance Center
No. 6 Wuheng Road
Tianhe District
Guangzhou City
Guangdong Province
People’s Republic of China
 
 
Dear Sir or Madam
 
CNFinance Holdings Limited
 
FORM 20-F
 
We consent to the reference to our firm under the
heading “Item 3.D. Risk Factors— Risks Related to our American Depositary Shares” and “Item 10.E.
Additional
Information—Taxation —Cayman Islands Taxation” in the Annual Report on Form 20-F of CNFinance Holdings Limited for
the year ended 31
December 2024 (the “Annual Report”), which will be filed with the U.S. Securities and Exchange Commission
(the “Commission”) on April 29, 2025
under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”).
We further consent to the incorporation by reference of the summaries
of our opinions that appear in the Annual Report into the Registration
Statement (No. 333-230955) on Form S-8 and Registration Statement (No. 333-
259304) on Form F-3.
 
We also consent to the filing with the Commission
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 the Exchange Act, or the
Rules and Regulations of the Commission
thereunder.
 
Yours faithfully
 
/s/ Walkers
 
WALKERS (HONG KONG)
 
 

Exhibit 15.3
 
KPMG Huazhen LLP
8th Floor, KPMG Tower
Oriental Plaza
1 East Chang An Avenue
Beijing 100738
China
Telephone	+86 (10) 8508 5000
Fax	+86 (10) 8518 5111
Internet kpmg.com/cn
毕马威华振会计师事务所
(特殊普通合伙)
中国北京
东长安街1号
东方广场毕马威大楼8层
邮政编码:100738
电话	+86
(10) 8508 5000
传真	+86
(10) 8518 5111
网址	kpmg.com/cn
 
Consent of Independent Registered Public Accounting
Firm
 
We consent to the incorporation by reference in the registration statement
(No. 333-230955) on Form S-8 and registration statement (No. 333-259304) on
Form F-3 of our report dated April 26, 2024, with respect
to the consolidated financial statements of CNFinance Holdings Limited, its subsidiaries, and
variable interest entities.
 
/s/ KPMG Huazhen LLP
 
Guangzhou, China
 
April 29, 2025
 
 
 
KPMG Huazhen LLP, a People's Republic of China
partnership and a member
firm of the KPMG global
organisation of independent member firms affiliated with
KPMG International Limited, a private English company
limited by guarantee.
  毕马威华振会计师事务所(特殊普通合伙)
— 中国合伙制会计
师事务所，是与毕马威国际有限公司(英国私营担保有限公
司)相关联的独立成员所全球组织中的成员。
 
 
 

Exhibit 15.4
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We hereby consent to the incorporation by reference
in the Registration Statements on Form S-8 (No. 333-230955) and Form F-3 (No. 333-259304) of our
report dated April 29, 2025, relating
to the consolidated financial statements of CNFinance Holdings Limited (the “Company”), as of and for the year
ended December
31, 2024, appearing in this Annual Report on Form 20-F of the Company.
/s/ HTL International, LLC
Houston, Texas
April 29, 2025