UNITED STATES
SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2016.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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: 001-34936
NOAH 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)
No. 1687 Changyang Road, Changyang Valley, Building 2
Shanghai 200090, People’s Republic of China
(Address of principal executive offices)
Shang Yan Chuang, Chief Financial Officer
Noah Holdings Limited
No. 1687 Changyang Road, Changyang Valley, Building 2
Shanghai 200090, People’s Republic of China
Phone: (86) 21 8035 9221
Facsimile: (86) 21 8035 9641
(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
Name of exchange on which registered
American depositary shares, two of which represent
one Class A ordinary share, par value US$0.0005 per share
Class A ordinary shares, par value US$0.0005 per share*
New York Stock Exchange
* Not for trading, but only in connection with the listing on the New York Stock Exchange of the 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. 29,518,533 ordinary shares issued, with 28,231,328 ordinary shares outstanding and 1,287,205 shares in
treasury stock, par value US$0.0005 per share, as of December 31, 2016.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. ☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging
growth company. See the definitions of “large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S.GAAP, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act. ☐
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to
its Accounting Standards Codification after April 5, 2012.
Indicate by check mark 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 Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
TABLE OF CONTENTS
INTRODUCTION
FORWARD-LOOKING STATEMENTS
PART I
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 1
OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2
KEY INFORMATION
ITEM 3
ITEM 4
INFORMATION ON THE COMPANY
ITEM 4A UNRESOLVED STAFF COMMENTS
ITEM 5
ITEM 6
ITEM 7
ITEM 8
ITEM 9
ITEM 10
ITEM 11
ITEM 12
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
CONTROLS AND PROCEDURES
RESERVED
ITEM 13
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15
ITEM 16
ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B CODE OF ETHICS
ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G CORPORATE GOVERNANCE
ITEM 16H MINE SAFETY DISCLOSURE
PART III
ITEM 17
ITEM 18
ITEM 19
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
1
1
3
3
3
3
38
70
70
95
106
109
109
110
119
120
122
122
122
122
124
124
124
124
124
124
125
125
125
125
125
125
126
Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F
to:
INTRODUCTION
•
•
•
•
•
•
•
•
•
•
•
•
•
•
“active clients” for a given period refers to registered clients who obtain wealth management products or services
distributed or provided by us during that given period, excluding internet financial services clients;
“ADSs” refer to our American depositary shares, two of which represent one Class A ordinary share;
“assets under management” or “AUM” refers to the amount of capital commitments made by investors to the funds
we manage without adjustment for any gain or loss from investment, for which we are entitled to receive fees,
performance-based income or general partner capital, except for secondary market equity funds of funds. For
secondary market equity funds of funds, the “assets under management” or “AUM” refers to the fair value of the
investments we manage, for which we are entitled to receive fees and performance-based income;
“China” or the “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only,
Hong Kong, Macau and Taiwan;
“Class A ordinary shares” refer to our Class A ordinary shares, par value US$0.0005 per share;
“Class B ordinary shares” refer to our Class B ordinary shares, par value US$0.0005 per share;
“fixed income products” refer to products that are distributed or managed by us with prospective fixed rates of return,
which return is not guaranteed under PRC laws;
“mutual fund” means a securities investment fund as defined under the PRC Law on Securities Investment Fund,
which raises capital through public offerings of fund shares within the territory of the PRC, are managed by fund
managers and placed in the custody of fund custodians, and invest in securities portfolios for the holders of fund
shares;
“NYSE” refers to the New York Stock Exchange;
“ordinary shares” refer to our ordinary shares, which include both Class A ordinary shares and Class B ordinary
shares, par value US$0.0005 per share;
“wealth management products” refer to products we distribute, such as fixed income products, private equity funds,
secondary market funds of funds, mutual funds and insurance products;
“registered clients” refer to clients that have registered or entered into cooperation agreements with us, excluding
internet financial services clients;
“RMB” and “Renminbi” refer to the legal currency of China; and
“transaction value” refers to the value of wealth management products we distribute to our active clients during a
given period.
Unless the context indicates otherwise, each of “we,” “us,” “our company,” “our,” and “Noah” refer to Noah Holdings
Limited, its subsidiaries and variable interest entity and the variable interest entity’s subsidiaries. Unless otherwise noted, all
translations from RMB to U.S. dollars are made at a rate of RMB6.943 to US$1.00, the effective noon buying rate for December 31,
2016 as set forth in the H.10 statistical release of the Federal Reserve Board.
FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties. All statements
other than statements of historical facts are forward-looking statements. Known and unknown risks, uncertainties and other factors,
including those listed under “Risk Factors,” may cause our actual results, performance or achievements to be materially different from
those expressed or implied by the forward-looking statements.
1
You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,”
“anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
our goals and strategies;
our future business development, financial condition and results of operations;
the expected growth of the wealth management, asset management and internet financial services industries in China
and internationally;
our expectations regarding demand for and market acceptance of the products and services we distribute, manage or
offer;
our expectations regarding keeping and strengthening our relationships with key clients;
relevant government policies and regulations relating to our industry;
our ability to attract and retain quality employees;
our ability to stay abreast of market trends and technological advances;
our plans to invest in research and development to enhance our product choices and service offerings;
competition in the wealth management, asset management and internet financial service industries in China and
internationally;
general economic and business conditions in China and internationally;
our ability to obtain certain licenses and permits necessary to operate and expand our businesses; and
our ability to effectively protect our intellectual property rights and not infringe on the intellectual property rights of
others.
These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations
expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results
could be materially different from our expectations. Other sections of this annual report include additional factors that could adversely
impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties
emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, 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
materially from those contained in any forward-looking statements. You should thoroughly read this annual report and the documents
that we refer to herein with the understanding that our actual future results may be materially different from, or worse than, what we
expect. We qualify all of our forward-looking statements by these cautionary statements.
2
ITEM 1
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
PART I
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3 KEY INFORMATION
A.
Selected Financial Data
Selected Consolidated Financial Data
The following selected consolidated financial information for the periods and as of the dates indicated should be read in
conjunction with our consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” in
this annual report.
Our selected consolidated financial data presented below for the years ended December 31, 2014, 2015 and 2016 and our
balance sheet data as of December 31, 2015 and 2016 have been derived from our audited consolidated financial statements included
elsewhere in this annual report. Our audited consolidated financial statements are prepared in accordance with Generally Accepted
Accounting Principles in the U.S., or GAAP. Our selected consolidated financial data presented below for the years ended
December 31, 2012 and 2013 and our balance sheet data as of December 31, 2012, 2013 and 2014 have been derived from our audited
financial statements not included in this annual report.
During the past few years, we have gradually transitioned from a consulting services provider focusing on wealth
management to a comprehensive integrated financial services group with capabilities in wealth management, asset management and
internet financial services. Prior to 2013, we derived our revenues primarily from our wealth management business. In 2013, our asset
management business began contributing a significant portion of our revenues, and we derived our revenues primarily from our wealth
management and asset management businesses. In the second quarter of 2014, we launched our internet financial service business. In
order to better reflect our current business operations and corporate strategy, starting from the fourth quarter of 2014, we separately
present breakdowns of our financial information into three business segments: wealth management, asset management and internet
financial services, in addition to our consolidated financial information. Financial results for each segment in prior years are also
presented accordingly, in order to allow for better comparison with the 2015 and 2016 breakdowns. See “Item 5. Operating and
Financial Review and Prospects.”
3
Starting from the fourth quarter of 2015, we changed our reporting currency from the U.S. dollar (“US$”) to the Renminbi
(“RMB”). Comparable data of prior periods have also been adjusted accordingly.
Revenues
Total Revenues
Less: business taxes and related surcharges
Net Revenues
Operating cost and expenses:
Compensation and benefits
Selling expenses
General and administrative expenses
Other operating expenses
Government subsidies
Total operating cost and expenses
Income from operations:
Other income (expenses):
Interest expenses
Interest income
Investment income
Foreign exchange gain (loss)
Other income (expense), net
Total other income
Income before taxes and income from equity in affiliates
Income tax expense
Income from equity in affiliates
Net income
Less: net income (loss) attributable to non-controlling
interests
Less: Loss attributable to redeemable non-controlling
interest of a subsidiary
Net income attributable to ordinary shareholders of Noah
Holdings Limited
Net income per share
Basic
Diluted
Net income per ADS(1)
Basic
Diluted
Weighted average number of shares used in computation:
Basic
Diluted
Dividends declared per share
Note:
(1) Two ADSs represent one Class A ordinary share.
2012
RMB
2013
RMB
2014
RMB
2015
RMB
2016
RMB
2016
US$
Year Ended December 31,
578,899,671
(31,972,401)
546,927,270
1,064,620,352
1,617,158,262
(58,643,752)
(88,673,371)
1,005,976,600
1,528,484,891
2,232,696,106
(112,768,265)
2,119,927,841
2,561,636,069
368,952,334
(48,063,299)
(6,922,555)
2,513,572,770
362,029,779
(267,326,477)
(84,847,017)
(56,154,930)
(2,648,489)
27,095,620
(383,881,293)
163,045,977
—
15,466,990
19,208,779
(1,140,948)
698,299
34,233,120
197,279,097
(56,649,014)
3,894,684
144,524,767
(448,737,377)
(102,198,334)
(110,020,644)
(5,445,385)
32,644,120
(633,757,620)
372,218,980
—
20,272,408
24,141,820
1,892,383
14,723
46,321,334
418,540,314
(100,081,866)
7,290,800
325,749,248
(737,460,338)
(147,265,810)
(151,626,278)
(29,961,830)
90,931,462
(975,382,794)
553,102,097
(1,164,492,379)
(263,815,409)
(170,929,513)
(94,624,304)
132,709,712
(1,561,151,893)
558,775,948
(1,300,403,960)
(322,667,518)
(234,488,066)
(151,087,419)
162,364,268
(1,846,282,695)
667,290,075
(187,297,128)
(46,473,789)
(33,773,306)
(21,761,115)
23,385,319
(265,920,019)
96,109,760
—
38,901,980
23,552,297
706,881
(14,668,188)
48,492,970
601,595,067
(151,293,021)
13,583,865
463,885,911
(16,050,359)
39,698,790
51,954,918
(1,211,502)
1,666,532
76,058,379
634,834,327
(129,885,747)
21,352,767
526,301,347
(19,288,813)
39,537,775
48,537,737
(2,002,633)
(528,988)
66,255,078
733,545,153
(157,996,588)
22,342,896
597,891,461
(2,778,167)
5,694,624
6,990,888
(76,190)
(288,439)
9,542,716
105,652,476
(22,756,242)
3,218,046
86,114,280
521,797
9,821,510
17,333,060
(9,522,737)
(40,601,294)
(5,847,803)
(5,335,678)
(768,498)
144,002,970
315,927,738
446,552,851
535,824,084
643,828,433
92,730,581
5.17
5.11
2.59
2.56
11.50
11.28
5.75
5.64
16.02
15.82
8.01
7.91
19.08
18.31
9.54
9.15
22.87
22.08
11.44
11.04
3.29
3.18
1.65
1.59
27,751,335
28,073,731
1.74
27,480,150
28,008,386
—
27,873,501
28,227,823
—
28,085,521
30,145,976
—
28,150,139
30,036,763
—
28,150,139
30,036,763
—
2012
RMB
2013
RMB
Year Ended December 31,
2015
RMB
2014
RMB
2016
RMB
2016
US$
Consolidated Balance Sheet Data
Cash and cash equivalents
Total assets
Total current liabilities
Total liabilities
Redeemable non-controlling interest
of a subsidiary
Total equity
744,877,933 1,187,211,176 1,750,204,915 2,132,923,674
2,982,509,565 429,570,728
1,279,472,322 1,835,812,712 2,674,803,438 4,096,994,415 5,956,489,700 857,912,963
692,754,366
966,830,381 1,575,711,768 226,949,700
734,931,625 1,562,997,866 2,234,553,961 321,842,714
380,251,113
412,013,025
164,005,626
186,053,482
47,625,568
1,093,418,840 1,423,799,687 1,939,871,813 2,533,996,549 3,391,271,417 488,444,681
330,664,322
—
—
—
—
4
Discussion of Non-GAAP Financial Measures
Adjusted net income attributable to Noah shareholders is a non-GAAP financial measure that excludes the income statement
effects of all forms of share-based compensation. A reconciliation of adjusted net income attributable to Noah shareholders to net
income attributable to Noah shareholders, the most directly comparable GAAP measure, can be obtained by subtracting expenses for
share-based compensation related to share options and restricted shares issued by us.
The non-GAAP financial measure disclosed by us should not be considered a substitute for financial measures prepared in
accordance with GAAP. The financial results reported in accordance with GAAP and reconciliation of GAAP to non-GAAP results
should be carefully evaluated. The non-GAAP financial measure used by us may be prepared differently from and, therefore, may not
be comparable to, similarly titled measures used by other companies.
When evaluating our operating performance in the periods presented, management reviewed non-GAAP net income results
reflecting an adjustment to exclude the impact of share-based compensation. As such, we believe that the presentation of the non-GAAP
adjusted net income attributable to Noah shareholders provides important supplemental information to investors regarding financial and
business trends relating to our results of operations in a manner consistent with that used by management. Pursuant to GAAP, we
recognized significant amounts of expenses for all forms of share-based compensation. To make our financial results comparable period
by period, we utilize non-GAAP adjusted net income to better understand our historical business operations.
Reconciliation of GAAP to Non-GAAP Results (unaudited)
Year Ended December 31,
Net income attributable to Noah shareholders
Adjustment for share-based compensation
related to:
Share options
Restricted shares
Adjusted net income attributable to Noah
shareholders (non-GAAP)(1)
Note:
2012
RMB
2013
RMB
144,002,970 315,927,738 446,552,851
2014
RMB
2015
RMB
2016
RMB
535,824,084 643,828,433
2016
US$
92,730,581
9,066,726
16,158,514
1,265,555
30,983,610
9,043,829
23,647,858
33,912,040
33,760,448
39,008,208
40,163,109
5,618,351
5,784,691
169,228,210 348,176,903 479,244,538
603,496,572 722,999,750 104,133,623
(1) The non-GAAP adjustments do not take into consideration the impact of taxes on such adjustments.
Exchange Rate Information
We have prepared our consolidated financial statements in RMB. Our business is primarily conducted in China in RMB. The
conversion of RMB into U.S. dollars in this annual report is based on the certified exchange rate published by the Federal Reserve
Board. For your convenience, this annual report contains translations of some RMB or U.S. dollar amounts for 2016 at US$1.00:
RMB6.943, which was the certified exchange rate in effect as of December 31, 2016. The certified exchange rate on April 7, 2017 was
US$1.00: RMB6.8978. 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, the rates stated below, 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.
5
The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods
indicated. The exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. These
rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this annual report or will use in
the preparation of our periodic reports or any other information to be provided to you.
Period
2012
2013
2014
2015
2016
October
November
December
2017
January
February
March
April (through April 7, 2017)
Period-
End
6.2301
6.0537
6.2046
6.4778
6.9430
6.7735
6.8837
6.9430
6.8768
6.8665
6.8832
6.8978
Noon Buying Rate
Average (1)
6.3086
6.1475
6.1612
6.2823
6.6413
6.7252
6.8412
6.9219
6.8934
6.8688
6.8943
6.8883
Low
6.2221
6.0537
6.0402
6.1870
6.4480
6.6685
6.7534
6.8771
6.8360
6.8517
6.8687
6.8832
High
6.3879
6.2438
6.2591
6.4896
6.9580
6.7819
6.9195
6.9580
6.9575
6.8821
6.9132
6.8978
(1) Annual averages are calculated using the average of month-end rates of the relevant year. Monthly averages are calculated using
the average of the daily rates during the relevant period.
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
D.
Risk Factors
Risks Related to the Business
We may not be able to continue to grow at our historical rate of growth, and if we fail to manage our growth effectively, our
business may be materially and adversely affected.
We commenced our business in 2005 and have experienced a period of growth in recent years. Our net revenues grew at a
compound annual growth rate, or CAGR, of 46.4% from 2012 to 2016. We anticipate continuing growth in the foreseeable future.
However, we cannot assure you that we will grow at our historical rate of growth. Our growth has placed, and will continue to place, a
significant strain on our management, personnel, systems and resources. To accommodate our growth, we may need to establish
additional branch offices, including in new cities and regions where we have no previous presence, recruit, train, manage and motivate
relationship managers, experienced investment professionals and other employees and manage our relationships with an increasing
number of registered clients. Moreover, as we introduce new products and services or enter into new markets, we may face unfamiliar
market, technological and operational risks and challenges which we may fail to successfully address. We may be unable to manage our
growth effectively, which could have a material adverse effect on our business.
6
Our operating history may not provide an adequate basis to judge our future prospects and results of operations.
We commenced our business in 2005 as a consulting services provider focusing on wealth management and have gradually
transitioned to a comprehensive integrated financial services group with the introduction of asset management services in May 2010 and
internet financial services through our online platform for mass affluent clients as well as transaction data processing and related
services in June 2014. We seek to develop new wealth management products to distribute and asset management and internet financial
services to provide to our clients, but it is difficult to predict whether our new products and services will be well-received by our clients.
Although we recorded net income in prior years, we cannot assure you that our results of operations will not be adversely affected in
any future period. We have limited operating history and as a result limited experience in delivering services, which makes the
prediction of future results of operations difficult, and therefore, past results of operations achieved by us should not be taken as
indicative of the rate of growth, if any, that can be expected in the future. As a result, you should consider our future prospects in light
of the risks and uncertainties experienced by early stage companies in a rapidly evolving and increasingly competitive market in China.
The wealth management products that we distribute or manage involve various risks and any failure to identify or fully appreciate
such risks may negatively affect our reputation, client relationships, operations and prospects.
We distribute and manage a broad variety of wealth management products, including fixed income products, private equity
funds, secondary market equity funds of funds, mutual funds and insurance products. These products often have complex structures and
involve various risks, including default risks, interest risks, liquidity risks, market risks, counterparty risks, fraud risks and other risks.
For example, in June 2014, Wanjia Win-Win Assets Management Co. Ltd, or Wanjia Win-Win, a joint venture in which our
consolidated affiliated entity, Gopher Asset Management Co., Ltd., or Gopher Asset Management, holds a 35% equity interest,
established asset management plans and joined Shenzhen Jingtai Investment Fund I Limited Liability Partnership, or Jingtai Fund I, as
limited partner representing asset management plans. A third party, Shenzhen Jingtai Fund Management Co., Ltd., or Jingtai
Management, serves as the general partner of Jingtai Fund I. Our subsidiary, Noble Equity Investment Fund (Shanghai) Management
Co. Ltd, or Noble, was the investment advisor for the asset management plans. Shortly after the establishment of the plans and
investment of the funds thereof to Jingtai Fund I, Wanjia Win-Win and Noble discovered that Jingtai Management had violated the
terms and agreed investment strategy outlined in the Limited Partnership Agreement of Jingtai Fund I by using funds Wanjia Win-Win
invested in Jingtai Fund I for other investment projects. Wanjia Win-Win and Noble immediately reported Jingtai Management’s
fraudulent actions to the relevant local public security bureau and the local branch of CSRC. While a criminal judgment of this case has
been rendered and the criminally liable parties have been convicted, the civil litigation is still in the trial phase and a final civil
judgment has not yet been rendered. Although we do not currently expect this incident to have any material adverse effect on our
business operations or financial results, incidents like this could adversely affect our reputation and subject us to administrative or legal
proceedings which, even if without merit, could be distracting to our management, may affect our reputation and may expose us to
potential risks and losses. See “—Our business is subject to risks related to lawsuits and other claims brought by our clients.”
Our success in distributing, managing and offering our products and services depends, in part, on our ability to successfully
identify the risks associated with such products and services, and failure to identify or fully appreciate such risks may negatively affect
our reputation, client relationships, operations and prospects. Not only must we be involved in the design and development of products
and services, we must also accurately describe the products and services to, and evaluate them for, our clients. Although we enforce and
implement strict risk management policies and procedures, such risk management policies and procedures may not be fully effective in
mitigating the risk exposure of all of our clients in all market environments or against all types of risks. For example, under current PRC
tax laws, the fund manager is not obligated to withhold individual taxes for investors in contract-based private funds. However, if new
rules require such an obligation, it may discourage these investors from investing in contract-based private funds and therefore affect
our business.
Poor performance of the funds we manage and products and services we distribute, manage or offer could also make it more
difficult for us to raise new capital. If we fail to identify and fully appreciate the risks associated with the products and services we
distribute, manage and offer, or fail to disclose such risks to our clients, and our clients suffer financial loss or other damages resulting
from their purchase of the wealth management products we distribute or the asset management and internet financial services that we
provide, our reputation, client relationships, business and prospects will be materially and adversely affected. In addition, the historical
returns of our funds may not be indicative of the future results of our funds due to the change in market conditions and our accessibility
to investment oppportunities. Also see “—If we breach our fiduciary duty as the general partner of the funds or the funds we manage
perform poorly, our results of operations will be adversely impacted” and “—Our business is subject to risks related to lawsuits and
other claims brought by our clients.”
7
Certain of our wealth management products we distribute and the asset management and internet financial services we provide have
real estate or real estate-related businesses as underlying assets. These products and services are subject to the risks inherent in the
construction, development, ownership and operation of real estate, as well as risks associated with regulatory and policy changes to
the real estate industry, in China.
Certain of the wealth management products that we distribute and the asset management and internet financial services that
we provide have real estate or real estate-related business in China as their underlying assets. In 2014, 2015 and 2016, the total value of
wealth management products that we distributed with real estate or real estate-related businesses as the underlying assets accounted for
51.0%, 31.6% and 29.4% of the total value of all the products we distributed, respectively. The net revenues, including one-time
commissions, recurring service fees and other services fees, that we generated from distributing wealth management products and
providing asset management and internet financial services with real estate or real estate-related businesses as the underlying assets
accounted for 64.4%, 36.7% and 19.2% of our total net revenues for the years ended December 31, 2014, 2015 and 2016, respectively.
Such products are subject to the risks inherent in the ownership and operation of real estate and real estate-related businesses
and assets. These risks include those associated with the burdens of ownership of real property, general and local economic conditions,
changes in supply of and demand for competing properties in an area, natural disasters, changes in government regulations, changes in
real property tax rates, changes in interest rates, the reduced availability of mortgage funds, which may render the sale or refinancing of
properties difficult or impracticable, and other factors that are beyond our control.
In particular, the PRC real estate industry is subject to extensive governmental regulation and is susceptible to policy
changes. The PRC government exerts considerable direct and indirect influence on the development of the PRC real estate sector by
imposing industry policies and other economic measures. Such measures may depress the real estate market, reduce transaction volume,
cause a decline in selling prices, prevent developers from raising the capital they need and increase developers’ costs to start new
projects.
Frequent changes in government policies may also create uncertainty that could discourage investment in real estate. In early
2013, the PRC central government adopted several rules to further strengthen its control over the real estate market, improve the local
government’s ability to stabilize housing prices, curb speculative housing investment, increase the supply of land for low income
housing, accelerate the planning and construction of low income housing and strengthen market supervision. In late 2014, the PRC
central government adopted new rules and began relaxing control over the real estate market by loosening the credit limits applicable to
loans for the purchase of second homes and introducing new policies on housing provident fund credits and other measures. In addition,
except for big cities such as Beijing, Shanghai, Guangzhou and Shenzhen, other cities in China began gradually rescinded local sale
suspension policies applicable to housing purchases. In November 2014, the State Council promulgated the Interim Regulations on Real
Estate Registration, which became effective on March 1, 2015, and on January 1, 2016, the Ministry of Land and Resources
promulgated the Implementation Regulations for the Interim Regulations on Real Estate Registration, or collectively, the Real Estate
Registration Regulations. The Real Estate Registration Regulations provide that buildings and structures such as houses shall be
registered together with the land or territorial waters to which they are attached, to ensure that the holder entity is consistent. The Real
Estate Registration Regulations better protect the building owner’s property rights over the underlying real estate, but to some extent
curb speculative housing investment especially in those cities who adopt the house-purchasing limitations. In 2015, relevant authorities
adopted several rules that in favor of the real estate market, such as setting lower loan interest rates and reducing down-payments.
However, due to the rapid increase of housing prices in certain cities such as Shanghai, housing policies were tightened in early 2016.
As such, we cannot assure you that the PRC government will not adopt new measures in the future that may result in lower growth rates
in the real estate industry.
Additionally, on February 13, 2017, the Asset Management Association of China, or AMAC, released the No. 4 Filing Rules
on to regulate real estate investments by the securities and futures institutions. According to the No. 4 Filing Rules, private fund
managers, such as ourselves, are required to follow relevant rules while investing into the real estate development enterprises or
projects. See “Item 4. Information on the Company—B. Business Overview—Regulations.” These policies and regulations may affect
the viability, cash flow, or prospect of real estate development projects that constitute the underlying assets of certain of the wealth
management products we distribute or the asset management and internet financial services we provide in all respects, which could
adversely affect our business.
8
If any of the risks associated with ownership and operation of real estate and real estate-related businesses in China are
realized, they may result in decreased value and increased default rates of the wealth management products we distribute and the asset
management and internet financial services we provide that are linked to real estate, and reduce the interest of our clients in purchasing
such products, which account for a significant portion of our product choices. As a result, our commissions and recurring service fees
from such products or services could be adversely affected. In addition, if clients who purchased the wealth management products we
distribute or the asset management or internet financial services we provide experience financial loss, they may lose their trust and
confidence in us and our reputation may be harmed, which may result in a material adverse effect on our business, results of operations
and financial condition.
Our reputation and brand recognition is crucial to our business. Any harm to our reputation or failure to enhance our brand
recognition may materially and adversely affect our business, financial condition and results of operations.
Our reputation and brand recognition, which depend on earning and maintaining the trust and confidence of individuals,
enterprises or institutions that are current or potential clients, is critical to our business. Our reputation and brand recognition are
vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or
investigations, lawsuits initiated by clients or other third parties, employee misconduct, misconduct or allegations of misconduct by the
managers of third-party funds that we distribute, perceptions of conflicts of interest and rumors, among other things, could substantially
damage our reputation, even if they are baseless or satisfactorily addressed. In addition, any perception that the quality of the wealth
management products we distribute or the asset management or internet financial services we provide may not be the same as or better
than that of other advisory firms, product distributors or internet financial service providers can also damage our reputation. Moreover,
any misconduct or allegations of misconduct by managers of third-party funds that we distribute could result in negative media
publicity that could affect our reputation and erode the confidence of our clients. Furthermore, any negative media publicity about the
financial service industry in general or product or service quality problems of other firms in the industry, including our competitors,
may also negatively impact our reputation and brand recognition. If we are unable to maintain a good reputation or further enhance our
brand recognition, our ability to attract and retain clients, wealth management product providers and key employees could be harmed
and, as a result, our business and revenues would be materially and adversely affected.
The determination of the investment portfolio under asset management and the amount to be invested in certain investments is
subject to management’s evaluation and judgment. Poor investment portfolio performance may lead to a decrease in assets under
management and reduce revenues from and the profitability of our asset management business.
The determination of the investment portfolio under asset management and the investment amount varies by investment type
and is based upon our periodic evaluation and assessment of inherent and known risks associated with the respective asset class. As a
portion of our revenues from our asset management business comes from performance-based fees, which are typically based on how
much the returns on our managed accounts exceed a certain threshold return for each investor, we will not earn performance-based fees
if our management’s judgment is incorrect and the investment portfolio does not generate cumulative performance that surpasses the
relevant target thresholds or if a fund experiences losses. Poor investment portfolio performance, either as a result of downturns in the
market or economic conditions, including but not limited to changes in interest rates, inflation, terrorism, political uncertainty, our
investment style and the particular investments that we make, may result in a decline in our revenues and income by causing (i) the net
asset value of the assets under our management to decrease, which would result in lower management fees to us, (ii) lower investment
returns, resulting in a reduction of incentive fee income to us, and (iii) increase in investor redemptions, which would in turn lead to
fewer assets under management and lower fees for us. To the extent our future investment performance is perceived to be poor in either
relative or absolute terms, the revenues and profitability of our asset management business will likely be reduced and our ability to grow
existing funds and raise new funds in the future will likely be impaired.
9
Because a significant portion of the one-time commissions and recurring service fees we earn on the distribution and management
of wealth management products are based on commission and fee rates set by wealth management product providers or underlying
corporate borrowers, any decrease in these commission and fee rates may have an adverse effect on our revenues, cash flow and
results of operations.
While a portion of our revenues are derived from fees and commissions paid by our clients, we derive a significant portion of
our revenues from recurring fees and commissions paid by wealth management product providers or underlying corporate borrowers.
These recurring fees and commission rates are negotiated with such product providers, and vary from product to product. Recurring fees
and commission rates can change based on the prevailing political, economic, regulatory, taxation and competitive factors that affect the
product providers or underlying corporate borrowers. These factors, which are not within our control, include the capacity of product
providers to place new business, profits of product providers, client demand and preference for wealth management products, the
availability of comparable products from other product providers at a lower cost, the availability of alternative wealth management
products to clients and the tax deductibility of commissions and fees. In addition, the historical volume of wealth management products
that we distributed or managed may have a significant impact on our bargaining power with product providers or underlying corporate
borrowers in relation to the commission and fee rates for future products. Because we do not determine, and cannot predict, the timing
or extent of commission and fee rate changes with respect to the wealth management products, it is difficult for us to assess the effect of
any of these changes on our operations. Any decrease in commission and fee rates would adversely affect our revenues, cash flow and
results of operations.
The wealth management products we distribute are supplied by a limited number of wealth management product providers; and the
renegotiation or termination of our relationships with such wealth management product providers could significantly impact our
business.
The wealth management products we distribute are supplied by a small number of wealth management product providers,
including mutual fund management companies, private equity firms, real estate fund managers, securities investment fund managers
and insurance companies. In 2014, 2015 and 2016, our top three independent wealth management product providers accounted for
approximately 12.7%, 16.7% and 17.3% of the aggregate value of all the products we distributed through our wealth management
business, respectively. Our relationships with wealth management product providers are governed by contracts between us and such
product providers. These contracts establish, among other things, the scope of our responsibility and our commission rates with respect
to the distribution of particular products. These contracts typically are entered into on a product by product basis and expire at the
expiration date of the relevant wealth management product. For any new wealth management products, new contracts need to be
negotiated and entered into. Our management product providers may agree to enter into contracts with us for any new products only
with lower commission rates or other terms less favorable to us, which could reduce our revenues. If wealth management product
providers that in the aggregate account for a significant portion of our business decide not to enter into contracts with us for their wealth
management products, or our relationships with them are otherwise impacted, our business and operating results could be materially and
adversely affected.
Some of our asset management clients may redeem their investments from time to time, which could reduce our asset management
fee revenues.
Certain of our asset management fund agreements may permit investors to redeem their investments with us at quarterly or
annual intervals, after an initial “lockup” period during which redemptions are restricted or penalized. If the return on the assets under
our management does not meet investors’ expectations, investors may elect to redeem their investments and invest their assets
elsewhere, including with our competitors. Our recurring service fee revenues correlate directly to the amount of our AUM; therefore,
redemptions may cause our recurring service fee revenues to decrease. Investors may decide to reallocate their capital away from us and
to other asset managers for a number of reasons, including poor relative investment performance, changes in prevailing interest rates
which make other investment options more attractive, changes in investor perception regarding our focus or alignment of interest,
dissatisfaction with, changes in or a broadening of a fund’s investment strategy, changes in our reputation, and departures of, or changes
in responsibilities of, key investment professionals. For these and other reasons, the pace of investor redemptions and the corresponding
reduction in our assets under management could accelerate. In addition, redemptions could ultimately require us to liquidate assets
under unfavorable circumstances, which would further harm our reputation and results of operations.
10
Our internet financial service business involves a relatively new business model and may not be successful.
Our internet financial service business currently includes our internet financial service platform, small short-term loans,
transaction data processing and related services. Many elements of our internet financial service business are relatively unproven, and
the internet financial service market in China is relatively new, rapidly developing and subject to significant challenges. Although we
intend to devote significant resources to expanding our internet financial service business and develop and offer more innovative
products and services to our clients, we have limited experience with this business model and cannot assure you of its future success. If
we fail to address the needs of our internet financial service customers, adapt to rapidly evolving market trends or continue to offer
innovative products and services, there may not be significant market demand for the internet financial services we provide. In addition,
our internet financial service business will continue to encounter risks and difficulties that early stage businesses frequently experience,
including the potential failure to cost-effectively expand the size of our customer base, maintain adequate management of risks and
expenses, implement our customer development strategies and adapt and modify them as needed, develop and maintain our competitive
advantages and anticipate and adapt to changing conditions in China’s internet financing industry resulting from mergers and
acquisitions involving our competitors or other significant changes in economic conditions, competitive landscape and market
dynamics. We have not yet proven the essential elements of profitable operations in our internet financial service business, and our
business and revenues would be materially and adversely affected if we are not successful.
We face uncertainty from our entry into new business areas and the introduction of new wealth management products that we
distribute and asset management and internet financial services that we provide.
We continue to expand our business and develop and offer more innovative products and services to our clients. At the end
of 2013, we began offering small short-term loans to our registered clients and mass affluent individuals via our subsidiary Rong Yi
Tong, which contributed revenues of RMB23.9 million (US$3.4 million), or approximately 1.0% of our net revenues, in 2016. See
“Item 4. Information on the Company—B. Business Overview—Products and Services—Internet Financial Services”. Also in 2013, we
started our Enoch Education business, which provides high-end investor education services teaching investors about market cycles,
economic trends and portfolio investment philosophy. See “Item 4. Information on the Company—B. Business Overview—Products
and Services—Wealth Management”. In 2016, we began offering new factoring products through our wealth management business.
Our involvement in new businesses and our distribution of new products such as these exposes us to new risks. Additionally, since we
have little track record in these businesses, any perceived shortcomings in our operations in this area in the future pose reputational risk
to us. If we are unable to appropriately manage these risks in the future, our financial results may be adversely affected.
Our organizational documents do not limit our ability to enter into new lines of business, and we may enter into new businesses,
make future strategic investments or acquisitions or enter into joint ventures, each of which may result in additional risks and
uncertainties in our business.
Our organizational documents do not limit us to our current business lines. Accordingly, we may pursue growth through
strategic investments, acquisitions or joint ventures, which may include entering into new lines of business. In addition, we expect
opportunities will arise to acquire other companies with businesses that complement ours. To the extent we make strategic investments
or acquisitions or enter into joint ventures or new lines of businesses, we expect to face numerous risks and uncertainties, including
risks associated with:
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the required investment of capital and other resources;
the possibility that we have insufficient expertise to engage in such businesses profitably or without incurring
inappropriate amounts of risk; and
combining or integrating operational and management systems and controls.
Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from
which we are currently exempt, and may lead to increased litigation and regulatory risk. If a new business generates insufficient revenue
or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected. In the case of
joint ventures, we are subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability, losses or
reputation damage relating to, systems, controls and personnel that are not under our control.
11
We face significant competition in our businesses. If we are unable to compete effectively with our existing and potential
competitors, we could lose our market share and our results of operations and financial condition may be materially and adversely
affected.
The wealth management, asset management and internet financial service industries in China are all undergoing rapid
growth. We operate in an increasingly competitive environment and compete for clients on the basis of product choices, client services,
reputation and brand names. Our ability to compete for clients in this environment is also affected by license requirements for the
distribution of wealth management products and the provision of asset management and certain internet financial services imposed on
businesses operating in such industries. Our future success in each of these areas of our business will depend in part on our ability to
continue to obtain the relevant licenses and anticipate and meet market needs on a timely and cost-effective basis. In distributing wealth
management products and insurance products, we face competition primarily from other wealth management companies, PRC
commercial banks, insurance companies and foreign private banks with an in-house sales force and private banking functions in China.
In our asset management business, we also face competition from other asset management service providers in the market, including
managers of private equity funds, real estate funds or fixed income funds. In addition, our internet financial service business faces
competition from other internet financial service platforms of banking institutions, insurance companies and other financial service
companies in China.
Many of our competitors have greater financial and marketing resources or broader customer relationships than we do. For
example, the PRC commercial banks we compete with tend to enjoy significant competitive advantages due to their nationwide
distribution networks, longer operating histories, broader client bases and settlement capabilities. Moreover, many wealth management
product providers with whom we currently have relationships, such as private equity investment firms, are also engaged in, or may in
the future engage in, the distribution of wealth management products and may benefit from the integration of wealth management
products with their other product offerings. Given our relatively recent entry into internet financial service business, we also face
competition from internet financial service platforms that have longer operating histories than we do. If we are unable to compete
effectively with our current competitors or new entrants into the businesses in which we operate, our business, financial position, results
of operations and cash flows could be materially adversely affected.
Our failure to respond to rapid product innovation in the financial industry in a timely and cost-effective manner may have an
adverse effect on our business and operating results.
The financial industry is increasingly influenced by frequent new product and service introductions and evolving industry
standards. We believe that our future success will depend on our ability to continue to anticipate product and service innovations and to
offer additional products and services that meet evolving standards on a timely and cost-effective basis. There is a risk that we may not
successfully identify new product and service opportunities or develop and introduce these opportunities in a timely and cost-effective
manner. In addition, products and services that our competitors develop or introduce may render our products and services less
competitive. As a result, failure to respond to product and service innovation that may affect our industry in the future may have a
material adverse effect on our business and results of operations.
Our revenues and operating results can fluctuate from period to period, which could cause the price of our ADSs to fluctuate.
Our revenues and operating results have fluctuated in the past and may fluctuate from period to period in the future due to a
variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations
include the following factors, as well as other factors described elsewhere in this annual report:
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a decline or slowdown of the growth in the transaction value of wealth management products we distribute;
negative public perception and reputation of the wealth management, asset management or internet financial service
industry;
unanticipated delays of anticipated rollouts of our products or services;
unanticipated changes to economic terms in contracts with our wealth management product providers, including
renegotiations;
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changes in laws or regulatory policy that could impact our ability to distribute or manage wealth management
products or provide asset management or internet financial services to our clients;
failure to enter into contracts with new wealth management product providers;
cancellations or non-renewal of existing contracts with wealth management product providers; and
changes in the number of clients who decide to effectively terminate their relationship with us or who ask us to
redeem their investment in our fund of funds products or real estate fund products.
As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as
indications of our future revenues or operating performance.
If we fail to maintain an effective system of internal controls, we may be unable to accurately report our results of operations or
prevent fraud, and investor confidence and the market price of our ADSs may be materially and adversely affected.
As a public company in the United States, we are 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 the effectiveness of its internal control over
financial reporting in our annual report on Form 20-F. In addition, our independent registered public accounting firm must attest to and
report on the effectiveness of our internal control over financial reporting.
Our management has concluded that our internal control over financial reporting is effective as of December 31, 2016. See
“Item 15. Controls and Procedures.” Our independent registered public accounting firm has issued an attestation report on our
management’s assessment of our internal control over financial report and has concluded that our internal control over financial
reporting is effective in all material aspects.
However, 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. If we fail to maintain an effective internal control environment, our financial
statements could contain material misstatements and we could 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.
Our business is sensitive to global economic conditions. A severe or prolonged downturn in the global or Chinese economy could
materially and adversely affect our business, financial condition and results of operations.
Any prolonged slowdown in the global or Chinese economy may have a negative impact on our business, results of
operations and financial condition, and continued turbulence in the international markets may adversely affect our ability to access the
capital markets to meet potential liquidity needs.
Economic conditions in China are sensitive to global economic conditions. Since we derive the majority of our revenues
from our operations in China, our business and prospects may be affected by economic conditions or changes in the financial markets in
China. Our revenues ultimately depend on the appetite of high net worth individuals to invest in the products we distribute or manage,
which in turn depend on their level of disposable income, perceived future earnings and willingness to invest. As there are still
substantial uncertainties in the current and future conditions in the global and PRC economies, our clients may reduce or delay their
investment in the financial markets in general, and defer or forgo the purchase of products we distribute or manage. For example, in
recent years, the stock markets in China have experienced substantial volatility, resulting in a loss of confidence in the markets by some
investors and intervention by the PRC government. We may have difficulty expanding our client base fast enough, or at all, to offset the
impact of decreased spending by our existing clients. Additionally, we earn recurring service fees on certain wealth management
products over a period of time after the initial sale. Clients may redeem or terminate these products, ending these recurring revenues.
Moreover, insolvencies associated with an economic downturn could adversely affect our business through the loss of wealth
management product providers or clients or by hampering our ability to place business. Any prolonged slowdown in the global or
China’s economy may lead to reduced investment in the products we distribute or manage, which could materially and adversely affect
our financial condition and results of operations.
13
Moreover, a slowdown in the global or PRC economy or the recurrence of any financial disruptions may have a material and
adverse impact on financings available to us. The weakness in the economy could erode investors’ confidence, which constitutes the
basis of the equity markets. Any financial turmoil affecting the financial markets and banking system may significantly restrict our
ability to obtain financing in the capital markets or from financial institutions on commercially reasonable terms, or at all. Although we
are uncertain about the extent to which any global financial and economic crisis and slowdown of the PRC economy may impact our
business, there is a risk that our business, results of operations and prospects may be materially and adversely affected by any global
economic downturn and the slowdown of the PRC economy.
Our business is subject to the risks associated with international operations.
Although revenues from countries and regions outside China do not yet constitute a majority of our total revenues,
international expansion is an important component of our growth strategy. We started conducting business in Hong Kong in 2012,
established a subsidiary of our variable interest entity in Taiwan in 2014 and recently launched an office in the United States in 2016.
Expanding our business internationally exposes us to a number of risks, including:
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fluctuations in currency exchange rates;
our ability to select the appropriate geographical regions for international expansion;
difficulty in identifying appropriate partners and establishing and maintaining good cooperative relationships with
them;
difficulty in recruiting and retaining qualified personnel;
potentially adverse tax consequences;
difficulty in understanding local markets and culture and complying with unfamiliar laws and regulations;
unexpected legal or regulatory changes; and
increased costs associated with doing business in foreign jurisdictions.
If we breach our fiduciary duty as the general partner or fund managers of the funds, our results of operations will be adversely
impacted.
Neither the principal nor the return of the products we distribute and/or manage is guaranteed by us. As such, we do not bear
any liabilities for any loss to the capital of the products, provided that (i) the distribution and management of the concerned products are
conducted in the normal course of business; (ii) we have no fraud or gross negligence during the course of distribution and
management, and have no intentional misconduct which will harm the interests of either the fund or the limited partners, and (iii) we
have not conducted any other acts which are deemed to breach our fiduciary duty. However, our asset management business is subject
to inherent risks if we are deemed to breach our fiduciary duty. Because we serve as the general partner or manager for the funds, we
are required to manage the funds for the limited partners or the investors. If we are deemed to breach our fiduciary duty to the limited
partners or the investors, such as by failing to establish and/or implement appropriate controls for the handling and processing of our
clients’ cash investments, we may be exposed to risks and losses. We also could experience losses on our principal in an entity which
act as the general partner of any fund in the form of limited liability partnership, as the general partner shall bear unlimited joint and
several liability for the debts of any fund managed by it. Furthermore, as PRC laws and regulations are silent on the legal segregation of
losses or liabilities incurred by contract-based private funds and assets of the fund manager, it is unclear whether our assets will be
subject to third-party claims arising out of losses or liabilities incurred by contract-based private funds we manage and we cannot assure
you that our assets will not be exposed to such claims. If the assets managed by our asset management business become exposed to such
claims, our future growth will be materially and adversely affected.
Misconduct of our relationship managers or other employees, including potential misuse of client funds, could harm our reputation
or lead to regulatory sanctions or litigation costs.
Misconduct of our relationship managers or other employees could result in violations of law by us, regulatory sanctions,
litigation or serious reputational or financial harm, among other consequences. Misconduct could include:
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engaging in misrepresentation or fraudulent activities when distributing wealth management products or providing
asset management or internet financial services to clients;
improperly using or disclosing confidential information of our clients, wealth management product providers or other
parties;
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concealing unauthorized or unsuccessful activities, resulting in unknown and unmanaged risks or losses;
accessing and misusing client funds, especially those maintained in segregated accounts for our contract-based private
funds; or
otherwise not complying with laws and regulations or our internal policies or procedures.
Although we have established an internal compliance system to supervise service quality and regulatory compliance, we
cannot always deter misconduct of our relationship managers or other employees, and the precautions we take to prevent and detect
misconduct may not be effective in all cases. Any of the abovementioned misconduct could impair our ability to attract, serve and retain
clients and may lead to significant legal liability, reputational harm and material adverse effects on our business, results of operations or
financial condition.
We work with prime brokers, custodians, administrators and other agents in our asset management business, whose performance
may have material effects on our results of operations.
Our asset management business and funds managed by us depend on the services of prime brokers, custodians,
administrators and other agents to monitor, report and settle transactions. The performance of these third parties may impact our asset
management business and, ultimately, our results of operations. For example, in the event of the insolvency of a prime broker or
custodian, our funds associated with such prime broker or custodian might not be able to recover equivalent assets in whole or in part as
they may rank among the prime broker’s and the custodian’s unsecured creditors in relation to assets which the prime broker or
custodian borrows, lends or otherwise uses. In addition, cash held by our funds with such prime broker or custodian would in general
not be segregated from the prime broker’s or custodian’s own cash, and there would be no guarantee that such cash can be recovered in
the insolvency proceeding.
Our business is subject to risks related to lawsuits and other claims brought by our clients.
We are subject to lawsuits and other claims in the ordinary course of our business. In particular, we may face arbitration
claims and lawsuits brought by our clients who have bought wealth management products we distribute or asset management or internet
financial services that we provide which turned out to be unsuitable for any reason, such as misconduct by the managers of third-party
funds that we have recommended or made available to our clients. In connection with our provision of small short-term loans, we may
encounter complaints alleging breach of contract or potential usury claims in our ordinary course of business. We may also encounter
complaints alleging misrepresentation on the part of our relationship managers or other employees or that we have failed to carry out a
duty owed to them. These risks may be heightened during periods when credit, equity or other financial markets are deteriorating in
value or are volatile, or when clients or investors are experiencing losses. Actions brought against us may result in settlements, awards,
injunctions, fines, penalties or other results adverse to us, including harm to our reputation. The contracts between us and wealth
management product providers do not provide for indemnification of our costs, damages or expenses resulting from such lawsuits. Even
if we are successful in defending against these actions, we may incur significant expenses in the defense of such matters. Predicting the
outcome of such matters is inherently difficult, particularly where claimants seek substantial or unspecified damages, or when
arbitration or legal proceedings are at an early stage. A substantial judgment, award, settlement, fine, or penalty could be materially
adverse to our operating results or cash flows for a particular future period, depending on our results for that period.
Any failure to ensure and protect the confidentiality of our clients’ personal data and the improper use or disclosure of such data
could lead to legal liability, adversely affect our reputation and have a material adverse effect on our business, financial condition
or results of operations.
Our services involve the exchange of information, including detailed personal and financial information regarding our
clients, through a variety of electronic and non-electronic means. In particular, with the growth of our internet financial service
business, our internet financial service platform generates and processes an increasingly larger quantity of transactions and data,
especially our customers’ demographic data and financial data.
We face risks inherent in handling large volumes of data and in protecting the security of such data. In particular, we face a
number of data-related challenges concerning transactions and other activities that take place on our platform, including but not limited
to:
•
protecting the data on our system, including against attacks on our system by outside parties or fraudulent behavior by
our employees;
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•
•
addressing concerns related to privacy and data-sharing, safety, security and other factors; and
complying with applicable laws, rules and regulations relating to the collection, use, disclosure or security of personal
information, including any requests from regulatory and government authorities relating to such data.
Any systems failure or security breach or lapse that results in the leaking of user data could harm our reputation and brand
and, consequently, our business, in addition to exposing us to potential legal liability. We rely on a complex network of process and
software controls to protect the confidentiality of data provided to us or stored on our systems. If we do not maintain adequate internal
controls or fail to implement new or improved controls as necessary, this data could be misappropriated or confidentiality could
otherwise be breached. We could be subject to liability if we inappropriately disclose any client’s personal information, or if third
parties are able to penetrate our network security or otherwise gain access to any client’s name, address, portfolio holdings, or other
personal information stored by us. Any such event could subject us to claims for identity theft or other similar fraud claims or claims for
other misuses of personal information, such as unauthorized marketing or unauthorized access to personal information. In addition, such
events would cause our clients to lose their trust and confidence in us, which may result in a material adverse effect on our business,
results of operations and financial condition.
In addition, since we are still in the process of applying for a payment business license, some transaction data processing for
our products are settled through third-party payment related companies. We may have to share certain personal information about our
clients with contracted third-party payment related service providers, such as our clients’ names, addresses, phone numbers and
transaction records. We have limited control or influence over the security policies or measures adopted by such third-party providers.
Any compromise or failure of the information security measures of our third-party payment related service providers could also have a
material and adverse effect on our reputation, business, prospects, financial condition and results of operations.
The proper functioning of our technology platform is essential to our business. Any significant failure in our information
technology systems could have a material adverse effect on our business and profitability.
Our business is highly dependent on the ability of our information technology systems to timely process a large amount of
information relating to the wealth management products we distribute and the asset management and internet financial services we
provide to our clients. The proper functioning of our financial control, accounting, product database, client database, client service and
other data processing systems, together with the communication systems between our various branch offices and our headquarters in
Shanghai, is critical to our business and to our ability to compete effectively. In particular, we rely on the online service platform
provided through our website www.noahwm.com as well as our mobile application Wei Nuo Ya to provide our clients with updated
information about their historical purchases, the status of the products they purchased and various other notifications. Maintaining and
improving our technology infrastructure requires significant levels of investment. Any failure to maintain satisfactory performance,
reliability, security and availability of our network infrastructure could result in the unavailability or slowdown of our website or
reduced order fulfillment performance and cause significant harm to our reputation and our ability to attract and maintain users. We
maintain our backup system hardware and operate our back-end infrastructure. Server interruptions, breakdowns or system failures in
the cities where we maintain our servers and system hardware, including failures that may be attributable to sustained power shutdowns,
or other events within or outside our control that could result in a sustained shutdown of all or a material portion of our services, could
reduce the volume of products sold and the attractiveness of product offerings on our platform. Our network systems are also vulnerable
to damage from computer viruses, fire, flood, earthquake, power loss, telecommunications failures, computer hacking and similar
events. Although we have not experienced system failures, we cannot assure you that our business activities would not be materially
disrupted in the event of a partial or complete failure of any of these information technology or communication systems, which could be
caused by, among other things, software malfunction, computer virus attacks or conversion errors due to system upgrading. Any such
future occurrences could reduce customer satisfaction, damage our reputation and our financial condition, results of operations and
business prospects, as well as our reputation, could be materially and adversely affected.
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Any deficiencies in China’s internet infrastructure could impair our ability to sell products over our website and mobile
applications, which could cause us to lose customers and harm our operating results.
Our internet financial service business depends on the performance and reliability of the internet infrastructure in China. The
majority of our computer hardware is currently located in China. The availability of our website depends on telecommunications
carriers and other third-party providers for communications and storage capacity, including bandwidth and server storage, among other
things. If we are unable to enter into or renew agreements with these providers on commercially acceptable terms, or if any of our
existing agreements with such providers are terminated as a result of our breach or otherwise, our ability to provide our services to our
customers could be adversely affected. Almost all access to the internet in China is maintained through state-owned telecommunication
carriers under administrative control, and we obtain access to end-user networks operated by such telecommunications carriers and
internet service providers to give customers access to our website. We have experienced service interruptions in the past, which were
typically caused by service interruptions at the underlying external telecommunications service providers, such as the internet data
centers and broadband carriers from which we lease services. Service interruptions prevent consumers from accessing our website and
mobile applications and placing orders, and frequent interruptions could frustrate customers and discourage them from attempting to
place orders, which could cause us to lose customers and harm our operating results.
If we fail to adopt new technologies or adapt our website, mobile applications and systems to changing customer requirements or
emerging industry standards, our internet financial service business may be materially and adversely affected.
To remain competitive in the internet financial service business, we must continue to enhance and improve the
responsiveness, functionality and features of our website and mobile applications. The internet financial service industry in China is
characterized by rapid technological evolution, continual changes in customer requirements and preferences, frequent introductions of
new products and services embodying new technologies and the emergence of new industry standards and practices, any of which could
render our existing technologies and systems obsolete. The success of our internet financial service business will depend, in part, on our
ability to identify, develop, acquire or license leading technologies useful in our business, and respond to technological advances and
emerging industry standards and practices, such as mobile internet, in a cost-effective and timely way. The development of websites,
mobile applications and other proprietary technology entails significant technical and business risks. We cannot assure you that we will
be able to use new technologies effectively or adapt our website, mobile applications, proprietary technologies and systems to meet
evolving customer requirements or emerging industry standards. If we are unable to adapt in a cost-effective and timely manner in
response to changing market conditions or customer requirements, whether for technical, legal, financial or other reasons, the overall
prospects, financial condition and results of operations of our internet financial service business may be materially and adversely
affected.
We may not be able to prevent unauthorized use of our intellectual property, which could reduce demand for our products and
services, adversely affect our revenues and harm our competitive position.
We rely primarily on a combination of copyright, trade secret, trademark and anti-unfair competition laws and contractual
rights to establish and protect our intellectual property rights in our research reports, the wealth management products we distribute, the
asset management and internet financial services we provide and other aspects of our business. We cannot assure you that the steps we
have taken or will take in the future to protect our intellectual property or prevent piracy will prove to be sufficient. Implementation of
intellectual property-related laws in China has historically been lacking, primarily due to ambiguity in the PRC laws and enforcement
difficulties. Accordingly, intellectual property rights and confidentiality protection in China may not be as effective as those in the
United States or other countries. Current or potential competitors may use our intellectual property without our authorization in the
development of products and services that are substantially equivalent or superior to ours, which could reduce demand for our solutions
and services, adversely affect our revenues and harm our competitive position. Even if we were to discover evidence of infringement or
misappropriation, our recourse against such competitors may be limited or could require us to pursue litigation, which could involve
substantial costs and diversion of management’s attention from the operation of our business.
We may face intellectual property infringement claims, which could be time-consuming and costly to defend and may result in the
loss of significant rights by us.
Although we have not been subject to any litigation, pending or threatened, alleging infringement of third parties’ intellectual
property rights, we cannot assure you that such infringement claims will not be asserted against us in the future.
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Intellectual property litigation is expensive and time-consuming and could divert resources and management attention from
the operation of our business. If there is a successful claim of infringement, we may be required to alter our services, cease certain
activities, pay substantial royalties and damages to, and obtain one or more licenses from, third parties. We may not be able to obtain
those licenses on commercially acceptable terms, or at all. Any of those consequences could cause us to lose revenues, impair our client
relationships and harm our reputation.
Confidentiality agreements with employees, product providers and others may not adequately prevent disclosure of our trade secrets
and other proprietary information.
We require our employees, product providers and others to enter into confidentiality agreements in order to protect our trade
secrets, other proprietary information and, most importantly, our client information. These agreements might not effectively prevent
disclosure of our trade secrets, know-how or other proprietary information and might not provide an adequate remedy in the event of
unauthorized disclosure of such confidential information. In addition, others may independently discover trade secrets and proprietary
information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation
could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection
could adversely affect our competitive position.
Our future success depends on our continuing efforts to retain our existing management team and other key employees as well as to
attract, integrate and retain highly skilled and qualified personnel, and our business may be disrupted if our efforts are
unsuccessful.
Our future success depends heavily on the continued services of our current executive officers and senior management team.
We also rely on the skills, experience and efforts of other key employees, including management, marketing, support, research and
development, technical and services personnel, across our wealth management, asset management and internet financial service
businesses. Qualified employees are in high demand in the wealth management, asset management and internet financial service
industries in China, and our future success depends on our ability to attract, train, motivate and retain highly skilled employees and the
ability of our executive officers and other members of our senior management to work effectively as a team.
If one or more of our executive officers or other key employees are unable or unwilling to continue in their present positions,
we may not be able to find replacements easily, which may disrupt our business operations. We do not have key personnel insurance in
place. If any of our executive officers or other key employees joins a competitor or forms a competing company, we may lose clients,
know-how, key professionals and staff members. Each of our executive officers has entered into an employment agreement with us,
which contains confidentiality and non-competition provisions. However, if any dispute arises between our executive officers and us,
we cannot assure you of the extent to which any of these agreements could be enforced in China, where these executive officers reside,
because of the uncertainties of China’s legal system. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business
in China—Uncertainties with respect to the PRC legal system could adversely affect us.”
If we fail to attract and retain qualified relationship managers, our business could suffer.
We rely heavily on our relationship managers to develop and maintain relationships with our clients for our wealth
management business. Our relationship managers serve as our day-to-day contacts with our clients and carry out a substantial portion of
the client services we deliver. Their professional competence and approachability are essential to establishing and maintaining our
brand image. As we further grow our business and expand into new cities and regions, we have an increasing demand for high quality
relationship managers. We have been actively recruiting and will continue to recruit qualified relationship managers to join our
coverage network. However, there is no assurance that we can recruit and retain sufficient high quality relationship managers to support
our further growth. In some of the regional centers where we have recently established or plan to establish branch offices, the talent
pool from which we can recruit relationship managers is smaller than in national economic centers such as Shanghai and Beijing. Even
if we could recruit sufficient relationship managers, we may have to incur disproportional training and administrative expenses in order
to prepare our local recruits for their job. If we are unable to attract, train and retain highly productive relationship managers, our
business could be materially and adversely affected. Competition for relationship managers may also force us to increase the
compensation of our relationship managers, which would increase operating cost and reduce our profitability.
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We have granted, and may continue to grant, stock options and other share-based compensation in the future, which may materially
impact our future results of operations.
We adopted our 2008 share incentive plan, which we refer to as the 2008 plan, and our 2010 share incentive plan, which we
refer to as the 2010 plan, which permit the grant of stock options, restricted shares and restricted share units to employees, directors and
consultants of our company. As of April 13, 2017, options to purchase 762,569 Class A ordinary shares and 100,745 restricted shares
have been granted and are outstanding, and 392,058 Class A ordinary shares have been reserved for future issuances under these plans.
As a result of these grants and potential future grants under the plans, we have incurred, and will incur in future periods, significant
share-based compensation expenses. We account for compensation costs for all stock options using a fair value-based method and
recognize expenses in our consolidated statement of income in accordance with the relevant rules in accordance with GAAP, which
may have a material adverse effect on our net income. Moreover, the additional expenses associated with share-based compensation
may reduce the attractiveness of such incentive plans to us. However, if we limit the scope of our share incentive plans, we may not be
able to attract or retain key personnel who expect to be compensated by equity incentives.
We have limited insurance coverage.
Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in
more developed economies. For example, while we are able to obtain professional indemnity insurance in Hong Kong for our
operations located there, such insurance offerings are not available in China. Other than casualty insurance on some of our assets, we do
not have commercial insurance coverage on our other assets and we do not have insurance to cover our business or interruption of our
business, litigation or product liability. 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
occurrence of loss or damage to property, litigation or business disruption 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.
Risks Related to Our Corporate Structure
We rely on contractual arrangements with our variable interest entity and its shareholders for a portion of our China operations,
which may not be as effective as direct ownership in providing operational control.
We rely on contractual arrangements with our variable interest entity, Noah Investment, and its shareholders to operate a
portion of our operations in China, including the insurance brokerage business, asset management business and certain other restricted
services. Our variable interest entity and its subsidiaries generated RMB566.8 million, RMB972.2 million and RMB435.1 million
(US$62.7 million) in net revenues in 2014, 2015 and 2016, respectively, which contributed 37.1%, 45.9% and 17.3% of our total net
revenues in the respective years. Under the share pledge agreement dated September 3, 2007 between our PRC subsidiary, Noah Group,
and the shareholders of Noah Investment, Noah Investment’s shareholders pledged their equity interests in Noah Investment to Noah
Group to secure Noah Investment’s obligations under the exclusive support service agreement and the exclusive option agreement. For
further detail on these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.”
All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration
in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in
accordance with PRC legal procedures. These contractual arrangements may not be as effective as direct ownership in providing us with
control over our variable interest entity. A minority shareholder of Noah Investment, who owns 4% of the total shares of Noah
Investment, has been involved in a personal civil case and was restricted from transferring her shares. Although this civil case has no
relationship to us, we cannot prevent the court from freezing the shares because we have no direct control over these shares. We are
trying to resolve this issue and believe it has minimal impact on our interest in Noah Investment. Under the current contractual
arrangements, as a legal matter, if our variable interest entity or their shareholders fail to perform their respective obligations under
these contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements.
We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming
damages, which we cannot assure you will be effective. However, the legal environment in the PRC is not as developed as in other
jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these
contractual arrangements, which may make it difficult to exert effective control over our variable interest entity, and our ability to
conduct our business may be negatively affected.
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If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply
with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of
existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those
operations.
We are engaged in insurance brokerage activities as part of our business. Under current PRC laws and regulations, foreign-
invested companies engaged in the onshore insurance brokerage business are subject to stringent requirements compared with Chinese
domestic enterprises. Specifically, according to the guidance published on the official website of the China Insurance Regulatory
Commission, or the CIRC, the foreign investors of foreign-invested insurance brokerage companies are required to have, among other
things, at least US$200 million of total assets and at least a 30-year track record in the insurance business. As a result, neither our PRC
subsidiaries nor any of their subsidiaries currently meet all such requirements and therefore none of them is permitted to engage in the
onshore insurance brokerage business. We conduct our onshore insurance brokerage business in China principally through contractual
arrangements among our PRC subsidiary, Shanghai Noah Investment (Group) Co., Ltd., or Noah Group, formerly known as Shanghai
Noah Rongyao Investment Consulting Co., Ltd., and our PRC variable interest entity, Noah Investment, and Noah Investment’s
shareholders. Shanghai Noah Rongyao Insurance Broker Co., Ltd., or Noah Insurance, a subsidiary of Noah Investment, holds the
licenses and permits necessary to conduct insurance brokerage activities in China.
Current PRC regulations relating to foreign investments in the onshore insurance brokerage business in China do not contain
detailed explanations and operational procedures, and are subject to interpretations by relevant governmental authorities in China.
However, most of these regulations have not been interpreted by the relevant authorities in the context of a corporate structure similar to
ours. Therefore, there are substantial uncertainties regarding the applicability of these regulations to our business. Moreover, new
regulations may be adopted and interpretations of existing regulations may develop and change, which may materially and adversely
affect our ability to conduct our onshore insurance brokerage business.
We had been engaged in the fund distribution business and distribution of asset management plans sponsored by mutual fund
management companies as part of our business through contractual arrangements among our PRC subsidiary, Noah Group, our PRC
variable interest entity, Noah Investment, and Noah Investment’s shareholders because it was difficult for foreign investor entities and
subsidiaries of foreign investor entities to apply for a fund distribution license. Noah Upright, a subsidiary of Noah Investment before
March 2016, holds the licenses and permits necessary to conduct fund distribution and distribution of asset management plans
sponsored by mutual fund management companies in China. However, as the license and permit approval authorities relaxed their
requirements for foreign investor entities to apply for fund distribution license, Noah Upright was restructured to be a subsidiary of
Shanghai Noah Financial Services Corp., or Noah Financial Services, through equity transfer in March 2016. We also engage in the
distribution of private fund managed by us through Gopher Asset Management and its subsidiaries, which have completed the private
investment fund manager registration with AMAC.
Our contractual arrangements with Noah Investment and its shareholders enable us to (1) have power to direct the activities
that most significantly affect the economic performance of Noah Investment; (2) receive substantially all of the economic benefits from
Noah Investment in consideration for the services provided by Noah Group; and (3) have an exclusive option to purchase all or part of
the equity interests in Noah Investment when and to the extent permitted by PRC law, or request any existing shareholder of Noah
Investment to transfer any or part of the equity interest in Noah Investment to another PRC person or entity designated by us at any time
at our discretion. Because of these contractual arrangements, we are the primary beneficiary of Noah Investment and hence treat it as
our variable interest entity and consolidate its results of operations into ours.
We have been advised by Zhong Lun Law Firm, our PRC legal counsel, that the ownership structures of our variable interest
entity, Noah Investment, our PRC subsidiary, Noah Group, and Noah Holdings Limited, as described above, as well as the contractual
arrangements among Noah Group and Noah Investment and its shareholders are valid, binding and enforceable under existing PRC
laws or regulations. However, we are advised by Zhong Lun Law Firm that there are substantial uncertainties regarding the
interpretation and application of current or future PRC laws and regulations and there can be no assurance that the PRC government
will ultimately take a view that is consistent with the opinion of our PRC counsel stated above. For example, substantial uncertainties
exist as to how the draft PRC Foreign Investment Law or its implementation rules may impact the viability of our current corporate
structure in the future. See “—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation
of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and
business operations.” It is uncertain whether any other new PRC laws or regulations relating to variable interest entity structures will be
adopted or if adopted, what they would provide.
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If the ownership structure, contractual arrangements and business of our company, our PRC subsidiary or our variable
interest entity are found to be in violation of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the
required permits or approvals, the relevant governmental authorities would have broad discretion in dealing with such violation,
including levying fines, confiscating our income or the income of our PRC subsidiary or variable interest entity, revoking the business
licenses or operating licenses of our PRC subsidiary or variable interest entity, discontinuing or placing restrictions or onerous
conditions on our operations, requiring us to undergo a costly and disruptive restructuring and taking other regulatory or enforcement
actions that could be harmful to our business. Any of these actions could cause significant disruption to our business operations, and
may materially and adversely affect our business, financial condition and results of operations. If any of these penalties results in our
inability to direct the activities of Noah Investment that most significantly impact its economic performance or to receive the economic
benefits from Noah Investment, we may not be able to consolidate Noah Investment in our consolidated financial statements in
accordance with GAAP.
Contractual arrangements among our PRC subsidiary, Noah Group, our variable interest entity, Noah Investment, and Noah
Investment’s shareholders may be subject to scrutiny by the PRC tax authorities, who may determine that we or our PRC variable
interest entity and its subsidiaries owe additional taxes, which could substantially reduce our consolidated net income and the value
of your investment.
Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or
challenge by the PRC tax authorities. We are not able to determine whether the contractual arrangements we have entered into among
our PRC subsidiary, Noah Group, our variable interest entity, Noah Investment, and Noah Investment’s shareholders will be regarded
by the PRC tax authorities as arm’s length transactions. We could face material and adverse tax consequences if the PRC tax authorities
determine that the contractual arrangements among our PRC subsidiary, Noah Group, our PRC variable interest entity, Noah
Investment, and Noah Investment’s shareholders were not entered into on an arm’s length basis or resulted in an impermissible
reduction in taxes under applicable PRC laws, rules and regulations, and adjust Noah Investment’s income in the form of a transfer
pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense
deductions recorded by Noah Investment, which could in turn increase its respective tax liabilities. In addition, the PRC tax authorities
may impose punitive interest on Noah Investment for the adjusted but unpaid taxes at the rate of 5% over the basic Renminbi lending
rate published by the People’s Bank of China according to applicable regulations. Although Noah Group did not generate any revenues
from providing services to Noah Investment in the past, if there are such revenues in the future and the PRC tax authorities decide to
make transfer pricing adjustments on Noah Investment’s net income, our consolidated net income may be adversely affected.
Because certain shareholders of our variable interest entity are our directors and executive officers, their fiduciary duties to us may
conflict with their respective roles in the variable interest entity. If any of the shareholders of our variable interest entity fails to act
in the best interests of our company or our shareholders, our business and results of operations may be materially and adversely
affected.
Certain shareholders of Noah Investment, our variable interest entity, are our directors and executive officers, including
Ms. Jingbo Wang, our chairman and chief executive officer, Mr. Zhe Yin, our director and vice president, and Mr. Boquan He, our
independent director. Conflicts of interest may arise between the dual roles of those individuals who are both our directors or executive
officers and shareholders of our variable interest entity. The fiduciary duties owed by these directors and officers to our company under
Cayman Islands law, including their duties to act honestly, in good faith and in our best interests, may conflict with their roles as
shareholders of our variable interest entity, as what is in the best interest of our variable interest entity may not be in the best interests of
our company. In addition, these individuals may breach or cause Noah Investment and its subsidiaries to breach or refuse to renew the
existing contractual arrangements with us. We do not have existing arrangements to address such potential conflicts of interest, other
than to replace the current directors of our variable interest entity, either by exercising our option under the exclusive option agreement
with Noah Investment’s shareholders to cause them to transfer all of their equity ownership in Noah Investment to a PRC entity or
individual designated by us, and this new shareholder of Noah Investment could then appoint new directors of Noah Investment to
replace the current directors, or cause our PRC subsidiary, Noah Group, in the capacity of the attorney-in-fact of Noah Investment’s
shareholders to directly appoint new directors of Noah Investment to replace these individuals.
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We rely on Noah Investment’s shareholders to comply with PRC law, which protects contracts and provides that directors
and executive officers owe a duty of loyalty to our company and require them to avoid conflicts of interest and not to take advantage of
their positions for personal gains. Although our independent directors or disinterested officers may take measures to prevent the parties
with dual roles from making decisions that may favor themselves as shareholders of the variable interest entity, we cannot assure you
that these measures would be effective in all instances and that when conflicts arise, those individuals will act in the best interest of our
company or that conflicts will be resolved in our favor. The legal frameworks of China and the Cayman Islands do not provide guidance
on resolving conflicts in the event of a conflict with another corporate governance regime. If we cannot resolve any conflicts of interest
or disputes between us and those individuals, we would have to rely on legal proceedings, which may materially disrupt our business.
There is also substantial uncertainty as to the outcome of any such legal proceeding.
We may rely principally 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 pay dividends to us could have a material
adverse effect on our ability to conduct our business.
We are a holding company, and we may rely principally on dividends and other distributions on equity paid by our PRC
subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our
shareholders and service any debt we may incur. 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 distributions to us. For example, one of our subsidiaries is
restricted by the terms of its loan agreements from paying dividends in excess of agreed percentages of its net profit for the year. In
addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements Noah Group currently
has in place with our variable interest entity in a manner that would materially and adversely affect its ability to pay dividends and other
distributions to us.
Under the relevant laws and regulations in the PRC applicable to foreign-investment corporations and the articles of
association of our PRC subsidiaries and variable interest entity, our PRC subsidiaries and variable interest entity are required to set
aside at least 10% of their accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate
amount of such fund reaches 50% of their registered capital. We allocated RMB40.0 million, RMB168.7 million and
RMB208.8 million (US$30.1 million) to statutory reserves during the years ended December 31, 2014, 2015 and 2016, respectively.
Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of
retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of
liquidation. At its discretion, each of our PRC subsidiaries and consolidated affiliated entities may allocate a portion of its after-tax
profits based on PRC accounting standards to its discretionary reserve fund, or its staff welfare and bonus funds. These reserve funds
and staff welfare and bonus funds are not distributable as cash dividends.
Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and
adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or
otherwise fund and conduct our business. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in
China—The dividends we receive from our PRC subsidiaries may be subject to PRC tax under the PRC Enterprise Income Tax Law,
which would have a material adverse effect on our financial condition and results of operations. In addition, 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.”
Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign
Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business
operations.
The Ministry of Commerce, or MOC, published a discussion draft of the proposed Foreign Investment Law in January 2015
aiming to, upon its enactment, replace the trio of currently existing laws regulating foreign investment in China, namely, the Sino-
Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-
Invested Enterprise Law, together with their implementation rules and ancillary regulations. The draft Foreign Investment Law
embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international
practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. Substantial
uncertainties exist with respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if
enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business
operations in many aspects.
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Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the
principle of “actual control” in determining whether the investment in China is made by a foreign investor or a PRC domestic investor.
The draft Foreign Investment Law specifically provides that an entity established in China but “controlled” by foreign investors will be
treated as a foreign investor, whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance by the
MOC or its local branches, treated as a PRC domestic investor provided that the entity is ‘‘controlled’’ by PRC entities and/or citizens.
In this connection, ‘‘control’’ is broadly defined in the draft law to cover, among others, having the power to exert decisive influence,
via contractual or trust arrangements, over the subject entity’s operations, financial matters or other key aspects of business operations.
If the foreign investment falls within a “negative list,” to be separately issued by the State Council in the future, market entry clearance
by the MOC or its local branches would be required. Otherwise, all foreign investors may make investments on the same terms as
Chinese investors without being subject to additional approval from the government authorities as mandated by the existing foreign
investment legal regime. On December 7, 2016, the State Planning Commission and the MOC released a draft version of the new
Foreign Investment Catalog for public discussion. The final version has not released. The draft version has divided the foreign
investment industries into the permitted area and the “negative list” which includes the restricted area, the prohibited area and the
permitted area in which only certain requirements may apply.
The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies, including us, to
obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China. See “Item 3.
Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that
establish the structure for operating our businesses in China do not comply with PRC regulatory restrictions on foreign investment in
the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to
severe penalties or be forced to relinquish our interests in those operations” and “Item 4. Information of the Company — C.
Organizational Structure.” Under the draft Foreign Investment Law, if a variable interest entity is ultimately controlled by a foreign
investor via contractual arrangement, it would be deemed as a foreign investment. Accordingly, for the companies with a VIE structure
in an industry category that is on the “negative list”, the VIE structure may be deemed legitimate only if the ultimate controlling person
(s) is/ are of PRC nationality (either PRC individual, or PRC government and its branches or agencies). Conversely, if the actual
controlling person(s) is/are of foreign nationalities, then the variable interest entities will be treated as foreign-invested enterprises and
any operation in the industry category on the “negative list” without market entry clearance may be considered to be illegal.
The draft Foreign Investment Law has not taken a position on what actions shall be taken with respect to the existing
companies with a VIE structure, although a few possible options were proffered to solicit comments from the public. Under these
options, a company with VIE structures and in the business on the ‘‘negative list’’ at the time of enactment of the new Foreign
Investment Law has either the option or obligation to disclose its corporate structure to the authorities. The authorities, after reviewing
the ultimate control structure of the company, may either permit the company to continue its business by maintaining the VIE structure
(when the company is deemed ultimately controlled by PRC citizens), or require the company to dispose of its businesses and/or VIE
structure based on circumstantial considerations. It is uncertain whether the industries in which our variable interest entity operates will
be subject to the foreign investment restrictions or prohibitions set forth in the “negative list” to be issued. If the enacted version of the
Foreign Investment Law and the final “negative list” mandate further actions, such as MOC market entry clearance, to be completed by
companies with existing VIE structure like us, or we plan to apply for determination on the PRC investor during the clearance process,
we face uncertainties as to whether such clearance or ratification can be timely obtained, or at all.
The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practice and
increase our compliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information
reporting requirements on foreign investors and the applicable foreign-invested entities. Aside from investment implementation report
and investment amendment report that are required at each investment and alteration of investment specifics, an annual report is
mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be
non-compliant with the information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities,
and the persons directly responsible may be subject to criminal liabilities.
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of
conversion of foreign currencies into Renminbi may delay or prevent us from using the proceeds of our overseas offering to make
loans to our PRC subsidiaries and variable interest entity or to make additional capital contributions to our PRC subsidiaries, which
could materially and adversely affect our liquidity and our ability to fund and expand our business.
We are an offshore holding company conducting our operations in China through our PRC subsidiaries and variable interest
entity. We may make loans to our PRC subsidiaries and variable interest entity, or we may make additional capital contributions to our
PRC subsidiaries.
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Any loans to our PRC subsidiaries, which are treated as foreign-invested enterprises under PRC law, are subject to PRC
regulations and foreign exchange loan registrations. For example, loans by us to our PRC subsidiaries to finance their activities cannot
exceed statutory limits and must be registered with the local counterpart of the State Administration of Foreign Exchange, or SAFE. We
may also decide to finance our PRC subsidiaries by means of capital contributions. These capital contributions must be recorded with
the MOC or its local counterpart. Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic
companies, we are not likely to make such loans to our variable interest entity, a PRC domestic company. Meanwhile, we are not likely
to finance the activities of our variable interest entity by means of capital contributions because that would result in our variable interest
entity being converted into a foreign-invested company, while foreign-invested companies engaged in insurance brokerage are subject
to more stringent requirements than PRC domestic enterprises.
On March 30, 2015, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming the
Administrative Approach Regarding the Settlement of the Foreign Exchange Capital of Foreign-invested Enterprises, or SAFE Circular
19, which took effect and replaced previous regulations effective June 1, 2015. Pursuant to SAFE Circular 19, up to 100% of foreign
currency capital of a foreign-invested enterprise may be converted into RMB capital according to the actual operation, and within the
business scope, of the enterprise at its will. Although SAFE Circular 19 allows for the use of RMB converted from the foreign currency-
denominated capital for equity investments in the PRC, the restrictions continue to apply as to foreign-invested enterprises’ use of the
converted RMB for purposes beyond the business scope, for entrusted loans or for inter-company RMB loans. If our variable interest
entity requires financial support from us or our wholly owned subsidiary in the future and we find it necessary to use foreign currency-
denominated capital to provide such financial support, our ability to fund our variable interest entity’s operations will be subject to
statutory limits and restrictions, including those described above.
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by
offshore holding companies, including SAFE Circular 19 and other relevant rules and regulations, we cannot assure you that we will be
able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with
respect to future loans by us to our PRC subsidiaries or our variable interest entity or with respect to future capital contributions by us to
our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we received
from our initial public offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could
materially and adversely affect our liquidity and our ability to fund and expand our business.
Risks Related to Doing Business in China
The laws and regulations governing the wealth management and asset management industries in China are developing and subject
to further changes.
To date, the relevant regulatory authorities and AMAC have released many laws and regulations governing the wealth
management and asset management industries in China, including regulations over private equity products, private securities investment
funds, asset management plans managed by securities companies or mutual fund management companies, trust products and insurance
products. However, these laws and regulations are subject to further changes and the PRC government has not yet adopted a unified
regulatory framework yet.
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As for our asset management business, as a result of a governmental reorganization in June 2013, the China Securities
Regulatory Commission, or CSRC, is now in charge of the supervision and regulation of private funds, including, without limitation,
private equity funds, venture capital funds, private securities investment funds and other forms of private funds. In February 2014,
AMAC first promulgated the Measures for the Registration of Private Investment Fund Managers and Filling of Private Investment
Funds (for Trial Implementation) which specify the procedure for registration of fund managers and record-filing of private funds. In
August 2014, CSRC promulgated new regulations on private funds, which officially set up a qualified investor regime and a registration
regime for fund managers before conducting fund management business as well as set up a system for the filing of records after the
completion of fund raising. In April 2016, AMAC issued the Measures for the Administration of the Fund Raising Conducts of the
Private Investment Funds, or Fund Raising Measures, which took effect on July 15, 2016. The Fund Raising Measures clearly stated
that no institution or individual shall conduct fund raising activities except for (i) private fund managers registered with AMAC to raise
fund for their own established or managed private fund, or (ii) the fund distributors which have obtained the fund distribution license
and become members of the AMAC. On July 14, 2016, CSRC promulgated the Regulations on the Operation and Management of
Private Asset Management Business by the Securities and Futures Institutions (for Trial Implementation), or Securities and Futures
Institutions Operation and Management Regulations, and later AMAC correspondingly issued Rules on the Management of Private
Asset Management Plan Filing by Securities and Futures Institutions No. 1–4, or No. 1-4 Filing Rules, covering the aspects of
inspection and self-regulatory management, investment advice service provided by third parties, structured asset management plan and
private asset management plans investing into real estate development enterprises or projects. Private securities investment fund
managers shall follow Secures and Futures Institutions Operation and Management Regulations and No. 1-3 Filing Rules while No. 4
Filing Rules apply to all kinds of private fund managers. There is no definite answer on whether Securities and Futures Institutions
Operation and Management Regulations and No. 1-3 Filing Rules will influence the regulator’s attitude towards the private equity
investment fund or private venture capital investment fund and we cannot assure you that these regulations will not materially impact
our business operations. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Private
Funds.” In addition, CSRC and AMAC may adopt further detailed regulations and implementing policies that govern private funds and
private fund managers. Since fund management business is a significant part of our asset management business, our asset management
business is subject to such regulations on private funds and related implementation rules thereof.
As the regulators of the wealth management and asset management industries in China are tightening their supervision over
the industry, applicable laws and regulations may be adopted to address new issues that arise from time to time or to require additional
licenses and permits other than those we currently have obtained. For example, in February 2017, Chinese regulators released a draft
version of the Guidance Opinions on Regulating the Asset Management Business of Financial Institutions, or the Asset Management
Guidance Opinions. The draft Asset Management Guidance Opinions would require sellers of asset management investments to put
aside rise reserve funds, restrict investments into non-standard assets, impose limits on leverage rates and place restrictions on channel-
through products. Asset management investments covered by the draft Asset Management Guidance Opinions include wealth
management products, trust plans, public funds, private funds and other asset management investments managed by securities
companies, fund management companies or their subsidiaries, futures companies and insurance asset management companies. As a
result, substantial uncertainties exist regarding the evolution of the regulatory regime and the interpretation and implementation of
current and any future PRC laws and regulations applicable to the wealth management and asset management industry. To date, fifteen
subsidiaries of our PRC variable interest entity, Shanghai Noah Investment Management Co., Ltd., or Noah Investment, and Noah
Upright have successfully completed the registration with AMAC, while other subsidiaries of Noah Investment engaged in the fund
management business are now in the process of registration with AMAC. As we develop our business, the products we manage or
distribute might be subject to detailed regulations and implementing policies to be issued by CSRC in the future. Since asset
management plans are part of our wealth management products, we cannot assure you that our asset management or wealth
management business will not be materially and adversely affected if any supervisory authority enhances its regulation over asset
management plans.
The laws and regulations governing the internet financial service industry in China are developing and subject to changes.
Due to the relatively short history of the internet financial service industry in China, the PRC government has not adopted a
clear regulatory framework governing the industry. There are ad hoc laws and regulations applicable to elements of internet financial
service-related businesses, such as laws and regulations governing payment related and value-added telecommunication services. For
example, applicable laws and regulations in the PRC require a payment business license to conduct payment related businesses. We are
cooperating with qualified third parties to provide such services. While our subsidiary Shanghai Noah Yijie Internet Technology Co.
Ltd. has successfully obtained the required internet content provided license required for conducting its internet financial service
business, there is no guarantee that we will be able to obtain the requisite licenses for all elements of our internet financial service
business.
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The internet financial service industry is becoming more regulated compared with the situation in the previous years. See
“Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Internet Finance.” As the internet
financial service business in China is new and rapidly evolving, new laws and regulations may be adopted from time to time and we
may be required to obtain additional licenses and permits beyond those we currently hold or are applying for. On July 18, 2015, the
People’s Bank of China, together with nine other PRC regulatory agencies, jointly issued a series of policy measures applicable to the
internet financial service industry titled the Guidelines on Promoting the Healthy Development of Internet Finance, or the Guidelines.
The Guidelines formally introduced the regulatory framework and basic principles for the internet financial service industry in China,
including but not limited to internet payment, online lending, equity crowd-funding, internet fund sales, internet insurance, internet trust
and internet consumer finance. The General Office of PRC State Council issued the Implementation Plan for Special Rectification of
Internet Financial Risks on April 12, 2016. Relevant regulatory authorities issued the Implementation Plan for Special Rectification of
Peer-to-Peer Internet Lending Risks and Provisional Measures for Administration of Business Activities of Internet Lending
Information Intermediaries. If new PRC internet financial service-related laws and regulations require us to comply with additional
requirements in order to continue to conduct any aspect of our business operations, we may not be able to comply with such additional
requirements in a timely fashion, or at all. In addition, we cannot guarantee that our current practices comply with all the regulations
that may be or have been promulgated, and we may be fined or penalized by regulators, required to comply with additional
requirements or ordered to cease operations due to any non-compliance in the future. If any of these situations occur, our business,
financial condition and prospects would be materially and adversely affected.
We continually develop and offer new internet financial services to our clients. Our involvement in the small short-term
loans business and internet financial service business subjects us to new laws and regulations with which we have limited previous
experience. Pursuant to the laws and regulations relevant to the small short-term loans business, we must obtain approvals or licenses in
order to provide small short-term loans, and the small short-term loans business must conducted within certain restricted territory under
current regulations. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Small Short-
Term Loan Business.” We have taken measures to comply with the applicable laws and regulations and obtain the licensing and permits
that are applicable to our business operations. However, these laws, rules and regulations are issued by different central, provincial and
local governments and enforced by different local authorities with broad discretion in implementing and enforcing the applicable laws,
rules, regulations and governmental policies. As a result, there are uncertainties in the interpretation and implementation of such laws,
rules, regulations and governmental policies, and occasionally, we have to depend on verbal clarifications from local government
authorities. As such, we cannot assure you that our internet financial service business would not be deemed to violate any applicable
PRC laws or regulations, that our internet financial services will comply with the applicable regulatory regime or that we will be able to
maintain our existing licenses and permits, renew any of them when their current term expires or obtain additional licenses required for
our future small short-term loan business expansion. If we fail to comply with any such laws or regulations, or if we otherwise become
subject to enforcement actions under such laws or regulations, we may face significant monetary, reputational or other harm to our
business, including fines, restrictions on our activities or revocation of our licenses.
If we fail to maintain or renew existing licenses or obtain additional licenses and permits necessary to conduct our operations in
China, our business would be materially and adversely affected.
The current regulations under which we operate impose license or qualification requirements on non-financial institutions
engaged in wealth management or asset management and the distribution of wealth management or asset management products.
Additionally, certain licenses and qualifications are required in order to engage in insurance brokerage, the sale of mutual funds and
asset management plans managed by mutual fund management companies or securities companies. Since 2014, we have been required
to complete our registration with AMAC before conducting fund management activities, which is a significant part of our asset
management business. Currently, Tianjin Gopher, Gopher Asset Management and their thirteen affiliated institutions, as well as Noah
Upright, have completed the private investment fund manager registration with AMAC, and Noah Upright has received the fund
distribution license. However, we cannot assure you that we will be able to fully comply with all the relevant regulatory requirements,
and any failure to do so could have a material adverse effect on our business. In addition, no specific internet financial service licenses
or permits are currently necessary to operate our internet financial service business in China, except that certain licenses are required to
operate value-added telecom services and payment related services, such as an ICP license and payment business license. One
subsidiary of Noah Investment has applied for and obtained an ICP License in March 2015.
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New applicable laws and regulations and new interpretation of the existing laws and regulations may be adopted from time
to time to address new issues that arise and additional licenses and permits may be required as the relevant government authorities
implement additional regulations for the industry. For example, our subsidiary Enoch Education Training (Shanghai) Co., Ltd., or
Enoch Education, who operates our high net worth client education business, may be required to get approval and permits from the
competent education authority or the human resources and social security authority under the detailed implementation rules to be
issued. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Private Schools.” We cannot
assure you that we will be able to maintain our existing licenses and permits, renew any of them when their current term expires, or
obtain additional licenses required for our future business expansion. If we are unable to maintain and renew one or more of our current
licenses and permits, or obtain such renewals or additional licenses required for our future business expansion on commercially
reasonable terms, our operations and prospects could be materially disrupted. We have engaged in frequent dialogues with relevant
regulatory authorities in China in an effort to stay abreast of developments of the regulatory environment. However, if new PRC
regulations promulgated in the future require that we obtain additional licenses or permits in order to continue to conduct our business
operations, there is no guarantee that we would be able to obtain such licenses or permits in a timely fashion, or at all. If any of these
situations occur, our business, financial condition and prospects would be materially and adversely affected.
Adverse changes in the political and economic policies of the PRC government could have a material adverse effect on the overall
economic growth of China, which could adversely affect our business.
The majority of our assets are located in China and the majority of our revenues are derived from our operations there.
Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and
legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects,
including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of
resources. While the Chinese economy has experienced significant growth in the past 30 years, the growth has been uneven across
different time periods, geographic regions and economic sectors. We cannot assure you that the Chinese economy will continue to
grow, or that if there is growth, such growth will be steady and uniform, or that if there is a slowdown, such slowdown will not have a
negative effect on our business.
The PRC 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. It is unclear whether PRC economic policies will be effective in stimulating growth, and the PRC
government may not be effective in creating stable economic growth in the future. Any slowdown in the economic growth of China
could lead to reduced demand for the products we distribute or manage, which could materially and adversely affect our business, as
well as our financial condition and results of operations.
Uncertainties with respect to the PRC legal system could adversely affect us.
We conduct our business primarily through our PRC subsidiaries and variable interest entity in China. Our operations in
China are governed by PRC laws and regulations. Our PRC subsidiaries are foreign-invested enterprises and are subject to laws and
regulations applicable to foreign investment in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal
system is a civil law system based on written statutes. Unlike a common law system, prior court decisions may be cited for reference
but have limited precedential value. The PRC legal system is evolving rapidly, and the interpretation of many laws, regulations and
rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since
PRC judicial and administrative authorities have significant discretion in interpreting and implementing statutory provisions and
contractual terms, it may be more difficult to predict the outcome of a judicial or administrative proceeding than in more developed
legal systems. Furthermore, the PRC legal system is based, in part, on government policies and internal rules, some of which are not
published in a timely manner, or at all, but which may have retroactive effect. As a result, we may not always be aware of any potential
violation of these policies and rules. Such unpredictability towards our contractual, property (including intellectual property) and
procedural rights could adversely affect our business and impede our ability to continue our operations.
27
The audit reports included in this annual report are prepared by auditors who are not inspected by the Public Company Accounting
Oversight Board and, as such, you are deprived of the benefits of such inspection.
The independent registered public accounting firm that issues the audit reports included in our annual reports filed with the
U.S. Securities and Exchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered
with the U.S. Public Company Accounting Oversight Board, or the PCAOB, is 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. Because our
auditors are located in the Peoples’ Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections
without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.
Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit
procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality.
This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control
procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.
The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness
of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB
inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial
statements, which may have a material adverse effect on our ADS price.
If additional remedial measures are imposed on the “big four” PRC-based accounting firms, including our independent registered
public accounting firm, in administrative proceedings brought by the SEC alleging the firms’ failure to meet specific criteria set by
the SEC, with respect to requests for the production of documents, we could be unable to timely file future financial statements in
compliance with the requirements of the Securities Exchange Act of 1934.
Starting in 2011, the Chinese affiliates of the “big four” accounting firms, (including our independent registered public
accounting firm) were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S. listed companies operating
and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese firms access to their audit work papers and
related documents. The firms were, however, advised and directed that under China 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
CSRC.
In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice
and also under the Sarbanes-Oxley Act of 2002 against the Chinese accounting firms, (including our independent registered public
accounting firm). 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 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 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.
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 such as us 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 Securities
Exchange Act, including possible delisting or deregistration. Moreover, any negative news about any such future proceedings against
these audit firms may cause investor uncertainty regarding PRC-based, U.S.-listed companies and the market price of our ADSs may be
adversely affected.
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If our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC
and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements,
our financial statements could be determined not to be in compliance with the requirements of the Exchange Act of 1934, as amended.
Such a determination could ultimately lead to the delisting of our ADSs from the NYSE or deregistration from the SEC, or both, which
would substantially reduce or effectively terminate the trading of our ADSs in the United States.
Fluctuations in exchange rates could have a material adverse effect the value of your investment.
The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and
economic conditions and by China’s foreign exchange policies, among other things. In June 2010, the PRC government allowed the
Renminbi to appreciate slowly against the U.S. dollar. However, starting from June 2015, the trend of appreciation changed and the
Renminbi started to depreciate against the U.S. dollar gradually. 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.
The majority of our sales contracts were denominated in Renminbi and marjority of our costs and expenses are denominated
in Renminbi, while a portion of our financial assets, our convertible notes and our dividend payments are denominated in U.S. dollars.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations, and we have not used any
forward contracts or currency borrowings to hedge our exposure to foreign currency risk. While we may decide to enter into hedging
transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge
our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict
our ability to convert Renminbi into foreign currency. As a result, any significant revaluation of the Renminbi or the U.S. dollar may
adversely affect our cash flows, earnings and financial position, and the value of, and any dividends payable on, our ADSs. For
example, an appreciation of the Renminbi against the U.S. dollar would make any new RMB-denominated investments or expenditures
more costly to us, to the extent that we need to convert U.S. dollars into Renminbi for such purposes. An appreciation of the Renminbi
against the U.S. dollar would also result in foreign currency translation losses for financial reporting purposes when we translate our
U.S. dollar-denominated financial assets into Renminbi, our reporting currency. 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, for payment of interest expenses or principal
regarding the outstanding convertible notes, for strategic acquisitions or investments or for other business purposes, appreciation of the
U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.
PRC foreign exchange control regulations restricting the conversion of Renminbi into foreign currencies may limit our ability to
utilize our revenues 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 the majority of our revenues in Renminbi. Under our current corporate structure, we
may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing
PRC foreign exchange control 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 from SAFE by complying
with certain procedural requirements. Therefore, our PRC subsidiaries are currently able to pay dividends in foreign currencies to us
without prior approval from SAFE by complying with certain procedural requirements. 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. The PRC government may also at its discretion
restrict access in the future to foreign currencies for current account transactions. 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.
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC
resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC
subsidiaries, limit our PRC subsidiaries’ ability to increase its registered capital or distribute profits to us, or may otherwise
adversely affect us.
SAFE has promulgated several rules and regulations that require PRC residents and PRC corporate entities to register with
and obtain approval from local branches of SAFE in connection with their direct or indirect offshore investment activities. According to
the circular promulgated by SAFE which took effect on June 1, 2015, qualified banks possess the authority to register all PRC
residents’ direct or indirect offshore investment activities in special purpose vehicles, except that those PRC residents who have failed
to register or obtain approval will remain to fall into the jurisdiction of the local SAFE branch and must make their supplementary
registration application with the local SAFE branch. These regulations apply to our shareholders who are PRC residents and may apply
to any offshore acquisitions that we make in the future.
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Under these foreign exchange rules and regulations, PRC residents are required to complete SAFE registration before
contributing their legally owned onshore or offshore assets or equity interest into any special purpose vehicle, or SPV, directly
established, or indirectly controlled, by them for the purpose of investment or financing. Such foreign exchange regulations and rules
further require that when there is (a) any change to the basic information of the SPV, such as any change relating to its individual PRC
resident shareholders, name or operation period or (b) any material change, such as increase or decrease in the share capital held by its
individual PRC resident shareholders, a share transfer or exchange of the shares in the SPV, or a merger or split of the SPV, the PRC
resident must register such changes on a timely basis.
However, as there is uncertainty concerning the reconciliation of these foreign exchange regulations with other approval
requirements, 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. We cannot predict how these regulations will affect our
business operations or future strategy. 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 results of operations and financial condition. 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.
We have requested PRC residents holding direct or indirect interests in our company to our knowledge to make the necessary
applications, filings and amendments as required by these foreign exchange regulations. Such shareholders and beneficial owners have
completed their initial registrations, in relation to their ownership in our company, and are in the process of completing the amendment
registrations, in relation to their subsequent ownership changes in our Company and the establishment of certain subsidiaries of our
Company after our initial public offering. We cannot assure you, however, that such amendment registration and filing will be duly
completed with the local SAFE branch in a timely manner. In addition, we may not be informed of the identities of all the PRC
residents holding direct or indirect interests in our company, and we cannot provide any assurances that all of our shareholders and
beneficial owners who are PRC residents will make, obtain or update any applicable registrations or approvals required by these foreign
exchange regulations. The failure or inability of our PRC resident shareholders to comply with the registration procedures set forth in
these regulations may subject us to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC
subsidiaries’ ability to distribute dividends to, or obtain foreign-exchange-dominated loans from, our company, or prevent us from
being able to make distributions or pay dividends, as a result of which our business operations and our ability to distribute profits to you
could be materially adversely affected.
Failure to comply with PRC regulations regarding the registration of share options held by our employees who are “domestic
individuals” may subject such employee or us to fines and legal or administrative sanctions.
In January 2007, SAFE issued Implementing Rules for the Administrative Measures of Foreign Exchange Matters for
Individuals, or the Individual Foreign Exchange Rule, which, among other things, specified approval requirements for certain capital
account transactions such as a PRC citizen’s participation in the employee stock ownership plans or stock option plans of an overseas
publicly-listed company. On February 15, 2012, SAFE issued the Notices on Issues Concerning the Foreign Exchange Administration
for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, or the Stock Incentive Plan Rules,
pursuant to which “domestic individuals” (both PRC residents and non-PRC residents who reside in the PRC for a continuous period of
not less than one year, excluding foreign diplomatic personnel and representatives of international organizations) participating in any
stock incentive plan of an overseas-listed company are required, through qualified PRC agents (which could be the PRC subsidiary of
such overseas-listed company), to register with SAFE and complete certain other procedures related to the stock incentive plan.
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We and our employees who are “domestic individuals” and have been granted share options, or the PRC optionees, became
subject to the Stock Incentive Plan Rules when our company became an overseas-listed company upon the completion of our initial
public offering. We and our PRC optionees have made registration as required under the Stock Incentive Plan Rules and intend to
continue making such registration on an on-going basis and complete all the requisite procedures in accordance with the Stock Incentive
Plan Rules. If we or our PRC optionees fail to comply with the Individual Foreign Exchange Rule and the Stock Incentive Plan Rules,
we and/or our PRC optionees may be subject to fines and other legal sanctions. We may also face regulatory uncertainties that could
restrict our ability to adopt additional option plans for our directors and employees under PRC law. In addition, the General
Administration of Taxation has issued a few circulars concerning employee stock options. Under these circulars, our employees
working in China who exercise stock options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to
file documents related to employee stock options with relevant tax authorities and withhold individual income taxes of those employees
who exercise their stock options. If our employees fail to pay and we fail to withhold their income taxes, we may face sanctions
imposed by tax authorities or any other PRC government authorities. However, there are substantial uncertainties regarding the
interpretation and implementation of the Individual Foreign Exchange Rule and the Stock Incentive Plan Rules. We cannot guarantee
that our current practices will comply with future interpretations of the Individual Foreign Exchange Rule and the Stock Incentive Plan
Rule, and any failure to comply could subject us to fines and other legal sanctions.
Any decrease in any of the government subsidies currently available to us in the PRC could adversely affect our financial condition
and results of operations.
During the five years ended December 31, 2016, our PRC subsidiaries and variable interest entity and its subsidiaries were
granted governmental financial subsidies, including RMB162.4 million for the year ended December 31, 2016. See Item 5. Operating
and Financial Review and Prospects—A. Operating Results—Key Components of Results of Operations—Operating Costs and
Expenses—Government Subsidies. We cannot assure you of the continued availability of the government incentives and subsidies
currently enjoyed by some of our affiliated entities in China, including our variable interest entity, our PRC subsidiaries and their
subsidiaries. Any decrease in these governmental incentives and subsidies could adversely affect our financial condition and results of
operations.
The dividends we receive from our PRC subsidiaries may be subject to PRC tax under the PRC Enterprise Income Tax Law, which
would have a material adverse effect on our financial condition and results of operations. In addition, 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.
Pursuant to the PRC Enterprise Income Tax Law, or the EIT Law, dividends generated after January 1, 2008 and payable by
a foreign-invested enterprise in China to its foreign investors are subject to a 10% withholding tax, unless any such foreign investor’s
jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. We are a Cayman Islands
holding company and the majority of our income may come from dividends we receive, directly or indirectly, from our wholly foreign-
owned PRC subsidiaries. Since there is currently no such tax treaty between China and the Cayman Islands, dividends we directly
receive from our wholly foreign-owned PRC subsidiaries will generally be subject to a 10% withholding tax.
In addition, under the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for
the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, where a Hong Kong resident
enterprise, which is considered a non-PRC tax resident enterprise, directly holds at least 25% of a PRC enterprise, the withholding tax
rate in respect to the payment of dividends by such PRC enterprise to such Hong Kong resident enterprise is reduced to 5% from a
standard rate of 10%, subject to approval of the PRC local tax authority. Accordingly, Noah Insurance (Hong Kong) Limited, or Noah
HK, may be able to enjoy the 5% withholding tax rate for the dividends it receives from Shanghai Rongyao Information Technology
Co., Ltd., or Noah Technology, and Kunshan Noah Xingguang Investment Management Co., Ltd., or Noah Xingguang, respectively, if
they satisfy the conditions prescribed in relevant tax rules and regulations, and obtain the approvals as required. However, if the Hong
Kong resident enterprise is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such
dividends may remain subject to withholding tax at a rate of 10%. If Noah HK is considered to be a non-beneficial owner for purposes
of the tax arrangement, any dividends paid to it by our wholly foreign-owned PRC subsidiaries directly would not qualify for the
preferential dividend withholding tax rate of 5%, but rather would be subject to a rate of 10%. See “Item 4. Information on the
Company—B. Business Overview—Regulations—Regulations on Tax—Dividend Withholding Tax.”
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Furthermore, under the EIT Law and the Implementation Rules to the PRC Enterprise Income Tax Law, or Implementation
Rules, an enterprise established outside of the PRC with its “de facto management body” within the PRC is considered a PRC resident
enterprise and will be subject to PRC enterprise income tax on its global income at the rate of 25%. See “Item 4. Information on the
Company—B. Business Overview—Regulations—Regulations on Tax—PRC Enterprise Income Tax.” We do not believe that Noah
Holdings Limited or any of its subsidiaries outside of China is a PRC resident enterprise for the year ended December 31, 2016, because
neither we nor they are controlled by a PRC enterprise or PRC enterprise group, and because our records and their records (including
the resolutions of the respective boards of directors and the resolutions of shareholders) are maintained outside the PRC. 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 Noah Holdings Limited or any of its
subsidiaries outside of China is a PRC resident enterprise for PRC tax purposes, they would be subject to a 25% PRC enterprise income
tax on their global income. In addition, if Noah Holdings Limited is considered a PRC resident enterprise for PRC tax purposes, we
may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-PRC resident enterprises,
including the holders of our ADSs. Furthermore, non-PRC resident enterprise shareholders (including our ADS holders) may be subject
to a 10% PRC tax 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. It is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any
PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident
enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is
available under an applicable tax treaty. However, it is also unclear whether our non-PRC shareholders would be able to claim the
benefits of any tax treaty between their country of tax residence and the PRC in the event that we are considered as a PRC resident
enterprise. If we are required to withhold such PRC income tax under the EIT Law, your investment in our Class A ordinary shares or
ADSs may be materially and adversely affected.
We face uncertainties with respect to the application of the Circular on Strengthening the Administration of Enterprise Income Tax
for Share Transfers by Non-PRC Resident Enterprises.
The State Administration of Taxation, or SAT, has issued several rules and notices to tighten the scrutiny over acquisition
transactions in recent years, including the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by
Non-PRC Resident Enterprises issued in December 2009 with retroactive effect from January 1, 2008, or SAT Circular 698, the Notice
on Several Issues Regarding the Income Tax of Non-PRC Resident Enterprises promulgated issued in March 28, 2011, or SAT Circular
24, and the Notice on Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-PRC Resident Enterprises
issued in February 2015, or SAT Circular 7. Pursuant to these rules and notices, if a non-PRC resident enterprise indirectly transfers
PRC taxable properties, referring to properties of an establishment or a place in the PRC, real estate properties in the PRC or equity
investments in a PRC tax resident enterprise, by disposition of equity interest in an overseas non-public holding company, without a
reasonable commercial purpose and resulting in the avoidance of PRC enterprise income tax, such indirect transfer should be deemed as
a direct transfer of PRC taxable properties and gains derived from such indirect transfer may be subject to the PRC withholding tax at a
rate of up to 10%. SAT Circular 7 has listed several factors to be taken into consideration by the tax authorities in determining whether
an indirect transfer has a reasonable commercial purpose. However, in spite of these factors, an indirect transfer satisfying all the
following criteria shall be deemed to lack reasonable commercial purpose and be taxable under the PRC laws: (i) 75% or more of the
equity value of the overseas enterprise being transferred is derived directly or indirectly from the PRC taxable properties; (ii) at any
time during the one-year period before the indirect transfer, 90% or more of the asset value of the overseas enterprise (excluding cash)
is comprised directly or indirectly of investments in the PRC, or 90% or more of its income is derived directly or indirectly from the
PRC; (iii) the functions performed and risks assumed by the overseas enterprise and any of its subsidiaries that directly or indirectly
hold the PRC taxable properties are limited and are insufficient to prove their economic substance; and (iv) the foreign tax payable on
the gain derived from the indirect transfer of the PRC taxable properties is lower than the potential PRC tax on the direct transfer of
such assets. Nevertheless, an indirect transfer falling into the scope of certain safe harbors under SAT Circular 7 may not be subject to
PRC tax. Such safe harbors include qualified group restructuring, public market trading and tax treaty exemptions.
Under SAT Circular 7, the entities or individuals obligated to pay the transfer price to the transferor shall be withholding
agents and shall withhold the PRC tax from the transfer price. If a withholding agent fails to do so, the transferor shall report to and pay
the PRC tax to the PRC tax authorities. In case neither a withholding agent nor the transferor complies with the obligations under SAT
Circular 7, other than imposing penalties such as late payment interest on the transferors, the tax authority may also hold a withholding
agent liable and impose a penalty of 50% to 300% of the unpaid tax on the withholding agent, provided that such penalty imposed on
the withholding agent may be reduced or waived if the withholding agent has submitted the relevant materials in connection with the
indirect transfer to the PRC tax authorities in accordance with SAT Circular 7.
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However, as there is a lack of clear statutory interpretation on the implementation of these rules and notices, there is no
assurance that the tax authorities will not apply SAT Circular 698, SAT Circular 24 and SAT Circular 7 to previous investments by
non-PRC resident investors in our company or our pre-listing restructuring, if any of such transactions were determined by the tax
authorities to lack reasonable commercial purpose. As a result, we and our existing non-PRC resident investors may be at risk of being
taxed under these rules and notices and may be required to expend valuable resources to comply with or to establish that we should not
be taxed under such rules and notices, which may have a material adverse effect on our financial condition and results of operations or
such non-PRC resident investors’ investments in us. We have conducted and may conduct acquisitions involving corporate structures,
and historically our shares were transferred by certain then shareholders to our current shareholders. We cannot assure you that the PRC
tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to provide
assistance for the investigation of PRC tax authorities with respect thereto. Any PRC tax imposed on a transfer of our shares or any
adjustment of such gains would cause us to incur additional costs and may have a negative impact on the value of your investment in us.
The enforcement of the Labor Contract Law, Social Insurance Law and other labor-related regulations in the PRC may adversely
affect our business and our results of operations.
In June 2007, the National People’s Congress of China enacted the Labor Contract Law, which became effective in
January 2008 and was subsequently amended in July 2013. The Labor Contract Law establishes more restrictions on and increases costs
for employers to dismiss employees, including specific provisions related to fixed-term employment contracts, temporary employment,
probation, consultation with the labor union and employee assembly, employment without a contract, dismissal of employees,
compensation upon termination and overtime work and collective bargaining. According to the Labor Contract Law, an employer is
obliged to sign a labor contract with unlimited term with an employee if the employer continues to hire the employee after the
expiration of two consecutive fixed-term labor contracts, subject to certain conditions, or after the employee has worked for the
employer for ten consecutive years. The employer is also required to pay compensation to an employee if the employer terminates an
unlimited-term labor contract. Such compensation is also required when the employer refuses to renew a labor contract that has expired,
unless it is the employee who refuses to extend the expired contract. In addition, under the Regulations on Paid Annual Leave for
Employees, which became effective in January 2008 and the Implementation Rules on Paid Annual Leave for Employees, which
became effective in September 2008, employees who have served more than one year for an employer are entitled to a paid vacation
ranging from 5 to 15 days, depending on their length of service. Employees who are deprived of such vacation time by employers shall
be compensated with three times their regular salaries for each of such vacation days, unless it is the employees who waive such
vacation days in writing. Since our success largely depends on our qualified employees, the implementation of the Labor Contract Law
may significantly increase our operating expenses, in particular our personnel expenses. In the event that we decide to lay off a large
number of employees or otherwise change our employment or labor practices, the Labor Contract Law may also limit our ability to
effect these changes in a manner that we believe to be cost-effective or desirable, which could adversely affect our business and results
of operations.
In addition, enterprises in China are required by PRC laws and regulations, including the Social Insurance Law, to participate
in a housing provident fund for employees and in certain employee benefit plans, including social insurance funds like a pension plan, a
medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan.
Employers are required to contribute to the funds or plans in amounts equal to certain percentages of employees’ salaries, including
bonuses and allowances, as specified from time to time by the local governments in places where they operate their businesses or where
they are located.
We cannot assure you that our employment practices do not or will not violate these labor-related laws and regulations. If we
are deemed to have been non-compliant with any such laws and regulations or to have failed to make adequate contributions to any
social insurance schemes, we may be subject to penalties and negative publicity, and our business, results of operations and prospects
may be materially adversely affected.
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Risks Related to our ADSs
The market price for our ADSs may continue to be volatile.
The trading prices of our ADSs have been, and are likely to continue to be, volatile and could fluctuate widely due to factors
beyond our control. The trading prices of our ADSs ranged from US$20.38 to US$28.85 in 2016. This was partly because of broad
market and industry factors, such as the performance and fluctuation in the market prices or the underperformance or declining financial
results of other companies based in China that have listed their securities in the United States in recent years. The securities of some of
these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price
declines in the trading prices of their securities. The trading performances of other Chinese companies’ securities after their offerings
may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading
performance of our ADSs, regardless of our actual operating performance. In addition, securities markets may from time to time
experience significant price and volume fluctuations that may or may not relate to our operating performance, which may have a
material and adverse effect on the market price of our ADSs. In particular, the recent volatility in the PRC stock markets has resulted in
volatility in the trading prices of most PRC-based companies who shares trade in the United States. Any other negative news or
perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or matters of other Chinese
companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of
whether we have conducted any inappropriate activities. Furthermore, the market price for our ADSs is likely to be highly volatile and
subject to wide fluctuations in response to factors including the following:
•
•
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regulatory developments in our target markets affecting us, our clients or our competitors;
announcements of studies and reports relating to the quality of our products and services or those of our competitors;
changes in the performance or market valuations of other companies that provide wealth management services;
actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected
results;
changes in financial estimates by securities research analysts;
conditions in the wealth management services industry;
announcements by us or our competitors of new services, acquisitions, strategic relationships, joint ventures or capital
commitments;
addition or departure of our senior management;
fluctuations of exchange rates between the Renminbi and the U.S. dollar;
release or expiry of transfer restrictions on our outstanding ordinary shares or ADSs; and
sales or perceived potential sales of additional ordinary shares or ADSs.
Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any
change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
Our co-founders, Ms. Jingbo Wang and Mr. Zhe Yin, have considerable influence over important corporate matters. Our
ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Each Class A ordinary share is entitled to one vote
and each Class B ordinary share is entitled to four votes on all matters that are subject to shareholder vote. Each Class B ordinary share
is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into
Class B ordinary shares under any circumstances. Due to the disparate voting powers associated with our two classes of ordinary shares,
as of April 13, 2017, Ms. Jingbo Wang and Mr. Zhe Yin beneficially owned 30.4% of our share capital and controlled 63.3% of the
aggregate voting power of our company. As a result, Ms. Jingbo Wang and Mr. Zhe Yin have considerable influence over matters such
as electing directors and approving material mergers, acquisitions or other business combination transactions, and they may take actions
that are not in the best interest of us or our other shareholders. This concentrated control will limit your ability to influence corporate
matters and could also discourage others from pursuing any potential merger, takeover or other change of control transactions, which
could have the effect of depriving the holders of our Class A ordinary shares and our ADSs of the opportunity to sell their shares at a
premium over the prevailing market price and could result in a reduction in the price of our ADSs.
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Our board of directors, which has complete discretion as whether to distribute dividends, does not currently plan to pay any
dividends. Therefore, you should not rely on an investment in our ADSs as a source of future dividend income.
Our board of directors has complete discretion as to whether to distribute dividends, subject to our articles of association and
Cayman Islands law. In addition, our shareholders by ordinary resolution may 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 on its
shares out of either profit or share premium amount, 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 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, among other things, 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. Although we
declared an annual cash dividend for 2012 and 2013, we may not declare any dividend in the future, and even if we do so, any future
dividend may be less than those declared in 2012 and 2013. Therefore, you should not rely on an investment in our ADSs as a source of
future dividend income. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price
appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain their current price.
Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.
Additional sales of our ADSs or Class A ordinary shares in the public market, or the perception that these sales could occur,
could cause the market price of our ADSs to decline. As of April 13, 2017, we had 19,841,328 Class A ordinary shares outstanding,
including 15,021,328 Class A ordinary shares represented by ADSs. Except for the restricted ADSs representing 3,800,001 Class A
ordinary shares held by affiliates of Sequoia Capital China, the rest of our ADSs are freely transferable without restriction or additional
registration under the U.S. Securities Act of 1933, as amended, or the Securities Act. The remaining Class A ordinary shares
outstanding are available for sale, subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities
Act.
Certain holders of our Class A ordinary shares have the right to cause us to register under the Securities Act the sale of their
shares. Registration of these shares under the Securities Act would result in ADSs representing these shares becoming freely tradable
without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the
form of ADSs in the public market could cause the price of our ADSs to decline.
Our memorandum and articles of association contain provisions that could discourage a third party from seeking to obtain control
of our company, which could adversely affect the interests of holders of our Class A ordinary shares and ADSs by limiting their
opportunities to sell them at a premium.
Our memorandum and articles of association contain certain provisions that could limit the ability of others to acquire
control of our company, including provisions that create a class of super-voting stock in the form of Class B ordinary shares and grant
to our board of directors the authority to establish and issue from time to time one or more series of preferred shares, and to designate
the price, rights, preferences, privileges and restrictions of such preferred shares, without any further vote or action by our shareholders
and to determine, with respect to any series of preferred shares, the terms and rights of that series which may be greater than the rights
of our Class A ordinary shares. The provisions could have the effect of depriving holders of our Class A ordinary shares or ADSs of the
opportunity to sell their shares or ADSs at a premium over the prevailing market price by discouraging third parties from seeking to
obtain control of our company in a tender offer or similar transactions.
Provisions of our convertible notes could discourage an acquisition of us by a third party.
In February 2015, we completed an issuance of US$80 million in aggregate principal amount of convertible notes. The
convertible notes bear interest at a rate of 3.5% per annum from the issuance date, mature in February 2020 and are convertible, at the
holders’ option, at an initial conversion price of US$23.03 per ADS, subject to adjustments. Certain provisions of our convertible notes
could make it more difficult or more expensive for a third party to acquire us. The indentures for these convertible notes define a
“fundamental change” to include, among other things: (1) any person or group gaining control of our company; (2) any recapitalization,
reclassification or change of our Class A ordinary shares or the ADSs as a result of which these securities would be converted into, or
exchanged for, stock, other securities, other property or assets; (3) the adoption of any plan relating to the dissolution or liquidation of
our company; or (4) our ADSs ceasing to be listed on a major U.S. national securities exchange. Upon the occurrence of a fundamental
change, holders of these notes will have the right, at their option, to require us to repurchase all of their notes or any portion of the
principal amount of such notes of at least US$15,000,000 or such lesser amount then held by the holders. In the event of a fundamental
change, we may also be required to issue additional ADSs upon conversion of our convertible notes.
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You may not have the same voting rights as the holders of our Class A ordinary shares and may not receive voting materials in time
to be able to exercise your right to vote.
Except as described in this annual report and in the deposit agreement, holders of our ADSs will not be able to exercise
voting rights attaching to the shares represented by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or
its nominee as their representative to exercise the voting rights attaching to the shares represented by the ADSs. You may not receive
voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers,
dealers or other third parties, will not have the opportunity to exercise a right to vote.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings and you may not
receive cash dividends if it is impractical to make them available to you.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we
cannot make rights available to you in the United States unless we register both the rights and the securities to which the rights relate
under the Securities Act or an exemption from the registration requirements is available. Under the deposit agreement, the depositary
will not make rights available to you unless both the rights and the underlying securities to be distributed to ADS holders are either
registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration
statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective and
we may not be able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable to
participate in our rights offerings and may experience dilution in your holdings.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on
our Class A ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in
proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it
is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it
is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of
mailing them. In these cases, the depositary may decide not to distribute such property to you.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time
or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to
deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or
the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any
provision of the deposit agreement, or for any other reason.
You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be
limited because we are incorporated under Cayman Islands law, we conduct the majority of our operations in China and all of our
directors and officers reside outside the United States.
We are incorporated in the Cayman Islands, and conduct the majority of our operations in China through our PRC
subsidiaries and variable interest entity. All of our directors and officers reside outside the United States and a substantial portion of
their assets are located outside of the United States. 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 United States
federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of
China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. We have been advised
by Maples and Calder (Hong Kong) LLP, our counsel as to Cayman Islands law, that although there is no statutory recognition in the
Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign
money judgment of a foreign court of competent jurisdiction without retrial on the merits, through an action on the foreign judgment
commenced in Grand Court of the Cayman Islands, based on the principle that a judgment of a competent foreign court imposes upon
the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign
money judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must
not be (i) in respect of taxes or a fine or penalty or similar fiscal or revenue obligations, (ii) inconsistent with a Cayman Islands
judgment in respect of the same matter, (iii) impeachable on the grounds of fraud or (iv) obtained in a manner, nor be of a kind the
enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages
may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings
are being brought elsewhere.
36
Our corporate affairs are governed by our memorandum and articles of association, as amended and restated from time to
time, and by the Companies Law of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take
legal action against us and our directors, actions by minority shareholders and the fiduciary duties of our directors are to a large extent
governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively
limited judicial precedent in the Cayman Islands as well as from English common law, which provides persuasive, but not binding,
authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman
Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the
Cayman Islands has a less developed body of securities laws than the United States and provides significantly less protection to
investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in U.S. federal
courts.
As a result, our public shareholders and holders of our ADSs may have more difficulty in protecting their interests through
actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in a
jurisdiction in the United States.
We may be classified as a passive foreign investment company under U.S. tax law, which could result in adverse U.S. federal income
tax consequences to U.S. holders of our ADSs or Class A ordinary shares.
A non-U.S. corporation, such as our company, will be a “passive foreign investment company,” or PFIC, for U.S. federal
income tax purposes for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least
50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that
produce passive income or are held for the production of passive income.
Although the application of these rules is unclear in many important respects, based on the price of our ADSs, the value of
our assets, and the composition of our income and assets for the taxable year ended December 31, 2016, we believe that we were not a
PFIC for that year. However, the U.S. Internal Revenue Service, or the IRS, does not issue rulings with respect to PFIC status, and there
can be no assurance that the IRS, or a court, will agree with our determination. For example, because there are uncertainties in the
application of the relevant rules, it is possible that the IRS may successfully challenge our classification of certain income and assets as
non-passive, which may result in our company being treated as a PFIC. If we are treated as a PFIC with respect to a U.S. Holder (as
defined in “Item 10. Additional Information—E. Taxation—Certain Material U.S. Federal Income Tax Considerations”) for any year
during which such U.S. Holder holds our ADSs or Class A ordinary shares, such U.S. Holder may be subject to certain adverse U.S.
federal income tax consequences and related reporting requirements. For example, if we are treated as a PFIC with respect to a U.S.
Holder, such U.S. Holder would generally be taxed at the higher ordinary income rates, rather than the lower capital gain rates, if such
U.S. Holder disposes of ADSs or Class A ordinary shares at a gain in a later year, even if we are not a PFIC in that year. In addition, a
portion of the tax imposed on such U.S. Holder’s gain would be increased by an interest charge. Also, if we are treated as a PFIC with
respect to a U.S. Holder in any taxable year, such U.S. Holder would generally not be able to benefit from any preferential tax rate (if
any) with respect to any dividend distribution that such U.S. Holder may receive from us in that year or in the following years. Certain
elections may be available, however, that would mitigate these adverse tax consequences to varying degrees.
We must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year.
Accordingly, we cannot assure you that we will not be a PFIC for our current taxable year ending December 31, 2017, or for any future
taxable year. Under circumstances where we determine not to deploy significant amounts of cash for active purposes or where the
market price of our ADSs or Class A ordinary shares declines, our risk of becoming a PFIC may substantially increase. In addition, the
composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in any financing activities.
In the event that we determine that we are not a PFIC in 2017 or in a future taxable year, there can be no assurance that the IRS or a
court will agree with our determination.
Further, although the law in this regard is unclear, we treat our consolidated affiliated entities as being owned by us for U.S.
federal income tax purposes, not only because we control their management decisions but also because we are entitled to substantially
all of the economic benefits associated with them, and, as a result, we consolidate their operating results in our consolidated, GAAP
financial statements. If it were determined, however, that we are not the owner of these entities for U.S. federal income tax purposes,
then we would likely be treated as a PFIC.
37
If we are a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we generally (unless
you make a valid mark-to-market election with respect to the ADSs as discussed under “Item 10. Additional Information—E.
Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations and Rules”) will continue
to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which such U.S. Holder holds our ADSs or
Class A ordinary shares unless we cease to be a PFIC and the U.S. Holder makes a “deemed sale” election with respect to the ADSs or
Class A ordinary shares, as applicable (in which case, special rules apply). You are urged to consult your tax advisor concerning the
U.S. federal income tax consequences of acquiring, holding and disposing of our ADSs or Class A ordinary shares. For more
information see “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations—Passive Foreign
Investment Company Considerations and Rules.”
The U.S. Foreign Account Tax Compliance Act and the Common Reporting Standard could subject us to certain new information
reporting and withholding requirements.
The United States has passed the Foreign Account Tax Compliance Act, or FATCA, that imposes a new reporting regime
and, potentially, a 30% withholding tax on certain U.S.-source payments made to certain non-U.S. entities. In general, the 30%
withholding tax applies to certain payments made to a non-U.S. financial institution unless such institution is treated as deemed
compliant or enters into an agreement with the U.S. Treasury to report, on an annual basis, information with respect to certain interests
in, and accounts maintained by, the institution to the extent such interests or accounts are held by certain U.S. persons and by certain
non-U.S. entities that are wholly or partially owned by certain U.S. persons and to withhold on certain payments. The 30% withholding
tax also generally applies to certain payments made to a non-financial non-U.S. entity that does not qualify under certain exemptions
unless such entity either (i) certifies that such entity does not have any “substantial United States owners” or (ii) provides certain
information regarding the entity’s “substantial United States owners.” An intergovernmental agreement between the United States and
another country may also modify these requirements. The Cayman Islands has entered into a Model 1 intergovernmental agreement
with the United States, which gives effect to the automatic tax information exchange requirements of FATCA, and a similar
intergovernmental agreement with the United Kingdom. We will be required to comply with the Cayman Islands Tax Information
Authority Law (2014 Revision) (as amended) together with regulations and guidance notes made pursuant to such law that give effect to
the intergovernmental agreements with the United States and the United Kingdom. We do not believe FATCA will have a material
impact on our business or operations, but because FATCA is particularly complex and the intergovernmental agreement with the PRC,
though agreed to in substance, has not been published, and PRC regulations or guidance notes have not been published, we cannot
assure you that we will not be adversely affected by this legislation in the future.
Similarly, the Organisation for Economic Cooperation and Development has developed a Common Reporting Standard, or
CRS, and model competent authority agreement to enable the multilateral and automatic exchange of financial account information,
which were adopted by China and Hong Kong effective January 1, 2017. CRS and its implementing legislations in China and Hong
Kong will require financial institutions to identify and report the tax residency and account details of non-resident customers to the
relevant authorities in jurisdictions adhering to CRS. While CRS was modelled after FATCA, the scope, coverage and volume under
CRS are significantly greater than that under FATCA. As such, even if FATCA does not have a material impact on our business or
operations, we cannot assure you that we will not be adversely affected by the information reporting and withholding requirements
imposed by CRS and its implementing legislations in China and Hong Kong in the future.
ITEM 4 INFORMATION ON THE COMPANY
A.
History and Development of the Company
We are an exempted company incorporated with limited liability under the laws of the Cayman Islands with subsidiaries and
affiliated entities primarily in China. In August 2005, our founders started our business through the incorporation of Shanghai Noah
Investment Management Co., Ltd., or Noah Investment, a domestic company in China. During the past few years, we have gradually
transitioned from a consulting services provider focusing on wealth management to a comprehensive integrated financial services group
with capabilities in wealth management, asset management and internet financial services.
We conduct our wealth management business in China primarily through our subsidiaries, Noah Xingguang and Noah
Financial Services. Our asset management business and certain other restricted business in China are conducted through Noah
Investment and its subsidiaries. We conduct our overseas wealth management and asset management business through Noah Holdings
(Hong Kong) Limited, our subsidiary in Hong Kong. We conduct our small short-term loan business through Noah Financial Express
(Wuhu) Microfinance Co., Ltd, our subsidiary in the PRC. We primarily conduct our internet financial service business through
Shanghai Noah Yijie Finance Technology Co., Ltd. We conduct our commercial factoring business through Noah Commercial
Factoring Co., Ltd., or Noah Factoring, and our high net worth client education business through Enoch Education, both majority-
owned subsidiaries of Noah Group.
38
In August 2007 and January 2008, we issued an aggregate of 2,950,000 Series A preferred shares, par value US$0.001 per
share, to Sequoia entities for US$3.9 million. Sequoia entities refer to Sequoia Capital China I, L.P., Sequoia Capital China Partners
Fund I, L.P. and Sequoia Capital China Principals Fund I, L.P. Each Series A preferred share was automatically converted to two
ordinary shares in connection with our initial public offering in November 2010. On November 10, 2010, our ADSs began trading on
the New York Stock Exchange under the ticker symbol “NOAH.” We issued and sold a total of 9,660,000 ADSs, representing
4,830,000 ordinary shares, at an initial offering price of US$12.00 per ADS.
In February 2015, we completed an issuance of US$80.0 million in aggregate principal amount of convertible notes due 2020
through a private placement. The notes were offered to certain non-U.S. persons in compliance with Regulation S under the Securities
Act. The notes will be convertible into our ADSs based at an initial conversion rate of 43.4216 of our ADSs per $1,000 principal
amount of notes (which is equivalent to an initial conversion price of approximately US$23.03 per ADS). The conversion rate is subject
to adjustment upon the occurrence of certain events. The notes will bear interest at a rate of 3.50% per annum, payable semiannually in
arrears on February 3 and August 3 of each year, beginning on August 3, 2015. The notes will mature on February 3, 2020, unless
previously repurchased or converted in accordance with their terms prior to such date.
In July 2015, Beijing Sequoia Mingde Equity Investment Center (Limited Partnership), or Sequoia Mingde, an affiliate of
Sequoia Capital China, acquired 9.8% of the equity interests of Shanghai Noah Yijie Finance Technology Co., Ltd., the subsidiary
through which we primarily conduct our internet financial service business, at a purchase price of RMB31.6 million. The ownership
interest of Sequoia Mingde was diluted to 8.6% by the acquisition by Shanghai Qinjie Investment (Limited Partnership), a fund
managed by Shanghai Gopher, which acquired 9.88% of the equity interests of Shanghai Noah Yijie Finance Technology Co., Ltd in
December 2016.
On January 29, 2016, our shareholders voted in favor of a proposal to adopt a dual-class share structure, pursuant to which
our authorized share capital was reclassified and re-designated into Class A ordinary shares and Class B ordinary shares, with each
Class A ordinary share being entitled to one vote and each Class B ordinary share being entitled to four votes on all matters that are
subject to shareholder vote.
In December 2016, Sequoia Mingde acquired 8% of the equity interests of Gopher International Limited (“New Gopher”), a
newly established subsidiary of us, at a purchase price of RMB336 million, with a precondition that all unrestricted asset management
business should be transferred from Gopher Asset Management (“Old Gopher”) to New Gopher (the “business restructuring”). In
addition, Sequoia Mingde provided a RMB 12 million non-interest bearing loan to Gopher Asset Management, and has the right to
convert the loan to no less than 8% of the equity interests of Old Gopher before finalization of the business restructuring. The total
investment, including the loan, is redeemable by Sequoia Mingde at a price equal to the initial investment plus a compound annual
interest rate of 8% if the business restructuring fails.
Our principal executive offices are located at No. 1687 Changyang Road, Changyang Valley, Building 2, Shanghai 200090,
People’s Republic of China. Our telephone number at this address is (86) 21 8035-9221. Our registered office in the Cayman Islands is
located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands.
Our agent for service of process in the United States is Law Debenture Corporate Services Inc. located at 400 Madison Avenue, 4th
Floor, New York, NY 10017.
B.
Business Overview
Overview
We are a leading wealth and asset management service provider in China with a focus on global investment and asset
allocation services for high net worth individuals and enterprises. We also provide internet financial services through a proprietary
internet financial service platform targeting mass affluent individuals in China. We believe our wealth management, asset management
and internet financial services businesses complement one another and enable us to provide a broad range of customized financial
solutions to our clients.
39
Our business has grown substantially since our inception in 2005. Our wealth management coverage network increased from
six relationship managers in one city in 2005 to 1,169 relationship managers in 185 branch and sub-branch offices covering 71 cities as
of December 31, 2016, encompassing China’s most economically developed regions where its high net worth population is
concentrated, including the Yangtze River Delta, the Pearl River Delta, the Bohai Rim and other regions. Our total number of registered
clients increased from 930 to 135,396 during the same period. Over the past five years, we achieved significant growth, which we
believe reflects the quality of our product choices and services and the increasing wealth management needs of China’s high net worth
population. Our asset management business also achieved solid performance, with our 2016 year-end AUM reaching
RMB120.9 billion, a CAGR of 97.8% over the last 5 years. The table below sets forth information relating to certain of our performance
indicators for each of the periods presented:
Total transaction value (RMB in millions)
AUM (RMB in millions)
Number of registered clients
Number of active clients
Number of internet financial services clients
2014
Years Ended December 31,
2015
2016
Year-
over-Year
Change
(%)
42.4
58.8
31.9
39.8
—
Statistics
63,371
49,700
70,557
9,010
28,985
Year-
over-Year
Change
(%)
56.2
74.3
40.3
39.5
857.0
Year-
over-Year
Change
(%)
2.4
39.6
36.7
(4.3)
45.2
Statistics
101,385
120,929
135,396
12,027
402,815
Statistics
98,994
86,652
99,019
12,573
277,372
We believe that our product sophistication, along with knowledge of our clients’ needs, has enabled us to consistently
develop innovative new products and services, including factoring products, high-end investor education services and offshore trust
services, which cater to the needs of our client base, which primarily consists of China’s high net worth population.
Our wealth management business primarily offers wealth management products and services, including fixed income
products, private equity products, secondary market products and insurance products, among others. Through our rigorous product
selection and risk management processes, we are able to offer our clients a wide array of wealth management products and services.
From our inception in 2005 to December 31, 2016, we distributed RMB380.8 billion (US$60.0 billion) worth of products through our
wealth management business. We deliver to our high net worth clients a continuum of value-added services before, during and after we
distribute and offer wealth management products to them. These services include financial planning, product analysis and
recommendation, product and market updates and investor education.
In 2010, we have expanded our business scope to include asset management through our subsidiary, Gopher Asset
Management. As a leading alternative asset manager in China, Gopher Asset Management develops and manages private equity, real
estate, secondary market and other investments denominated in both Renminbi and foreign currencies, and its total assets under
management (AUM) amounted to RMB120.9 billion (US$17.4 billion) as of December 31, 2016. In addition, in the second quarter of
2014, we launched a proprietary internet financial service platform targeting mass affluent individuals in China, which constitutes part
of our internet financial service business that also includes small short-term loans and online payment related businesses. The aggregate
value of financial products distributed by us through our internet financial service platform in 2016 was RMB20.1 billion (US$2.9
billion).
We generate revenues from our wealth management business primarily in the form of (1) one-time commissions paid by our
product providers, underlying corporate borrowers or clients, (2) recurring service fees paid by our product providers, underlying
corporate borrowers or clients, (3) and sharing of performance-based income earned by managers who manage the funds and products.
We generate revenues from our asset management business primarily in the form of (1) recurring service fees mainly consisting of
management fees, and (2) performance-based fees from some of the funds we serve as the fund manager. Such commissions and
recurring service fees are calculated based on the value of the relevant wealth management products and services we distribute or offer
to our active clients. Our one-time commissions accounted for 37.4%, 36.7% and 44.2% of our net revenues in 2014, 2015 and 2016,
respectively, our recurring service fees accounted for 54.4%, 46.4% and 48.8% of our net revenues in 2014, 2015 and 2016,
respectively, and our performance-based fees accounted for 6.2%, 11.1% and 2.3% of our net revenues in 2014, 2015 and 2016,
respectively. We also generated revenues from other services, including (i) service income from our internet financial service business,
which accounted for 0.4% of our net revenues in 2016, (ii) interest payments from small short-term loans, which accounted for 1.0% of
our net revenues in 2016 and (iii) payment-related service income, which accounted for 0.6% of our net revenues. We are a holding
company and we primarily operate our business through our PRC subsidiaries and our variable interest entity and its subsidiaries in
China. While our PRC subsidiaries directly conduct our wealth management business, we currently conduct our onshore insurance
brokerage business, asset management business and certain other restricted services in China exclusively through Noah Investment and
its subsidiaries. We exercise effective control over the operations of Noah Investment pursuant to a series of contractual arrangements,
under which we are entitled to receive substantially all of its economic benefits.
40
In 2014, 2015 and 2016, our variable interest entity and its subsidiaries contributed 37.1%, 45.9% and 17.3% of our net
revenues, respectively. The increase in the percentage of revenue contribution by our variable interest entity and subsidiaries from 2013
to 2015 was primarily due to the rapid development of our asset management services since 2012, which were conducted by the
subsidiaries of our variable interest entity. In 2016, the decrease in the percentage of net revenues contributed by our variable interest
entity and its subsidiaries was largely attributable to the restructuring of Noah Upright, through which we distribute our fund products,
to be a subsidiary of Noah Financial Services rather than a subsidiary of our variable interest entity.
Products and Services
We are a leading wealth and asset management service provider in China with a focus on global investment and asset
allocation services for high net worth individuals and enterprises. Substantially all our RMB-denominated products are managed and
distributed in China while our Hong Kong subsidiary, Noah Holdings (Hong Kong) Limited, serves as our offshore product and service
center where substantially all USD-denominated and other foreign currency denominated products are managed and distributed. Our
offices in Taiwan and US serve mainly as research and product sourcing centers complementing our asset management operations in
China and Hong Kong. We also provide internet financial services through a proprietary internet financial service platform targeting
mass affluent individuals in China.
Wealth Management
Our wealth management business offers wealth management products and provides comprehensive financial services to high
net worth individuals and enterprise and institutional clients in China. Under both our onshore and offshore wealth management
business, we primarily distribute fixed income products, private equity products, secondary market products and insurance products.
Through our rigorous product selection and risk management processes, we screen products and services from a wide array of providers
and vendors. To date, we have distributed products of over 357 product providers. From our inception in 2005 to December 31, 2016,
we distributed RMB380.8 billion (US$60.0 billion) worth of wealth management products in aggregate.
We market and distribute the following categories of onshore and offshore wealth management products based on the
underlying asset classes:
•
Fixed income products, mainly including (i) corporate credit products, (ii) real estate credit funds, (iii) alternative
credit products, including factoring products and (iv) mezzanine financing products linked to corporate merger and
acquisitions and buyouts, among others, all of which provide investors with prospective fixed rates of return, which is
not guaranteed under PRC laws;
Private equity products, including investments in (i) various private equity funds sponsored by domestic and
international asset/fund management firms, (ii) real estate equity funds, and (iii) private equity funds of funds;
Secondary market equity fund products, the underlying assets of which are portfolios of equity investments in listed
enterprises; and
Other products, including wealth management products or services which we distribute or provide or manage but
cannot be classified into any of the aforementioned product categories.
•
•
•
The table below summarizes certain information relating to the transaction value of the different types of wealth management
products that we distributed during the periods indicated:
Year Ended December 31,
2014
2015
RMB in
millions
RMB in
millions
%
RMB in
millions
%
2016
US$ in
millions
%
Product type
Fixed income products
Private equity fund products
Secondary market equity fund products
Other products
All products
40,212
11,971
10,328
860
63,371
41
63.5 36,621
18.9 31,917
16.3 28,054
2,402
1.3
63.6
27.2
7.7
1.5
100.0 98,994 100.0 101,385 14,602 100.0
64,494
27,545
7,846
1,499
9,289
3,967
1,130
216
37.0
32.2
28.4
2.4
In February 2012, Noah Upright received a license for distributing fund products from CSRC and expanded its scope of
business to include mutual fund distribution, which further diversified our product choices. In addition to offering traditional financial
products and services, we also provide clients with more value-added services. Established in 2013, our subsidiary Enoch Education has
developed its high-end education business steadily through the years. In 2016, Enoch launched a series of trainings for over 5,740
clients. The “Enoch wealth management class”, which educates investors on market cycles, economic trends and portfolio investment
philosophy, has been well received by our customers. Also in 2016, we introduced our offshore trust services in Jersey Island to our
ultra-high net worth clients with estate planning needs via our subsidiary Ark Trust (Jersey) Limited.
Our Clients
We define our two primary categories of clients as follows: (i) registered individual clients and (ii) enterprises and
institutional clients. Our primary business is distribution to high net worth individual clients, which contributed to approximately
77.9%, 77.5% and 82.4% of our total revenues in 2014, 2015 and 2016, respectively. Our distribution to enterprise and institutional
clients accounted for 22.1%, 22.5% and 17.6% of our total revenues in 2014, 2015 and 2016, respectively.
The table below sets forth selected statistics of our two primary categories of clients for or at the end of the periods indicated:
Number of Registered
Clients as of
December 31,
2015
2016
2014
Number of Active
Clients for Years Ended
December 31,
2015
RMB in million
2016
2014
Total Transaction Value
for Years Ended
December 31,
2015
2016
2014
Individual clients
Enterprise and institutional clients
Total
67,724(1) 95,885 131,725 8,643 12,149 11,666 49,366 76,695
2,833(2)
361 14,005 22,299
70,557
83,496
17,889
99,019 135,396 9,010 12,573 12,027 63,371 98,994 101,385
3,671
3,134
424
367
(1) Represents the aggregate number of our registered high net worth individual clients. This figure does not include internet financial
services clients.
(2) Represents the aggregate number of our registered enterprise and institutional clients.
Individual Clients
We accept high net worth individuals with investable assets (excluding primary residence) in excess of RMB3.0 million
(US$0.5 million) interested in receiving our services as our registered individual clients, although our registered individual clients often
have a higher level of wealth. In recent years, we focus our resources on serving ultra-high net worth clients with higher level of
investable assets.
The number of our registered individual clients increased from 67,724 as of December 31, 2014 to 95,885 as of
December 31, 2015 and to 131,725 as of December 31, 2016. The number of registered individual clients who have purchased products
distributed by us increased from 15,494 as of December 31, 2014 to 24,348 as of December 31, 2015 and to 29,104 as of December 31,
2016. In 2016, registered individual clients purchased RMB83.5 billion (US$12.0 billion) worth of wealth management products
through us, accounting for 82.4% of the aggregate value of wealth management products that we distributed during the same period.
Enterprise and Institutional Clients
We also extend the distribution of wealth management products to enterprises, primarily small and medium-sized companies,
or SMEs, and financial institutions such as insurance companies, pension plans and endowment funds. We define SMEs as enterprises
or institutions that generate annual revenues of no more than RMB300.0 million (US$50 million). The number of our registered
enterprise and institutional clients was 3,671 as of December 31, 2016, up from 3,134 as of December 31, 2015. In 2016, registered
enterprise and institutional clients purchased RMB17.9 billion (US$2.6 billion) worth of wealth management products through us,
accounting for 17.6% of the aggregate value of wealth management products that we distributed during the same period.
Our Coverage Network
As of December 31, 2016, our extensive coverage network consisted of 1,169 relationship managers and 185 branch and
sub-branch offices covering 71 cities, which receive operational support from our headquarters in Shanghai.
42
Branch Offices
Our 185 branch and sub-branch offices are strategically located in 71 cities in China, covering multiple economically
developed regions in China where its high net worth population is concentrated, including the Yangtze River Delta, the Pearl River
Delta, the Bohai Rim and other regions. Our strategy is to open branch offices at locations with concentrated high net worth population
and active private sectors. The cities where we have opened branch offices cover all top tier cities and key provincial capitals in China.
The table below sets forth selected statistics of our coverage network by regions in China as of December 31, 2016:
Yangtze River Delta1
Pearl River Delta2
Bohai Rim3
Other Regions4
Total
Number of Cities In Our Network
34
8
12
17
71
1
2
3
4
Includes the Shanghai, Jiangsu and Zhejiang regions
Includes the Southern China and Shenzhen region
Includes the Northern China and Shandong region
Includes Central China, Western China, Northeastern China and the Fujian region
Relationship Managers
We have relied on, and expect to continue to rely on, organic growth in the expansion of our coverage network. We believe
our corporate culture is one of our competitive strengths, and in order to preserve this, our relationship managers are recruited as our
employees rather than external agents. Our relationship managers are an inherent part of our institutionalized client service structure and
play critical roles in our building and maintaining long-term relationships with clients. Our relationship managers maintain relationships
with clients through both in-person meetings and our official WeChat account and mobile applications, as well as various marketing
initiatives we organize. Our relationship managers act as asset allocation financial advisors. We place a significant emphasis on
recruiting, training and motivating our relationship managers. The number of our relationship managers has increased as a result of the
growth of our business and expansion of our coverage network. As of December 31, 2016, we had 1,169 relationship managers
nationwide, compared to 1,098 as of December 31, 2015 and 779 as of December 31, 2014.
Mobile Customer Service Channels
To better serve our expanding client base, we started to maintain an official WeChat account and launched a Noah mobile
application Wei Nuo Ya in the third quarter of 2014. In 2015, we launched more mobile applications with different service lines. These
mobile customer service channels allow us to continually update the online community of our high net worth clients and provide a
convenient and efficient platform for these clients to communicate directly with our relationship managers and other members of our
team. We also conduct product roadshow and provide product information to existing and potential clients through our mobile
application platform.
Asset Management
Gopher Asset Management, our indirect subsidiary and Noah Investment’s direct subsidiary, is a leading alternative asset
manager in China. Gopher Asset Management develops and manages private equity, real estate, secondary market and other
investments denominated in both RMB and U.S. dollars.
43
Since 2014, we have been diversifying the real estate-related products we offered, gradually shifting away from residential
real estate to commercial real estate products. Also, in response to overseas investment demands, we began cooperating with more
overseas partners and increased the number of overseas funds of funds offered. More recently we have also focused on developing our
co-investment and direct investment capabilities, and expect such investments to increase in the future. Our AUM increased from
RMB86.7 billion as of December 31, 2015 to RMB120.9 billion (US$17.4 billion) as of December 31, 2016, a year over year change of
39.6%.
We successfully raised and managed approximately RMB35.0 billion, RMB66.9 billion and RMB85.1 billion (US$12.3
billion) for our asset management investments in 2014, 2015 and 2016, respectively, of which the real estate funds we raised and
managed amounted to RMB23.4 billion, RMB24.2 billion and RMB28.4 billion (US$4.1 billion) in 2014, 2015 and 2016, respectively
and the private equity investments we raised and managed amounted to RMB6.4 billion, RMB27.9 billion and RMB25.2 billion (US3.6
billion) in 2014, 2015 and 2016, respectively.
We develop and manage the following categories of investments across different types of asset classes:
•
•
•
•
Private equity investments, including investments in the top private equity funds in China and overseas and direct
investments in companies and projects;
Real estate investments, including funds and fund of funds for residential as well as commercial real estate properties
such as office buildings and shopping malls in China and overseas;
Secondary market investments, mainly including secondary market equity funds of funds managed by Gopher and
sub-advised by outside fund managers; and
Other investments, including funds and funds of funds of alternative credit, multi-strategy funds, multi-family heritage
funds, and other assets which Gopher manages but cannot be classified into any of the aforementioned categories.
The table below summarizes the roll-forward of our AUM and typical management fee rates chargeable by asset
management segment for three years:
Product type
Real estate investments
Equity
Debt
Private equity investments
Secondary market investments
Other investments
All products
Product type
Real estate investments
Equity
Debt
Private equity investments
Secondary market investments
Other investments
All products
Typical
Management
fee rates
0.5%-1%
0.2%-1.3%
0.7%-1.8%
0.5%-1.7%
0.2%-1.5%
Typical
Management
fee rates
As of
December 31,
2015
Funds
Outflow
RMB in billions, except percentages
Funds
Inflow
As of
December 31,
2016
6.2
25.6
37.9
10.7
6.3
86.7
7%
29%
44%
12%
7%
100.0%
1.1
27.3
25.2
2.8
28.7
85.1
3.2
33.8
1.4
5.2
7.2
50.9
4.1
19.1
61.7
8.3
27.8
120.9
3%
16%
51%
7%
23%
100.0%
As of
December 31,
2014
Funds
Outflow
RMB in billions, except percentages
Funds
Inflow
As of
December 31,
2015
0.1%-1.25%
0.4%-1.5%
0.7%-1%
0.5%-1.5%
0.1%-1%
6.4
24.6
10.4
2.6
5.7
49.7
13%
50%
21%
5%
11%
100.0%
2.7
21.5
27.6
9.8
5.2
66.9
2.9
20.5
0.1
1.7
4.6
29.9
6.2
25.6
37.9
10.7
6.3
86.7
7%
29%
44%
12%
7%
100.0%
44
Typical
Management
fee rates
As of
December 31,
2013
Funds
Outflow
RMB in billions, except percentages
Funds
Inflow
As of
December 31,
2014
Product type
Real estate investments
Equity
Debt
Private equity investments
Secondary market investments
Other investments
All products
0.5%-1%
0.4%-1.5%
0.7%-1%
0.5%-1.5%
0.8%-1.2%
5.0
18.9
4.0
—
3.4
31.3
16%
60%
13%
—
11%
100.0%
3.0
20.4
6.4
2.6
2.6
35.0
1.6
14.7
—
—
0.3
16.6
6.4
24.6
10.4
2.6
5.7
49.7
13%
50%
21%
5%
11%
100.0%
The opening balance, funds outflow and closing balance of the movements above corresponding with secondary market
equity fund of funds include the effect of market appreciation or depreciation.
Performance-based Income
The following table summarizes AUM with performance-based income terms as of December 31, 2015 and 2016:
Product type
Real estate investments
Equity
Debt
Private equity investments
Secondary market investments
Other investments
Total
2015
RMB in billions
As of December 31,
2016
RMB in billions
US$ in billions
5.8
—
33.9
10.5
1.0
51.1
3.9
—
47.4
7.8
0.9
60.1
0.6
—
6.8
1.1
0.1
8.7
We are entitled to receive performance-based income of real estate investments. We are generally entitled to share 10% to
20% of the investment gain when it exceeds certain performance-based thresholds, which generally correspond to annual returns of
between 8% and 12%, depending on different projects and terms of investment. We do not accrue unrealized performance-based
income for real estate investments based on net asset value. Performance-based income is only recognized when the amount has been
determined and gains are realized.
We are entitled to receive performance-based income relating to our private equity investments. We are generally entitled to
share 3%-5% of the investment gain when it exceeds certain performance-based thresholds, which generally correspond to annual
returns of about 8%. We do not accrue unrealized performance-based income for private equity investments based on net asset value.
Performance-based income is only recognized when the amount has been determined and gains are realized.
We are entitled to receive performance-based income of our secondary market investments as of the dates when investee
funds are opened for redemption, dividend payment or when the funds mature. We are generally entitled to share 4% to 5% of the
investment gain when it exceeds certain performance-based thresholds, which are usually 6% of principal or when the net asset value
exceeds the previous highest net asset value. Performance-based income is recognized when performance-based income can be charged
according to the relevant fund agreements, which is generally on a quarterly or semi-annual basis, based on the change of net asset
value. Such performance-based income is not subject to clawback and as such there is no impact for any subsequent net asset value
fluctuations.
Performance-based income of other investments is not significant, and we do not expect material inflow of performance-
based income related to other investments in the foreseeable future.
45
The following tables summarize the AUM with performance-based income for each of our product types and their
liquidation dates as of December 31, 2015 and 2016 (on a historical basis):
Product type
Real estate investments
Equity
Debt
Private equity investments
Other investments
Total
Product type
Real estate investments
Equity
Debt
Private equity investments
Other investments
Total
AUM with
performance-
based income
as of
December 31,
2016
Expected liquidation date is
during the year
ended
December 31,
2018
2019
2017
RMB in billions
after
January 1,
2020
3.9
—
47.4
0.9
52.3
0.1
—
1.4
—
1.6
1.1
—
1.3
0.6
3.0
0.3
—
4.7
—
5.0
2.4
—
40.0
0.4
42.8
AUM with
performance-
based income
as of
December 31,
2015
Expected liquidation date is
during the year
ended
December 31,
2017
2018
2016
RMB in billions
after
January 1,
2019
5.8
—
33.9
1.0
40.6
1.0
—
0.7
0.2
1.9
1.9
—
1.7
3.6
1.1
—
1.5
0.5
3.1
1.8
—
29.9
0.3
32.0
It is rare for us to liquidate a fund prior to maturity. We will generally only liquidate a fund prior to maturity if (1) the
underlying projects or investments end prior to liquidation, or (2) the return from investments is much lower than our expectation, and it
is in the best interest of the fund investors to liquidate such fund prior to maturity.
Our secondary market equity funds generating performance-based income are periodically available for redemption. The
following table summarizes the different periods that our secondary market equity funds opened for redemptions on fair value basis:
Monthly
Quarterly
Semi-annually
Annually
As of maturity
Total
2015
RMB in billions
2.4
4.4
0.0
0.4
3.2
10.5
As of December 31,
2016
RMB in billions
2.3
2.3
0.1
—
3.1
7.8
US$ in billions
0.3
0.3
—
—
0.5
1.1
Internet Financial Services
Our internet financial service business provides financial products and services targeting mass affluent individuals in China.
46
Our internet financial service segment, which we began reporting as a separate segment in 2014, utilizes our proprietary
online platform and encompasses the following types of services:
•
•
•
•
“Cai Fu Pai” (online platform previously known as “Yuan Gong Bao”) – We introduced this service in the second
quarter of 2014. The “Cai Fu Pai” brand is owned by Shanghai Noah Yijie Finance Technology Co., Ltd., offering
internet wealth management products and related services targeting mass affluent individuals in China. The total
number of clients through our internet financial service platform increased from 28,985 as of December 31, 2014 to
277,372 as of December 31, 2015 and to 402,815 as of December 31, 2016. The majority of the services and products
transacted in 2014 were fixed income products. In 2015, we started to facilitate transactions of fixed income products,
mutual fund products as well as insurance products on the platform. Since our proprietary online platform is relatively
new, it continues to evolve and expand its product offering, and generally aims to include more standardized products
going forward. We receive platform service fees from individual customers for each transaction facilitated by the
online platform based on the amount transacted. In 2016, the aggregate transaction value of our internet financial
service business amounted to approximately RMB20.1billion (US$2.9 billion), as compared to RMB12.0 billion in
2015.
“Rong Yi Tong” (Small short-term loans) – Starting in November 2013, we began providing small short-term loan
services via Noah Financial Express (Wuhu) Microfinance Co., Ltd., for which we serve as the loan originator and
assume credit risk. We include Rong Yi Tong in our internet financial service segment since it benefits from synergies
with other services that we offer as part of this segment and will potentially operate online. This service also allows us
to introduce new loan products to our clients and broaden and deepen our relationships with them. Interest on loan
receivables is accrued monthly in accordance with their contractual terms and recorded as accrued interest receivable.
“Jintong Zhifu” (Transaction data processing and related services) – The Jintong Zhifu brand is owned by Shanghai
Noah Jintong Data Services Co., Ltd. In delivering this service, we facilitate transaction data processing by
transferring customer data to licensed third-party payment companies. Applicable laws and regulations in the PRC
require a payment business license to operate payment related services. We are in the process of applying for such
payment business license, and intend to engage in providing payment related services after we obtain such license.
“Fangzhou” (Online services for independent financial advisors) – We provide registered independent financial
advisors with online tools for them to attract clients, maintain client relationships and facilitate the distribution of
wealth management products.
Our Relationships with Product Providers and Corporate Borrowers
We have established extensive business relationships with reputable third-party product providers and corporate borrowers in
China in connection with our distribution of wealth management products.
Product Providers
We define product providers as the issuers of wealth management products. The product providers we deal with encompass a
variety of institutions and companies, mainly including mutual fund management companies, private equity firms, real estate fund
managers, securities investment fund managers, trust companies and insurance companies. To date, we have distributed products
provided by over 350 product providers. We also distributed our own funds, funds of funds and other investment products which are
originated, developed and managed by us. Gopher Asset Management serves as the general partner or manager for these funds.
Corporate Borrowers
In distributing fixed income products, we often have relationships with the ultimate corporate borrowers, which receive
proceeds from the relevant product providers. Although the product providers are the issuers of the fixed income products, the
origination of these products is often driven by the fund raising plans of the ultimate corporate borrowers. In order to source tailor-made
wealth management products to enhance our product choices, we often work directly with companies in need of debt financing and
assist them in designing fixed income products, which are ultimately issued by product providers.
47
Distribution Arrangements
Our distribution of wealth management products are typically governed by service agreements entered into with the product
providers or corporate borrowers, depending on the nature of the wealth management products being distributed and the specific
situation.
We enter into service agreements with the product providers for the majority of the products we distribute. For a small
portion of these products, we enter into service agreements with the ultimate corporate borrowers.
Our service agreements usually expire upon the expiration of the underlying wealth management products. Under these
agreements, we typically undertake to provide the counterparty with services relating to our clients’ purchase of the relevant products.
Such services typically include providing our clients with information on the relevant products, evaluating the financial condition and
risk profiles of those clients who desire to purchase the relevant products, assessing their qualification for the purchase, educating them
on the documentation involved in the purchase as well as furnishing other assistance to facilitate their transactions with the product
providers.
Under our services agreements with respect to private equity fund products and certain secondary market equity fund
products, we also undertake to assist the product providers to maintain investor relationships by providing our clients who have
purchased the relevant products with various post-purchase services.
For all wealth management products we distribute, we are entitled to receive one-time commissions, calculated as a
percentage of the total value of products purchased by our clients, either directly from clients or from the counterparties under the
relevant service agreements.
We generally also receive recurring services fees in addition to one-time commissions for the products distributed by us
where we are engaged by the product providers to provide recurring services to our clients who have purchased the relevant products. In
the case of private equity fund products and real estate funds managed by us, we receive recurring service fees over their life cycle,
calculated as a percentage of the total value of capital commitment or invested capital in the underlying funds distributed by us to our
clients. For secondary market equity fund products and investment-linked insurance products, our recurring service fees are typically
calculated as a percentage of the net asset value of the portfolio underlying the products purchased by our clients at the time of
calculation, which is generally done on a daily basis.
IT Infrastructure
We have developed our integrated IT infrastructure that provides technology support to all aspects of our business, from
product development, product management and sales and marketing process management to client management and client service. At
the application level, the infrastructure consists of two key components: our client relationship management system, which allows us to
collect and analyze our clients’ personal and transaction information, and our wealth management product database, which includes a
proprietary database containing information on a broad range of wealth management products.
Marketing and Brand Promotion
Word-of-mouth is one of the most effective marketing tools for our business. We intend to continue to focus on referrals as
the major avenue of new client development by further improving client satisfaction. We also enhance our brand recognition and attract
potential high net worth clients through a variety of marketing methods. We organize frequent and targeted events, such as high-profile
investor seminars and workshops, industry conferences and other investor education and social events, where we present our market
outlook and product choices. These events are often organized in cooperation with chambers of commerce, distinguished alumni
associations, luxury and fashion brands and high-profile entrepreneurs. In addition, we promote ourselves and our brand to financial
institutions by providing assistance in staff training and risk management.
48
Competition
The wealth management, asset management and internet financial service industries in China are all undergoing rapid
growth. We operate in an increasingly competitive environment and compete for clients on the basis of product choices, client services,
reputation and brand names. Our principal competitors include:
•
•
•
•
•
•
Commercial banks. Many commercial banks, such as China Merchants Bank, China Minsheng Bank and China
Everbright Bank rely on their own wealth management arms and sales force to distribute their products. We believe
that we can compete effectively with commercial banks due to a number of factors, including our undiluted focus on
the high net worth market, our client-centric culture and comprehensive client services and our independence, all of
which position us better to provide wealth management recommendations and services and to gain our clients’ trust.
Trust companies. Because a portion of products that we distribute are fixed income trust products, we compete with
trust companies with in-house distribution functions. We believe that we can compete effectively with trust companies
due to our broader product choices, wider coverage network, independent perspective, active product selection
capability, and more comprehensive client services.
Independent wealth management service providers. A number of independent wealth management service providers
have emerged in China in recent years. We believe that we can compete effectively with independent wealth
management service providers because of our track record, reputation, product sourcing and established risk
management systems. We are also significantly larger in terms of scale of operations and have a more extensive
coverage network and professional services.
Insurance companies. Many insurance companies, such as PingAn Insurance, rely on their own wealth management
teams and sales forces to distribute their products. We believe that we can effectively compete with insurance
companies due to a number of factors, including our undiluted focus on the high net worth market, our client-centric
culture and institutionalized services and our independence, all of which position us better to provide insurance
products recommendations and services and to gain our clients’ trust.
Asset management service providers. A number of AMAC registered mutual fund management companies, securities
companies and other fund managers have emerged in the asset management business in China in recent years. We
believe that we can compete effectively with these companies because of our track record, reputation, product
sourcing and established risk management systems.
Internet financial service companies. As the wealth management industry develops, we may face competition from
new market entrants. For example, an increasing portion of wealth management products are distributed through
online or mobile platform, and such trend is expected to continue.
Relevant PRC authorities may adopt new rules and regulations to allow more entities to conduct wealth management, asset
management and internet financial service businesses. For example, in late 2012 and early 2013, relevant PRC supervisory authorities
adopted a series of rules and regulations, which provided new ways for securities companies, mutual fund management companies and
insurance asset management companies to engage in asset management business. In August 2014, CSRC promulgated the Interim
Measures, which specify that the establishment of management institutions of private funds and the establishment of private funds are
not subject to administrative examination and approval. Since the adoption of the Interim Measures, more and more fund managers
have been engaged in asset management business. As a result, we may face competitions from securities companies, mutual fund
management companies, insurance asset management companies and other fund managers established under the Interim Measures when
they start raising funds for their clients and providing asset management services. In 2016, Measures for the Administration of Fund
Raising Behaviors of Private Investment Funds released by AMAC limited the distribution of private investment funds to only licensed
institutions and normalized both wealth management and asset management industries in China, which we consider is favorable for the
long-term development of these industries as well as for established players like us.
Insurance
We maintain casualty insurance on some of our assets. We also participate in government sponsored social security programs
including pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing fund.
In addition, we provide group life insurance for all our employees. We do not maintain business interruption insurance or key-man life
insurance. We consider our insurance coverage to be in line with that of other wealth management companies of similar size in China.
49
Legal Proceedings
We are currently not a party to, and we are not aware of any threat of, any legal, arbitration or administrative proceedings
that, in the opinion of our management, are likely to have a material and adverse effect on our business, financial condition or results of
operations. We may from time to time become a party to various legal, arbitration or administrative proceedings arising in the ordinary
course of our business.
Regulations
This section sets forth a summary of the significant rules and regulations that affect our business activities in China as well
as a proposed law that may have material impact on our business.
Draft Foreign Investment Law
On January 19, 2015, the MOC published a draft of the proposed Foreign Investment Law, or the Draft FIL, on its official
website for public comments, which mainly covers: (1) definition of foreign investors and foreign investments, (2) market entry
clearance, (3) national security review, (4) information reporting, (5) investment promotion and protection as well as handling of
complaints, (6) legal liabilities and (7) other general and miscellaneous provisions. The MOC also published an explanatory note to the
Draft FIL on its official website. The Draft FIL, once enacted, will eventually replace the trio of the Sino-foreign Equity Joint Venture
Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law as well as
their implementation rules and ancillary regulations, and will consolidate and simplify the various regulatory requirements on foreign
investments.
The Draft FIL embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in
alignment with international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic
investments, and thus the Draft FIL will have a far-reaching and significant impact upon foreign investments by fundamentally
reshaping the entire PRC foreign investment regulatory regime. The Draft FIL includes, among others, the following key points:
•
•
The Draft FIL expands the definition of foreign investment and introduces the principle of “actual control” in determining whether
an investment is considered a foreign investment or domestic investment. An entity established in China but “controlled” by
foreign entities and/or citizens will be treated as a foreign investor, whereas an entity set up in a foreign jurisdiction but
“controlled” by PRC entities and/or citizens would nonetheless be treated as a PRC domestic investor, provided that the entity
should obtain such determination upon market entry clearance by the competent foreign investment authority.
The existing comprehensive approval system of foreign investments will be replaced by an entry clearance system in relation to
foreign investments in the industries within the catalog of special management measures, or the negative list, and an information
reporting system. The negative list will only comprise of two categories: the prohibited industries and the restricted industries;
foreign investments in industries not listed in the negative list will not be required to apply for entry clearance or make record
filing and will only be required to submit information reports. In the future, the negative list to be issued by State Council may
replace the current Guidance Catalog of Industries for Foreign Investments. The Information reporting system includes the
investment implementation reporting, investment amendment reporting, annual reporting and quarterly reporting, and the scope of
the information reporting is very extensive under the Draft FIL. In addition, any non-compliance with the information reporting
obligations, concealing true information, or providing misleading or false information will be subject to monetary fines or criminal
charges, depending on the seriousness of circumstances, and the persons directly responsible may also be criminally liable.
• All differences in the corporate governance requirements that currently apply to foreign-invested and domestic enterprises will be
removed, leaving only the requirements under the PRC Company Law, with which all foreign-invested and domestic enterprises
must comply.
•
•
The national security review will be incorporated as a separate chapter and may replace the existing regulations and
rules issued by the State Council or the MOC. Compared with the existing regulations and rules, the scope of national
security review is expanded under the Draft FIL.
The “variable interest entity” structure, or VIE structure, will fall into the jurisdiction of the Draft FIL, and certain
potential solutions was proposed to apply to the existing VIE structures. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Doing Business in China— Substantial uncertainties exist with respect to the enactment
timetable, interpretation and implementation of the draft PRC Foreign Investment Law and how it may impact the
viability of our current corporate structure, corporate governance and business operations”.
50
The draft FIL has not taken a position on what actions will be taken with respect to existing companies with a VIE structure,
whether or not these companies are controlled by PRC nationals. The MOC sought public comments on this and other matters in the
draft FIL, which were due by February 17, 2015. There is no definitive timeline for this law to be officially promulgated by the PRC
legislature and the current draft may need to undergo significant amendment before the law is finally passed. Substantial uncertainties
exist with respect to the Draft FIL’s enactment timetable, final content, interpretation and implementation. See “Item 3. Key
Information—D. Risk Factors—Risks Related to Our Corporate Structure—Substantial uncertainties exist with respect to the enactment
timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current
corporate structure, corporate governance and business operations.”
Regulations on Private Funds
As a result of regulatory reform in June 2013, CSRC is now in charge of the supervision and regulation of private funds,
including but not limited to private equity funds, private securities investment funds, venture capital funds and other forms of private
funds instead of National Development and Reform Commission, or NDRC. On August 21, 2014, CSRC promulgated Interim
Measures for the Supervision and Administration of Private Investment Funds, or the Interim Measures, which became effective on the
same date. According to the Interim Measures, Private Funds shall refer to the investment funds established by way of raising capitals
from investors in a non-public manner within the territory of the PRC. The Interim Measures shall apply to (i) the registration, record-
filing, fund raising, investment and operation activities of a company or partnership that is established by way of non-public fund-
raising for the purpose of engaging in investment activities, if its assets are managed by a fund manager or general partner; and (ii) the
business of private funds of securities companies, fund management companies, futures companies and their subsidiaries, except as
otherwise stipulated under other laws or relevant provisions of CSRC. Apart from the Interim Measures, other specific laws or
regulations which may apply to private funds shall still apply. For example, the Companies Law of the PRC shall apply to fund
manager or private fund taking the form of limited liability company or company limited by shares and the Partnership Law of the PRC
may shall apply to fund manager or private fund taking the form of limited liability partnership or general partnership. Unlike general
partnerships, limited partnerships allow investors to join as partners with their liability for the partnership’s debts limited by the amount
of their capital commitment. A limited partnership must consist of no more than 49 limited partners and at least one general partner,
who will be responsible for the operation of the partnership and who bears unlimited liability for the partnership’s debts. From late 2009
to early 2010, the PRC government promulgated regulations to permit foreign investors to invest in partnership enterprises in China.
This established the legal basis for foreign private equity firms to establish Renminbi-denominated funds in China.
Before the regulatory reform, local governments in certain cities, such as Beijing, Shanghai and Tianjin, used to promulgate
local administrative rules to encourage and regulate the development of private equity investment in their areas. These regulations
typically provide preferential treatment to private equity companies registered in the relevant cities or districts that satisfy the specified
requirements. Such local administrative rules may be subject to changes according to the regulations to be issued by CSRC.
The Interim Measures mainly cover the following five aspects: specifying the registration of fund manager and record-filing
of private funds of all type, setting up a qualified investor system, specifying the fund raising regulations of private funds, presenting
the investment operations and introducing industry self-regulation and supervision and administration measures for private funds.
According to the Interim Measures, the establishment of management institutions of Private Funds and the issuance of
Private Funds are not subject to administrative examination and approval. All types of issuers are allowed to issue Private Funds to a
cumulative number of investors not exceeding the number specified by laws on the basis of compliance with laws and regulations.
Manager of all Private Funds of all type shall register with AMAC, and apply with AMAC for record filing after the fund raising of a
Private Fund of any type is completed. Thus, AMAC formulated the Measures for the Registration of Private Investment Fund
Managers and Filling of Private Investment Funds (for Trial Implementation), or the Measures, which became effective as of
February 7, 2014, setting forth the procedures and requirements for the registration of private fund managers and record filing of private
funds to perform self-regulatory administration of private funds.
51
As a self-regulatory organization, AMAC issued in early 2015 some relevant regulations which may exert influence on fund
management, such as the Guidance of Outsourcing Service for Fund Business (for Trial Implementation), the Self Disciplinary Rules
for Practices of Fund Practitioners. In late 2015, 2016 and early 2017, AMAC has also promulgated a series of detailed measures and
guidance to enhance the supervision in the private fund industry, including Guidance on the Internal Control of the Private Investment
Funds Managers, the Administration of Information Disclosure of Private Investment Funds, the Notice to Further Regulate Several
Issues on the Registration of Private Funds Managers, Questions and Answers in relation to the registration of private fund manager and
record-filing of private funds, Rules on the Management of Private Asset Management Plan Filing by Securities and Futures Institutions
No. 1 – 4, Measures on the Management of Private Investment Fund Service Industry (for Trial Implementation). These regulations
have the effect of (i) expanding the self-discipline rules regarding the private fund industry, (ii) intensifying the registration of private
fund manager and record-filing of private funds, (iii) establishing the qualification censorship of fund manager by attorney and
(iv) strengthening the practice qualifications of management.
AMAC issued the Measures for the Administration of the Fund Raising Conducts of the Private Investment Funds, or the
Fund Raising Measures, on April 15, 2016, which brings significant influence to the fund raising procedures and sales institutions and
will take effect on July 15, 2016. According to the Fund Raising Measures, only two kinds of institutions are qualified to conduct the
fund raising of private investment funds: (a) private fund managers which have registered with AMAC (only applying when raising
fund for the funds established and managed by themselves); and (b) the fund distributors which have obtained the fund distribution
license and also become members of the AMAC. In addition, the Fund Raising Measures creates detailed procedures for conducting
fund raising business and introduced new process such as “cooling-off period” and the “re-visit”.
Before the Interim Measures, private funds mainly established in the form of limited liability partnerships and since the
issuance of the Interim Measures, contract-based funds have arisen in the market. In 2010, we started our fund management business by
forming a fund of private equity funds, and in 2014, we further enhanced our fund management business by forming contract-based
funds. Gopher Asset Management has registered with AMAC as a private equity fund manager since March 2014 and all the funds
managed by Gopher have been registered and filed with AMAC.
AMAC released the No. 4 Filing Rules on February 13, 2017 to regulate the securities and futures institution’s investing into
the real estate area. According to the No. 4 Filing Rules, private fund managers shall follow relevant rules while investing into the real
estate development enterprises or projects. According to the No. 4 Filing Rules, AMAC will not accept the filing application of private
asset management plans or private funds investing into ordinary residential properties in “popular cities”, including Beijing , Shanghai,
Guangzhou, Shenzhen, Xiamen, Hefei, Nanjing, Suzhou, Wuxi, Hangzhou, Tianjin, Fuzhou, Wuhan, Zhengzhou, Jinan and Chengdu,
by way of debt investment, the specific types of which are identified in the No. 4 Filing Rules. AMAC also makes other requirements in
the No. 4 Filing Rules. Prior to the publication of the No. 4 Filing Rules, private funds investing into real estate development projects
took up a considerable part of our asset management business. The No. 4 Filing Rules will influence our business in this regard and we
are not able to tell how far the influence will be and whether the filing rule for private real estate investment fund will change in the
future.
Regulations on Fund Distribution
According to the Administrative Measures on Securities Investment Fund Distribution, or the Fund Distribution
Administrative Measures, fund distribution institutions shall refer to the fund managers and other institutions registered with the CSRC
or its branches. Other institutons include commercial banks, securities companies, futures companies, insurance institutions, securities
investment consulting insitutions and independent institutions. For these institutions to carry out fund distribution service, they are
required to register with the local CSRC branch and obtain the relevant fund distribution license. Fund distribution services regulated
under the Fund Distribution Administrative Measures regime shall refer to the marketing and promotion, sales and distribution,
subscription and redemption services, of public fund units in particular.AMAC issued the Measures for the Administration of the Fund
Raising Conducts of the Private Investment Funds, or the Fund Raising Measures, on April 15, 2016, which brings significant influence
to the fund raising procedures and sales institutions and took effect on July 15, 2016. According to the Fund Raising Measures, only
two kinds of institutions are qualified to conduct the fund raising of private investment funds: (a) private fund managers which have
registered with AMAC (only applying when fund raising for the funds established and managed by themselves); and (b) the fund
distributors which have obtained the fund distribution license and also become members of the AMAC. Fund raising shall include the
promotion, sales, purchase, subscription and redemption of private funds.
Noah Upright (Shanghai) Fund Investment Consulting Co., Ltd., or Noah Upright, has obtained the fund distribution license
from the CSRC Shanghai branch since February 2012. By holding the fund distribution license, Noah Upright is able to distribute the
public funds managed by mutual fund management companies and private funds managed by private fund managers.
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Noah Holdings (Hong Kong) Limited, or Noah HK, as our Hong Kong subsidiary, obtained the Type 1, 4 and 9 Licence in
January 4, 2012 from Hong Kong Securities and Futures Commssion, or HKSFC, to carry out dealing in securities, advising on
securities and asset management business. Noah HK is subject to the supervision and administration of HKSFC.
Regulations on Asset Management Plans
According to CSRC, qualified mutual fund management companies and securities companies may be entrusted by clients to
engage in asset management business.
Asset Management Plans by Mutual Fund Management Companies. On September 26, 2012, CSRC promulgated Pilot
Measures for Asset Management Services Provided by Mutual Fund Management Companies for Specific Clients, or the Pilot
Measures, which came into effect on November 1, 2012. These Pilot Measures apply to activities whereby a mutual fund management
company raises funds from specific clients or acts as the asset manager for specific clients upon their property entrustment, and engages
a custodian institution to act as the asset custodian and make investments with the entrusted assets in the interest of the asset entrusting
clients. According to the Pilot Measures, the assets under an asset management plan may be used for the following investments:
(i) cash, bank deposits, stocks, bonds, securities investment funds, central bank bills, non-financial enterprises’ debt financing tools,
asset-backed securities, commodity futures and other financial derivatives; (ii) shares, claims and other property rights not transferred
through a stock exchange; and (iii) other assets approved by CSRC. A specific asset management plan investing in any assets specified
in subparagraphs (ii) or (iii) above is called a special asset management plan. In addition, a mutual fund management company shall
conduct special asset management plan business only through its subsidiary and not by itself. Where an asset manager provides the
specific asset management services for multiple clients, the number of entrusting clients of a single asset management plan may not
exceed 200. A single investor’s investment into an asset management plan shall be no less than RMB1 million; the number of investors
whose investment is less than RMB3 million of one entrustment is limited to 200, while the number of investors whose investment is
more than RMB3 million is not limited. The total assets entrusted by the clients initially shall not be less than RMB30 million and not
more than RMB5 billion, unless otherwise provided by CSRC. An asset manager may sell its asset management plans on its own or
through an agency qualified for the sale of mutual funds. In early 2014, CSRC and Shanghai Branch of CSRC respectively promulgated
new circulars, pursuant to which subsidiaries of mutual fund management companies are prohibited from serving as the channel-
through asset management plans for multiple specific clients or engaging in fund pool. CSRC further promulgated the Measures on the
Management of Subsidiaries of Fund Management Companies and the Pilot Measures on the Management of Risk Control Index for
Subsidiaries for Specific Client Asset Management of Fund Management Companies in late 2016. The subsidiaries of mutual fund
companies are required to make rectifications according to the newly-published rules within the required time period.
Asset Management Plans by Securities Companies. On June 26, 2013, CSRC promulgated Administrative Measures for
Client Asset Management Business of Securities Companies, or the Administrative Measures. Besides, there are two detailed
Implementing Rules of the Administrative Measures, (together with the Administrative Measures, collectively referred to as
Administrative Measures for Asset Management Business for Securities Companies). According to Administrative Measures for Asset
Management Business for Securities Companies, qualified securities companies may engage in collective asset management business
for multiple clients. Collective asset management plans may invest in stocks, bonds, securities investment funds, central bank bills,
short-term financing bills, mid-term notes, stock index futures, other financial derivatives, wealth management plans of commercial
banks that are either income-guaranteed or principal-protected with floating incomes and other investment products approved by CSRC.
Securities companies may also engage in special asset management business after obtaining qualifications from CSRC. Every special
asset management plan is subject to examination and approval by CSRC. A securities company may either promote collective asset
management plans by itself or through other securities companies, commercial banks or other institutions recognized by CSRC. A
collective asset management plan shall only be promoted to qualified investors not exceeding 200 in total. A qualified investor is
defined as an entity or individual that is capable of appropriately identifying risks and bearing the risks of the collective asset
management plan that it invests in, and that satisfies any of the following conditions: (i) the total personal or household financial assets
shall be no less than RMB1 million, applicable if the qualified investor is a natural person or (ii) the net assets shall not be less than
RMB10 million, applicable if the qualified investor is a company, enterprise or institution. A securities company shall put the assets
under a collective asset plan under the custody of an asset custodian with fund custody business qualifications.
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Transfer of units of Asset Management Plans by Mutual Fund Management Companies and Securities Companies. On
August 19, 2013, the Shanghai Stock Exchange promulgated the Notice of the Shanghai Stock Exchange on Providing Transfer
Services for Units of Asset Management Plans, which was replaced by the Guidance of Shanghai Stock Exchange on Transfer Services
for Units of Asset Management Plans, promulgated by Shanghai stock Exchange on April 4, 2014. On August 20, 2013, the Shenzhen
Stock Exchange promulgated the Guidance of Shenzhen Stock exchange on Transfer Services for Units of Asset Management Plans,
which was replaced by the Operational Guidance of Shenzhen Stock Exchange on Transfer Services for Units of Asset Management
Plans, promulgated by Shenzhen Stock Exchange on Dec 29, 2014. The above mentioned guidance are collectively referred to as
Guidance on Transfer of Units. According to Guidance on Transfer of Units, mutual fund management companies and securities
companies may apply to transfer the units of collective asset management plans of securities companies and units of the client-specific
asset management plans of mutual fund management companies through the Shanghai Stock Exchange and Shenzhen Stock exchange.
Regulations on Trust Products
Pursuant to the PRC Trust Law, a trustee can, in its own name, manage and dispose of properties entrusted to it by a trustor
for the benefit of beneficiaries nominated by the trustor. Trust companies are a type of financial institution specializing in the operation
of a trust business under the PRC Trust Law. Trust companies are subject to the supervision and scrutiny of the China Banking
Regulatory Commission, or CBRC, which is the regulatory authority for banking and financial institutions and businesses.
On January 23, 2007, the CBRC promulgated the Administrative Rules Regarding Trust Company-Sponsored Collective
Fund Trust Plans, or the Trust Plan Rules, which became effective on March 1, 2007 and was subsequently amended on February 4,
2009. Pursuant to the Trust Plan Rules, a trust company may establish collective funds trust plans, or trust plans, under which the trust
company, in its capacity as trustee of two or more trustors, may pool funds entrusted to it by such trustors and may manage, invest and
dispose of the pooled funds for the benefit of the beneficiaries nominated by the trustors. A trust plan must comply with the specified
requirements under the Trust Plan Rules, including the requirements that (i) each trustor participating in the trust plan be a qualified
investor and the sole beneficiary of his or its investment in the trust plan; (ii) there be no more than 50 individuals participating in the
plan, excluding individuals who entrust, on a single transaction basis, more than RMB3.0 million each, and qualified institutional
investors; (iii) the trust plan have a term of not less than one year and have a specified use of proceeds and investment strategy that is in
compliance with the industrial policies and relevant regulations of the PRC; (iv) the beneficial interest in the trust plan be divided into
trust units of equal amounts; and (v) other than reasonable compensation provided for underwritten trust agreements, the trust company
must not seek any profits directly or indirectly from the trust property under any name for itself or others.
A qualified investor under the Trust Plan Rules is defined as a person capable of identifying, judging and bearing the risks
associated with the trust plan and who falls within any one of the following categories: (i) any individual, legal person or other
organization who invests at least RMB1.0 million in the trust plan; (ii) any individual who, on a personal or household basis, owns
financial assets of at least RMB1.0 million, with proof of such assets, at the time he or she subscribes to the trust plan; or (iii) any
individual individually having an annual income of more than RMB0.2 million or, jointly with a spouse, having an annual income of
more than RMB0.3 million, with proof of such income, for each of the last three years.
Pursuant to the Trust Plan Rules, when promoting the trust plan, a trust company must use appropriate materials with
detailed disclosure and is prohibited from, among other things, (i) promising minimum returns on or guaranteeing protection of the
entrusted funds; (ii) engaging in public marketing or promotion; or (iii) engaging a non-financial institution to promote the trust plan.
Based on our understanding, “promotion” of trust plans under the Trust Plan Rules refers to promotion and marketing activities which
involve signing trust contracts with participants of trust plans directly. As we do not sign trust contracts with the participants of trust
plans and handle funds of participants of the trust plans in providing wealth management services with respect to trust products, we do
not believe we are promoting trust plans in such circumstances. In April and May, 2014, the CBRC respectively issued new rules its
implementation rules, which prohibit a trust company from directly or indirectly promoting trust plans by way of advice, consultation
and brokerage through non-financial institutions. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and
Industry—If the Chinese governmental authorities order trust companies in China to cease their promotion of collective fund trust
plans, or trust plans, through non-financial institutions such as us, our business, results of operations and prospects would be materially
and adversely affected.”
The CBRC further promulgated two guidelines governing two types of trust plans, respectively. One regulates trust plans
investing in publicly traded securities, while the other regulates trust plans focusing on private equity investments. These guidelines set
forth detailed rules that trust companies must comply with in issuing and operating the two types of trust plans.
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Regulations on Small Short-Term Loan Business
The Guidance on the Pilot Establishment of Small short-term loan Companies, jointly promulgated by the China Banking
Regulatory Commission and the People’s Bank of China in 2008, allows provincial governments to approve the establishment of small
short-term loan companies on a trial basis. Based on this guidance, many provincial governments in China, including that of Anhui
province, where Noah Financial Express (Wuhu) Microfinance Co., Ltd. (Rong Yi Tong) is located, promulgated local implementing
rules on the administration of small short-term loan companies.
On October 10, 2008, People’s Government of Anhui Province promulgated the Pilot Administrative Measures (for Trial
implementation) on Small short-term loan Company in Anhui, and on May 18, 2009, the Anhui Government promulgated the Interim
Regulations on Small short-term loan Business of Anhui Province, and afterwards, the Finance Office of Anhui province issued
Opinions on Promoting the Standardized Development of Small Short-Term Loan Companies across Anhui Province, or, collectively,
the Regulations on Small Short-Term Loan Companies in Anhui. According to the Regulations on Small Short-Term Loan Companies
in Anhui, the registered capital shall not be less than RMB100 million when setting up small short-term loan company in urban areas or
in county territories outside the northern part or Dabie mountain area of Anhui Province. It is not allowed for a small short-term loan
company to accept public deposits. The major sources of funds of a small short-term loan company shall be the capital paid in by
shareholders, donated capital and the capital borrowed from a maximum of two banking financial institutions. The balance of the capital
borrowed from banking financial institutions shall not exceed 50% of the net capital. When applying for the establishment of a small
short-term loan company, the shares held by the main initiator shall not exceed 35% of the total registered capital of the company in
principle, the shares jointly held by the main initiator and its affiliates shall not exceed 50% of the total registered capital of the
company, and the shares jointly held by other affiliated shareholders among other initiators shall not exceed 30% of the total registered
capital of the company. In addition, a small short-term loan company is not permitted to conduct any businesses outside the region
where it is located.
Regulations on Internet Financial Services
Due to the relatively short history of the internet financial service industry in China, the PRC government has not adopted a
clear regulatory framework governing the industry. There are ad hoc laws and regulations applicable to elements of internet financial
service-related businesses, such as laws and regulations governing payment related and value-added telecommunication services.
On July 18, 2015 the People’s Bank of China together with nine other PRC regulatory agencies jointly issued a series of
policy measures applicable to internet financial services titled the Guidelines on Promoting the Healthy Development of Internet
Finance, or the Guidelines. On April 12, 2016 the General Office of PRC State Council issued the Implementation Plan for Special
Rectification of Internet Financial Risks, or the Rectification Implementation Plan. The Guidelines introduced formally for the first time
the regulatory framework and basic principles for internet financial services industry in China as “law-abiding regulation, appropriate
regulation, classified regulation, collaborative regulation and innovative regulation”. The Guidelines further stated the definitions and
basic principles for the following internet financial services:
Internet Payment: refers to the services whereby the Internet is relied upon to give payment instructions and transfer
monetary funds via computers, mobile phones and other devices. Internet payment services shall always remain true to the purposes of
serving e-commerce development and providing the public with fast and convenient payment services in small and micro amount.
Third-party payment institutions that cooperate with other institutions shall clearly define the relationship of rights and obligations
between and among different parties involved, and establish effective risk isolation mechanisms and client rights and interests
protection mechanisms. They shall fully disclose service information to clients, clearly remind clients of business risks, and refrain from
exaggerating the nature and functions of payment service intermediary. Internet payment services shall be regulated by the People’s
Bank of China. The Rectification Implementation Plan requires that third-party payment institutions shall not connect with several bank
systems in order to conduct the inter-bank clearing business which requires for the usage of the inter-bank clearing system of people’s
bank or other qualified clearing institutions.
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Online lending: includes peer-to-peer online lending (i.e. P2P online lending) and Internet small-amount lending. P2P online
lending refers to direct lending between and among individuals through Internet platforms. Direct lending on P2P online lending
platforms falls within the scope of lending between private citizens, and therefore is governed by the Contract Law, the General
Principles of the Civil Law, other relevant laws and regulations, and relevant judicial interpretations of the Supreme People’s Court.
P2P online lending shall stick to its functions of serving as a platform to provide investors and financiers with information exchange,
matching, credit rating and other intermediary services. P2P online lending institutions shall specify their nature as information
intermediaries, mainly provide information services for the direct lending between borrowers and lenders, and shall neither provide
credit enhancement services nor engage in illegal fund-raising. On April 13, 2016, CBRC and other relevant regulators issued the
Implementation Plan for Special Rectification of Peer-to-Peer Internet Lending Risks, which set the timetable for the rectification
implementation plan for the P2P platforms. Internet small-amount lending means that an Internet enterprise, through a small-amount
loan company under its control, makes use of the Internet to extend small-amount loans to clients. During Internet small-amount
lending, it is required to comply with the prevailing regulatory provisions applicable to small-amount loan companies, display the
advantages of online lending, and make efforts to lower the financing costs incurred by clients. Online lending business shall be
regulated by CBRC. On August 17, 2016, CBRC, the Ministry of Industry and Information Technology and the Ministry of Public
Security issued the Provisional Measures for Administration of Business Activities of Internet Lending Information Intermediaries,
which requires the intermediaries to get the record-filing with competent authorities.
Equity crowd-funding: mainly refers to public equity financing in small amount through the Internet, and must be raised
through equity crowd-funding intermediary platforms (Internet websites or other similar electronic media). The parties raising funds
through equity crowd-funding shall be small and micro-sized enterprises. They shall truthfully disclose to investors key information,
including but not limited to their business models, operations and management, financial positions, and fund use through equity crowd-
funding intermediaries, and shall not mislead or defraud investors. On the other hand, investors shall fully understand the risks of equity
crowd-funding activities, have appropriate risk tolerance, and make investment in small amount. Equity crowd-funding business shall
be regulated by CSRC. According to the Rectification Implementation Plan, equity crowd-funding platforms shall not participate in
asset management, equity or debt transfer and other financial business.
Internet fund sales: Fund sales agencies that cooperate with other agencies to sell funds and other wealth management
products via the Internet shall effectively fulfill risk disclosure obligations, and shall not attract clients by promising investment returns
in violation of relevant provisions. Fund managers shall take effective measures to prevent maturity mismatch and liquidity risks in
asset allocation. If fund sales agencies and their partner agencies also provide investors with returns through other activities, they shall
state and present the composition of such returns, the prerequisites for such returns and applicable circumstances in a comprehensive,
truthful and accurate manner, and shall not mix such returns with the returns on fund products. Third-party payment institutions shall,
during the course of payment services for Internet fund sales, abide by relevant regulatory requirements of the People’s Bank of China
and the CSRC on client excess reserves and fund sales settlement funds. The client excess reserves held by third-party payment
institutions may only be used for handling the payment services entrusted by clients, and shall not be used to advance capital for the
redemption of funds and other wealth management products. Internet fund sales business shall be regulated by the CSRC.
The Guidelines also specified several basic rules for internet financial services industry administration, such as: (1) any
organization or individual that intends to set up a website to provide Internet financial services shall, in addition to going through
relevant financial regulatory procedures as required, also undergo website record-filing procedures with telecommunications authorities
pursuant to the law; (2) unless otherwise specified, an Industry Player shall select qualified banking financial institutions as fund
depository institutions to manage and oversee client funds, and achieve the management of client funds and its proprietary funds under
separate accounts; and (3) basic rules of information disclosure, risk reminder and qualified investors, information security and anti-
money laundering. The Rectification Implementation Plan further provides that: (1) the regulators will adopt the see-through way of
supervision; and (2) the non-financial institutions, or the enterprises which do not carry out financial business, shall not use the
wordings, such as “exchange”, “finance”, “asset management”, “wealth management”, “fund”, “fund management”, “investment
management”, “equity investment fund”, “online lending”, “peer-to-peer”, “equity crowd-funding”, “internet insurance”, “payment”
and the like, as their enterprise name or registered business. If the enterprise chooses to use the aforementioned word/words, the
Administration of Industry and Commerce will inform the financial regulators.
Regulations on Insurance Brokerages
The primary regulation governing the insurance intermediaries is the PRC Insurance Law enacted in 1995 as further
amended in 2002, 2009, 2014 and 2015. According to the PRC Insurance law, the CIRC is the regulatory authority responsible for the
supervision and administration of the PRC insurance companies and the intermediaries in the insurance sector, including insurance
agencies and brokers.
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The principal regulation governing insurance brokerages is the Provisions on the Supervision and Administration of
Insurance Brokerages, or the Insurance Brokerage Provisions, promulgated by the CIRC in September 2009 and amended in 2013 and
2015. According to this regulation, the establishment of an insurance brokerage is subject to the approval of the CIRC. The term
“insurance brokerage” refers to an entity that receives commissions for providing intermediary services to policyholders and sponsors to
facilitate their entering into insurance contracts based on the interests of the policyholders. An insurance brokerage established in the
PRC must meet the qualification requirements specified by the CIRC and obtain a license to operate an onshore insurance brokerage
business with the approval of the CIRC. Unless otherwise provided by the CIRC, an insurance brokerage may take any of the following
forms: (i) a limited liability company; or (ii) a joint stock limited company.
The minimum registered capital for an insurance brokerage shall be not less than RMB50.0 million and must be fully paid up
in cash. An insurance brokerage may conduct the following insurance brokering businesses:
•
•
•
•
•
making insurance proposals, selecting insurance companies and handling the insurance application procedures for
insurance applicants;
assisting the insured or the beneficiary to file insurance claims;
reinsurance brokering business;
providing consulting services to clients with respect to disaster and damage prevention, risk assessment and risk
management; and
other business activities specified by the CIRC.
The name of an insurance brokerage must contain the words “insurance brokerage.” The license of an insurance brokerage is
valid for a period of three years. An insurance brokerage must report to the CIRC for approval when it (i) changes the name of itself or
its branches; (ii) changes its domicile or the business address of its branches; (iii) changes the name of its sponsor or main shareholders;
(iv) changes its main shareholders; (v) changes its registered capital; (vi) changes its equity structure significantly; (vii) amends its
articles of association or (viii) revokes its branches.
The senior managers of an insurance brokerage must meet specific qualification requirements set forth in the Insurance
Brokerage Provisions. Appointment of the senior managers of an insurance brokerage is subject to review and approval by the CIRC.
Personnel of an insurance brokerage who engage in any of the insurance brokering businesses described above must meet the
qualifications prescribed by the CIRC and obtain the qualification certificate stipulated by the CIRC.
In December 2009, the CIRC issued the Circular on the Implementation of the Provisions on the Supervision and
Administration of the Professional Insurance Agencies, the Provisions on the Supervision and Administration of Insurance Brokerages
and the Provision on the Supervision and Administration of Insurance Assessment Institutions, or the Implementation Circular.
According to the Implementation Circular, any insurance brokerage that fails to satisfy the registered capital requirement under the
Insurance Brokerage Provisions after October 1, 2012 shall no longer be permitted to renew its license issued by the CIRC.
Pursuant to the contractual arrangements among Noah Group, Noah Investment and its shareholders, we operate our onshore
insurance brokerage business through Noah Insurance, a subsidiary wholly owned by Noah Investment. Noah Insurance obtained the
requisite insurance brokerage license issued by the CIRC in July 2008, which has a term of eight years and will expire in July 2016.
Regulation on Non-Financial Institution Payment Services
According to the Administrative Measures for the Payment Services Provided by Non-Financial Institutions, or the Payment
Services Measures, promulgated by the People’s Bank of China on June 14, 2010 and effective as of September 1, 2010, as well as the
associated implementation rules issued on December 1, 2010, as a payment institution, a non-financial institution providing monetary
transfer services as an intermediary between payees and payers, including online payment, issuance and acceptance of prepaid cards or
bank cards, and other payment services specified by the People’s Bank of China, is required to obtain a payment business license. Any
non-financial institution or individual engaged in the payment business without such license may be ordered to cease its payment
services and be subject to administrative sanctions and even criminal liabilities. Applications for payment business licenses are
examined by the local branches of the People’s Bank of China and then submitted to the People’s Bank of China for approval. The
registered capital of an applicant that engages in a nationwide payment business must be at least RMB100 million, while that of an
applicant engaging in a payment business within a province must be at least RMB30 million.
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A payment institution is required to conduct its business within the scope of business indicated in its payment business
license, and may not undertake any business beyond that scope or outsource its payment business. No payment institution may transfer,
lease or lend its payment business license.
Shanghai Noah Jintong Data Services Co., Ltd. is still in the process of applying for payment business license from the
People’s Bank of China. In the meantime, we are cooperating with qualified and duly licensed third parties to provide such services.
Regulations on the Operation of Value-Added Telecom Services
The Telecommunications Regulations promulgated by the State Council and its related implementation rules, including the
Catalog of Classification of Telecommunications Business issued by the Ministry of Industry and Information Technology, or MIIT,
categorize various types of telecommunications and telecommunications-related activities into basic or value-added telecommunications
services, and internet information services, or ICP services, are classified as value-added telecommunications businesses. Under the
Telecommunications Regulations, commercial operators of value-added telecommunications services must first obtain a value-added
telecommunications business license, or VAT License, from the MIIT or its provincial level counterparts. In 2000, the State Council
also issued the Administrative Measures on Internet Information Services, which was amended in 2011 and 2015. According to these
measures, a commercial ICP service operator must obtain an ICP License, one class of VAT Licenses, from the relevant government
authorities before engaging in any commercial ICP service in China. When the ICP service involves areas of news, publication,
education, medical treatment, health, pharmaceuticals and medical equipment, and if required by law or relevant regulations, specific
approval from the respective regulatory authorities must be obtained prior to applying for the ICP License from the MIIT or its
provincial level counterpart. In 2009, the MIIT promulgated the Administrative Measures on Telecommunications Business Operating
Licenses, which set forth more specific provisions regarding the types of licenses required to operate value-added telecommunications
services, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses.
One subsidiary of Noah Investment has applied for and obtained an ICP License in March 2015, which is required for our
internet financial service business. See “Item 3.D. Key Information—Risk Factors—If we fail to maintain or renew existing licenses or
obtain additional licenses and permits necessary to conduct our operations in China, our business would be materially and adversely
affected.”
Regulations on the Sale of Mutual Funds
On December 28, 2012, the Standing Committee of the PRC National People’s Congress, or the SCNPC, promulgated the
Law on Securities Investment Funds, or the New SIF Law, which became effective on June 1, 2013 and as amended in 2015, replaced
the Securities Investment Funds Law effective since June 1, 2004. The New SIF Law not only imposes detailed regulations on mutual
funds but also includes new rules on the fund services agencies for the first time. Agencies that engage in sales, other fund services
related to mutual funds are subject to registration or record-filing requirement with the securities regulatory authority under the State
Council. Correspondingly, on March 15, 2013, CSRC promulgated the revised Administrative Measures on the Sales of Mutual Funds,
or 2013 Fund Sales Measures, which became effective on June 1, 2013 and replaced the rules issued by CSRC in 2011.
The 2013 Fund Sales Measures specifies that it only applies to the sales of mutual funds. Commercial banks, securities
companies, futures companies, insurance companies, securities investment consultation agencies, independent fund sales agencies and
other agencies permitted by CSRC may apply with the relevant local branches of CSRC for the license related to fund sales. In order to
obtain such license, an independent fund sales agency shall meet certain requirements, including: (i) having a paid-in capital of no less
than RMB20.0 million; (ii) the senior executives shall have obtained the fund practice qualification, be familiar with fund sales
business, and have two or more years of working experience in fund practice or five or more years of working experience in other
relevant financial institutions; (iii) having at least 10 qualified employees to engage in a securities business; and (iv) not being involved
in any material changes that have impacted or are likely to impact the normal operation of organizations, or other material issues such
as litigations and arbitrations.
Mutual fund managers shall specify the fee charging items, conditions and methods in fund contracts and prospectuses or
announcements, and shall specify the standards and calculation methods for the fee charges in prospectuses or announcements. When
dealing with fund sales business, fund sales agencies may collect subscription fee, purchase fee, redemption fee, switching fee, sales
service fee, and other relevant fees from the investors according to fund contracts and prospectuses. When providing value-added
services to fund investors, fund sales agencies may charge the fund investors value-added service fee. Fund sales agencies shall charge
investors sales charges as agreed in fund contracts, prospectuses and fund sales service contracts, and make calculation and accounting
thereof faithfully. They shall not charge investors extra fees unless otherwise agreed in fund contracts, prospectuses and fund sales
service contracts. They shall not apply different rates to different investors without specifying the same in prospectuses and making
corresponding announcements.
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Compared to the prior rules regulating this field, the 2013 Fund Sales Measures (i) specify that they only apply to sales of
mutual funds, (ii) provide that a registration system shall be implemented in relation to application for licenses related to fund sales and
the local branches of CSRC shall serve as executors of registrations for the sales of mutual funds and continuously supervise fund sales
agencies and related matters, (iii) expand the types of fund sales agencies and further the involvement of futures companies, insurance
companies and other companies in the sales of mutual funds, and (iv) further raise the penalties for violations of laws and regulations of
fund sales agencies, fund sales payment and settlement institution and related institutions in operation of business.
In July 2015, relevant authorities in PRC collectively issued the Guiding Opinions on the Promotion of the Healthy
Development of Internet Finance, pursuant to which mutual funds are allowed to be distributed on the Internet, as an alternative to
through traditional financial services. Other provisions include requiring mutual fund sales agencies to perform its risk disclosure
obligations while cooperating with other institutions via online platforms and prohibiting marketing through guaranteeing profits.
Regulations on Factoring
On, June 27, 2012, the MOC issued the Notice of the Ministry of Commerce on the Pilot Launch of Commercial Factoring,
or the Commercial Factoring Notice, to the Tianjin Commission of Commerce and Shanghai Municipal Commission of Commerce. The
Commercial Factoring Notice provides that duly established commercial factoring companies are allowed to provide enterprises with
trade financing, management of sales ledgers, investigation and assessment of client credit standings, management and collection of
accounts receivable, credit risk guarantee and other services.
On November 11, 2013, the General Office of Tianjin People’s Government revised the Measures on the Administration of
the Pilot Program of Commercial Factoring in Tianjin, or the revised Tianjin Commercial Factoring Measures. According to the revised
Tianjin Commercial Factoring Measures, commercial factoring shall refer to the process when the distributor (creditor) transfers its
accounts receivables resulting from the sale of goods or services with the buyer (obligor) to commercial factoring companies, and
commercial factoring companies provide the creditor with comprehensive business and trade services, including trade financing,
management and collection of account receivable. The Tianjin Commercial Factoring Measures lay out the process to establish
commercial factoring companies and the business scope of such kind of companies. Since it is a pilot program in Tianjin, such
companies are also entitled to incentive policies.
Noah Group’s subsidiary Noah Factoring, through which we operate our factoring business, is a duly established commercial
factoring company with its registered office in Tianjin. Commercial factoring is a new business area for Noah, and such relevant entity
has conducted relevant business in accordance with laws and regulations.
Regulations on Private Schools
According to the Law on the Promotion of Private Schools promulgated by the SCNPC on June 29, 2013, or the 2013 Private
Schools Law, a duly established private school shall be entitled to the status of a legal person and is required to receive a school
establishment permit from a competent authority to complete the required registration. While the 2013 Private Schools Law further
provided that a private school registered with the Administrative Authority for Industry and Commerce, or AIC, should be regulated
under separate regulations to be formulated by the State Council, there were no further regulations promulgated by the State Council
and on November 7, 2016, the SCNPC approved the revision of the 2013 Private Schools Law, or the revised Private Schools Law,
effective September 1, 2017. The revised Private Schools Law deleted the provision concerning the separate regulation governing the
AIC-registered private schools and it is common understanding that the provisions in the revised Private Schools Law will apply to the
AIC-registered schools.
On December 30, 2016, the Detailed Implementation Rules on the Classified Registration of Private Schools, or the Private
School Classified Registration Rules, was issued and took effect on the same date. According to the Private School Classified
Registration Rules, for-profit private schools are required to register with AIC after obtaining the school establishment permit.
However, there is no clear rule or regulation requiring that those AIC-registered schools established before September 1, 2017 are
required to obtain a permit from a competent authority. Enoch Education, which operates our high net worth client education platform,
was established prior to the effective date of the revised Private Schools Law and the Private School Classified Registration Rules and
has not obtained such permit. If so required, Enoch Education will apply for such school establishment permit.
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Regulations Relating to Cyber Security
On November 7, 2016, the SCNPC promulgated the Cyber Security Law of the People’s Republic of China, or the Cyber
Security Law, effective June 1, 2017, to protect cyberspace security and order. Pursuant to the Cyber Security Law, any individual or
organization using the network must comply with the PRC constitution and the applicable laws, follow the public order, respect social
moralities, and must not endanger cyber security, or engage in activities by making use of the network that endanger the national
security, honor and interests, or infringe on the fame, privacy, intellectual property and other legitimate rights and interests of others.
The Cyber Security Law sets forth various security protection obligations for network operators, which are defined as “owners and
administrators of networks and network service providers”, including, among other obligations, complying with a series of requirements
of tiered cyber protection systems, verifying users’ real identities, localizing the personal information and important data gathered and
produced by key information infrastructure operators during operations within the PRC and providing assistance and support to
government authorities where necessary for protecting national security and investigating crimes.
Regulations Relating to Internet Privacy
In recent years, PRC government authorities have enacted laws and regulations on internet use to protect personal
information from any unauthorized disclosure. The Administrative Measures on Internet Information Services prohibit ICP service
operators from insulting or slandering a third party or infringing upon the lawful rights and interests of a third party. Under the Several
Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in 2011, an ICP operator may not
collect any user personal information or provide any such information to third parties without the consent of a user. An ICP service
operator must expressly inform the users of the method, content and purpose of the collection and processing of such user personal
information and may only collect such information necessary for the provision of its services. An ICP service operator is also required
to properly keep the user personal information, and in the case of any leak or likely leak of the user personal information, the ICP
service operator must take immediate remedial measures and, in severe circumstances, to make an immediate report to the
telecommunications regulatory authority. In addition, pursuant to the Decision on Strengthening the Protection of Online Information
issued by the SCNPC in December 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information
issued by the MIIT in July 2013, any collection and use of user personal information must be subject to the consent of the user, abide by
the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. An ICP service operator
must also keep such information strictly confidential, and is further prohibited from divulging, tampering or destroying of any such
information, or selling or proving such information to other parties. Any violation of the above decision or order may subject the ICP
service operator to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or
even criminal liabilities. Furthermore, in June 2016, the State Internet Information Office issued the Administrative Provisions on
Mobile Internet Applications Information Services, which became effect on August 1, 2016, to further strengthen the regulation of the
mobile application information services. Pursuant to these provisions, owners or operators of mobile internet applications that provide
information services are required to be responsible for information security management, establish and improve the protective
mechanism for user information, observe the principles of legality, rightfulness and necessity, and expressly state the purpose, method
and scope of, and obtain user consent to, the collection and use of users’ personal information. In addition, the new Cyber Security Law
also requires network operators to strictly keep users’ personal information that they have collected confidential and to establish and
improve their user information protective mechanisms.
Regulations on Labor Protection
On June 29, 2007, the SCNPC promulgated the Labor Contract Law, as amended on December 28, 2012, which formalizes
employees’ rights concerning employment contracts, overtime hours, layoffs and the role of trade unions and provides for specific
standards and procedure for the termination of an employment contract. In addition, the Labor Contract Law requires the payment of a
statutory severance pay upon the termination of an employment contract in most cases, including in cases of the expiration of a fixed-
term employment contract. In addition, under the Regulations on Paid Annual Leave for Employees and its implementation rules, which
became effective on January 1, 2008 and on September 18, 2008 respectively, employees are entitled to a paid vacation ranging from 5
to 15 days, depending on their length of service and to enjoy compensation of three times their regular salaries for each such vacation
day in case such employees are deprived of such vacation time by employers, unless the employees waive such vacation days in
writing. Although we are currently in compliance with the relevant legal requirements for terminating employment contracts with
employees in our business operation, in the event that we decide to lay off a large number of employees or otherwise change our
employment or labor practices, provisions of the Labor Contract Law may limit our ability to effect these changes in a manner that we
believe to be cost-effective or desirable, which could adversely affect our business and results of operations.
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Enterprises in China are required by PRC laws 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. According to the Social Insurance Law, an employer
that fails to make social insurance contributions may be ordered to pay the required contributions within a stipulated deadline and be
subject to a late fee of 0.05% of the amount overdue per day from the original due date by the relevant authority. If the employer still
fails to rectify the failure to make social insurance contributions within such stipulated deadline, it may be subject to a fine ranging from
one to three times the amount overdue. According to 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.
Regulations on Foreign Investment
The State Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and
Economic Cooperation jointly promulgated the Foreign Investment Industrial Guidance Catalog, or the Foreign Investment Catalog, in
2005, which was subsequently revised. The Foreign Investment Catalog sets forth the industries in which foreign investment are
encouraged, restricted, or forbidden. Industries that are not indicated as any of the above categories under the Foreign Investment
Catalog are permitted areas for foreign investment. The current version of the Foreign Investment Catalog came into effect in March
2015.
Pursuant to the current Foreign Investment Catalog, the provision of consulting services, that we are engaged in, is a
permitted area of foreign investment. Before March 2015, the onshore insurance brokerage business fell within the industries where
foreign-invested companies are restricted. However, pursuant to the current version of the Foreign Investment Catalog, the onshore
insurance brokerage business falls within the industries in which foreign investment is permitted.
On December 7, 2016, the State Planning Commission and the MOC released a draft version of the new Foreign Investment
Catalog for public discussion. The draft version has divided the foreign investment industries into the permitted area and the “negative
list” which includes the restricted area, the prohibited area as well as the permitted area in which certain requirements may apply to.
While the final version has not released yet, the draft version provides that the onshore insurance brokerage business falls within the
permitted area.
However, currently foreign-invested companies engaged in onshore insurance brokerage business are subject to more
stringent requirements than Chinese domestic enterprises. Specifically, according to the guidance published on the official website of
the CIRC, foreign investors of foreign-invested insurance brokerage companies are required to have, among other things, at least
US$200 million of total assets and at least 30 years of track record in the insurance business.
In addition, pursuant to the current Foreign Investment Catalog and other relevant laws and regulations, value-added
telecommunication services are restricted from foreign investment and foreign investors are not allowed to own more than 50% of the
equity interests in a value-added telecommunication service provider (excluding e-commerce). Any such foreign investor must have
experience in providing value-added telecommunications services overseas and maintain a good track record.
Neither our PRC subsidiaries, nor any of their subsidiaries, currently meet all such requirements and therefore none of them
is permitted to engage in the onshore insurance brokerage business. We conduct such business in China principally through contractual
arrangements among Noah Group, our PRC subsidiary, and Noah Investment, our variable interest entity in the PRC, and Noah
Investment’s shareholders. Noah Insurance, a subsidiary of Noah Investment, holds the licenses and permits necessary to conduct
insurance brokerage activities in China. In the opinion of Zhong Lun Law Firm, our PRC legal counsel:
•
•
the ownership structures of our variable interest entity, our PRC subsidiary, Noah Group, and Noah Holdings Limited,
as described in “Item 4. Information on the Company—History and Development of the Company,” both prior to our
initial public offering and currently, comply with all existing PRC laws and regulations; and
the contractual arrangements among our PRC subsidiary, Noah Group, our variable interest entity and its shareholders
governed by PRC laws are valid, binding and enforceable, and will not result in a violation of PRC laws or regulations
currently in effect.
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We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation
and application of current and future PRC laws and regulations. Accordingly, the PRC regulatory authorities may in the future take a
view that is contrary to the above opinion of our PRC legal counsel. For example, substantial uncertainties exist as to how the draft PRC
Foreign Investment Law or its implementation rules may impact the viability of our current corporate structure in the future. See
“Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Substantial uncertainties exist with respect to
the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability
of our current corporate structure, corporate governance and business operations.” It is uncertain whether any other new PRC laws or
regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. We have been further
advised by our PRC legal counsel that if the PRC government finds that the agreements that establish the structure for operating our
onshore insurance brokerage business, mutual fund distribution and distribution of asset management plans sponsored by mutual fund
management companies do not comply with PRC government restrictions on foreign investment in such business, we could be subject
to severe penalties, including being prohibited from continuing our operations. See “Item 3. Key Information—D. Risk Factors—Risks
Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating our
businesses in China do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these
regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to
relinquish our interests in those operations” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in
China—Uncertainties with respect to the PRC legal system could adversely affect us.”
Regulations on Tax
PRC Enterprise Income Tax
The PRC enterprise income tax is calculated based on the taxable income determined under the PRC laws and accounting
standards. On March 16, 2007, the National People’s Congress of China enacted the EIT Law, which became effective on January 1,
2008 and was revised on February 24, 2017. On December 6, 2007, the State Council promulgated the Implementation Rules which
also became effective on January 1, 2008. On December 26, 2007, the State Council issued the Notice on Implementation of Enterprise
Income Tax Transition Preferential Policy under the PRC Enterprise Income Tax Law, or the Transition Preferential Policy Circular,
which became effective simultaneously with the EIT Law. The EIT Law imposes a uniform enterprise income tax rate of 25% on all
domestic enterprises, including foreign-invested enterprises unless they qualify for certain exceptions, and terminates most of the tax
exemptions, reductions and preferential treatments available under previous tax laws and regulations.
Moreover, under the EIT Law, enterprises organized under the laws of jurisdictions outside China with their “de facto
management bodies” located within China may be considered PRC resident enterprises and therefore subject to PRC enterprise income
tax at the rate of 25% on their worldwide income. The Implementation Rules define the term “de facto management body” as the
management body that exercises full and substantial control and overall management over the business, productions, personnel,
accounts and properties of an enterprise. In addition, the Circular Related to Relevant Issues on the Identification of a Chinese holding
Company Incorporated Overseas as a Residential Enterprise under the Criterion of De Facto Management Bodies Recognizing issued
by the State Administration of Taxation on April 22, 2009 provides that a foreign enterprise controlled by a PRC company or a PRC
company group will be classified as a “resident enterprise” with its “de facto management bodies” located within China if the following
requirements are satisfied: (i) the senior management and core management departments in charge of its daily operations function
mainly in the PRC; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies in the
PRC; (iii) its major assets, accounting books, company seals and minutes and files of its board and shareholders’ meetings are located
or kept in the PRC; and (iv) more than half of the enterprise’s directors or senior management with voting rights reside in the PRC.
Although the circular only applies to offshore enterprises controlled by PRC enterprises and not those controlled by PRC individuals or
foreigners, the determining criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how
the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of
whether they are controlled by PRC enterprises, individuals or foreigners.
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We do not believe Noah Holdings Limited or any of its subsidiaries outside of China was a PRC resident enterprise for the
year ended December 31, 2016, but we cannot predict whether such entities may be considered as a PRC resident enterprise for any
subsequent taxable year. Although our company is not controlled by any PRC company or company group, substantial uncertainty
exists as to whether we will be deemed a PRC resident enterprise for enterprise income tax purposes. In the event that we are considered
a PRC resident enterprise, we would be subject to the PRC enterprise income tax at the rate of 25% on our worldwide income, but the
dividends that we receive from our PRC subsidiaries would be exempt from the PRC withholding tax since such income is exempted
under the PRC Enterprise Income Tax Law for a PRC resident enterprise recipient. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Doing Business in China—The dividends we receive from our PRC subsidiaries may be subject to PRC tax
under the PRC Enterprise Income Tax Law, which would have a material adverse effect on our financial condition and results of
operations. In addition, 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.”
Value-added Tax
On March 23, 2016, the Ministry of Finance and the State Administration of Taxation jointly issued the Circular on the Pilot
Program for Overall Implementation of the Collection of Value Added Tax Instead of Business Tax, or Circular 36, which took effect
on May 1, 2016. Pursuant to Circular 36, all companies operating in construction industry, real estate industry, finance industry, modern
service industry or other industries which were required to pay business tax are required to pay VAT, in lieu of business tax. Our
applicable VAT tax rates are 3%, 6%, and 17%, according to Circular 36.
On December 21, 2016, the Notice on Clarification of Value-Added Tax Policies for Finance, Real Estate Development,
Education Support Services, or Notice No. 140 was issued to explain the application of the Circular 36. According to Notice No. 140,
for activities subject to value-added tax occurring in the course of asset management services, the manager of the asset management
investment shall be the taxpayer. On December 30, the Tax Policy Division of the Ministry of Finance and the Goods and Services Tax
Division of the State Administration of Taxation further explain several provisions in the Notice No. 140, stating that the asset
management investments refer to the fund products, trust plans, wealth management products managed by asset management service
provider.
Dividend Withholding Tax
Pursuant to the EIT Law and the Implementation Rules, dividends generated after January 1, 2008 and payable by a foreign-
invested enterprise in China to its foreign investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction
of incorporation has a tax treaty with China that provides for a different withholding arrangement. We are a Cayman Islands holding
company and the majority of our income may come from dividends we receive from our PRC subsidiaries directly or indirectly. Since
there is no such tax treaty between China and the Cayman Islands, dividends we receive from our PRC subsidiaries will generally be
subject to a 10% withholding tax. We have evaluated whether Noah Holdings Limited is a PRC resident enterprise and we believe that
Noah Holdings Limited was not a PRC resident enterprise for the year ended December 31, 2016. However, as there remains
uncertainty regarding the interpretation and implementation of the EIT Law and the Implementation Rules, it is uncertain whether, if
Noah Holdings Limited will be deemed a PRC resident enterprise for the future years, any dividends distributed by Noah Holdings
Limited to our non-PRC shareholders and ADS holders would be subject to any PRC withholding tax. See “Item 3. Key
Information—D. Risk Factors—Risks Related to Doing Business in China—The dividends we receive from our PRC subsidiaries may
be subject to PRC tax under the PRC Enterprise Income Tax Law, which would have a material adverse effect on our financial
condition and results of operations. In addition, 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.”
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Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the
Avoidance of Double Taxation and Tax Evasion on Income, or the Tax Arrangement, where a Hong Kong resident enterprise which is
considered a non-PRC tax resident enterprise directly holds at least 25% of a PRC enterprise, the withholding tax rate in respect of the
payment of dividends by such PRC enterprise to such Hong Kong resident enterprise is reduced to 5% from a standard rate of 10%,
subject to approval of the PRC local tax authority. 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 resident enterprise of the counter-party
to such Tax Arrangement should meet the following conditions, among others, in order to enjoy the reduced withholding tax under the
Tax Arrangement: (i) it must directly own the required percentage of equity interests and voting rights in such PRC resident enterprise;
and (ii) it should directly own such percentage in the PRC resident enterprise anytime in the 12 months prior to receiving the dividends.
There are also other conditions for enjoying such reduced withholding tax rate according to other relevant tax rules and regulations.
Pursuant to the Administrative Measures for Non-Resident Taxpayer to Enjoy Treatments under Tax Treaties issued by the State
Administration of Taxation on August 28, 2015, which became effective on November 1, 2015, any non-resident taxpayer may be
entitled to such reduced withholding tax rate automatically if such non-resident taxpayer satisfies the conditions prescribed in the
relevant tax rules and regulations, and obtains the approvals required under the administrative measures described in the preceding
sentence. Accordingly, Noah HK may be able to enjoy the 5% withholding tax rate for the dividends it receives from Noah Technology
and Noah Xingguang respectively, if they satisfy the conditions prescribed under SAT Circular 81 and other relevant tax rules and
regulations, and obtain the approvals required under the administrative measures described above. 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.
U.S. Foreign Account Tax Compliance Act
The United States has passed FATCA, which imposes a new reporting regime and, potentially, a 30% withholding tax on
certain U.S.-source payments made to certain non-U.S. entities. In general, the 30% withholding tax applies to certain payments made
to a non-U.S. financial institution unless such institution is treated as deemed compliant or enters into an agreement with the U.S.
Treasury to report, on an annual basis, information with respect to certain interests in, and accounts maintained by, the institution to the
extent such interests or accounts are held by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by
certain U.S. persons and to withhold on certain payments. The 30% withholding tax also generally applies to certain payments made to
a non-financial non-U.S. entity that does not qualify under certain exemptions unless such entity either (i) certifies that such entity does
not have any “substantial United States owners” or (ii) provides certain information regarding the entity’s “substantial United States
owners.” An intergovernmental agreement between the United States and another country may also modify these requirements. The
Cayman Islands has entered into a Model 1 intergovernmental agreement with the United States, which gives effect to the automatic tax
information exchange requirements of FATCA, and a similar intergovernmental agreement with the United Kingdom. We will be
required to comply with the Cayman Islands Tax Information Authority Law (2014 Revision) (as amended) together with regulations
and guidance notes made pursuant to such law that give effect to the intergovernmental agreements with the United States and the
United Kingdom. We do not believe FATCA will have a material impact on our business or operations, but because FATCA is
particularly complex and the intergovernmental agreement with the PRC, though agreed to in substance, has not been published, and
PRC regulations or guidance notes have not be published, we cannot assure you that we will not be adversely affected by this legislation
in the future.
Common Reporting Standard
Similarly, the Organisation for Economic Cooperation and Development has developed a Common Reporting Standard, or CRS,
and model competent authority agreement to enable the multilateral and automatic exchange of financial account information, which
were adopted by China and Hong Kong effective January 1, 2017. CRS and its implementing legislations in China and Hong Kong will
require financial institutions to identify and report the tax residency and account details of non-resident customers to the relevant
authorities in jurisdictions adhering to CRS. While CRS was modelled after FATCA, the scope, coverage and volume under CRS are
significantly greater than that under FATCA. As such, even if FATCA does not have a material impact on our business or operations,
we cannot assure you that we will not be adversely affected by the information reporting and withholding requirements imposed by
CRS and its implementing legislations in China and Hong Kong in the future.
Regulations on Foreign Exchange
Foreign exchange regulations in China are primarily governed by the following rules:
•
•
Foreign Exchange Administration Rules (1996), as amended, or the Exchange Rules; and
Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.
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Under the Exchange Rules, the Renminbi is convertible for current account items, including the distribution of dividends,
interest and royalty payments, trade and service-related foreign exchange transactions. Conversion of Renminbi for capital account
items, such as direct investment, loan, securities investment and repatriation of investment, however, is still subject to the approval of
SAFE.
Under the Administration Rules, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at banks
authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item
transactions, obtaining approval from SAFE. Capital investments by foreign-invested enterprises outside of China are also subject to
limitations, including approval by the MOC, SAFE and the National Development and Reform Commission or their local counterparts.
On March 30, 2015, SAFE issued SAFE Circular 19, which took effect and replaced previous regulations from June 1, 2015.
Pursuant to SAFE Circular 19, up to 100% of foreign currency capital of foreign-invested enterprise may be converted into RMB
capital according to the actual operation, and within the business scope, of the enterprise at its will. Although SAFE Circular 19 allows
for the use of RMB converted from the foreign currency-denominated capital for equity investments in the PRC, the restrictions
continues to apply as to foreign- invested enterprises’ use of the converted RMB for purposes beyond the business scope, for entrusted
loans or for inter-company RMB loans. If our variable interest entity requires financial support from us or our wholly owned subsidiary
in the future and we find it necessary to use foreign currency-denominated capital to provide such financial support, our ability to fund
our variable interest entity’s operations will be subject to statutory limits and restrictions, including those described above.
On May 10, 2013, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange
Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents, which specifies that the
administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of
registration. Institutions and individuals shall register with SAFE and/or its branches for their direct investment in the PRC. Banks shall
process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE
and its branches.
On Feb 13, 2015, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further Simplifying
and Improving the Foreign Exchange Administration Policies on Direct Investments, or SAFE Circular 13, which took effect on June 1,
2015. Circular 13 specifies that the administrative examination and approval procedures with SAFE or its local branches relating to the
foreign exchange registration approval for domestic direct investments as well as overseas direct investments have been cancelled, and
qualified banks are delegated the power to directly conduct such foreign exchange registrations under the supervision of SAFE or its
local branches.
Regulations on Dividend Distribution
The principal regulations governing dividend distributions of wholly foreign-owned companies include:
•
•
Wholly Foreign-Owned Enterprise Law, as amended on October 31, 2000; and
Wholly Foreign-Owned Enterprise Law Implementing Rules, as amended on April 12, 2001.
Under these laws and regulations, wholly foreign-owned companies in the PRC may pay dividends only out of their
accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, these wholly foreign-
owned companies are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve
funds, until the accumulative amount of such fund reaches 50% of its registered capital. Although the statutory reserves can be used,
among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective
companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. At the discretion of these wholly
foreign-owned companies, they may allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and
bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
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Regulations on Offshore Investment by PRC Residents
On July 4, 2014, SAFE issued the Circular on Several Issues Concerning Foreign Exchange Administration of Domestic
Residents Engaging in Overseas Investment, Financing and Round-Trip Investment via Special Purpose Vehicles, or SAFE Circular 37,
which terminated the SAFE’s Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in
Financing and Inbound Investment via Overseas Special Purpose Vehicles, or SAFE Circular 75, and became effective on the same
date. SAFE Circular 37 and its detailed guidelines require PRC residents to register with the local branch of SAFE before contributing
their legally owned onshore or offshore assets or equity interest into any special purpose vehicle, or SPV, directly established, or
indirectly controlled, by them for the purpose of investment or financing; and when there is (a) any change to the basic information of
the SPV, such as any change relating to its individual PRC resident shareholders, name or operation period or (b) any material change,
such as increase or decrease in the share capital held by its individual PRC resident shareholders, a share transfer or exchange of the
shares in the SPV, or a merger or split of the SPV, the PRC resident must register such changes with the local branch of SAFE on a
timely basis. On February 13, 2015, SAFE issued the Circular on Further Simplifying and Improving the Policies Concerning Foreign
Exchange Control on Direct Investment, or SAFE Circular 13, which took effect on June 1, 2015. SAFE Circular 13 has delegated to
the qualified banks the authority to register all PRC residents’ investment in SPVs pursuant to SAFE Circular 37, except that those PRC
residents who have failed to comply with SAFE Circular 37 will remain to fall into the jurisdiction of the local SAFE branch and must
make their supplementary registration application with the local SAFE branch. According to the relevant SAFE rules, failure to comply
with the registration procedures set forth in SAFE Circular 37 may result in restrictions being imposed on the foreign exchange
activities of the relevant onshore companies of SPVs, including the payment of dividends and other distributions to its offshore parent
or affiliate and the capital inflow from such offshore entity, and may also subject the relevant PRC residents and onshore companies to
penalties under PRC foreign exchange administration regulations. Further, failure to comply with various SAFE registration
requirements described above would result in liability for foreign exchange evasion under PRC laws.
Regulations on Stock Incentive Plans
In December 2006, the People’s Bank of China promulgated the Administrative Measures of Foreign Exchange Matters for
Individuals, setting forth the respective requirements for foreign exchange transactions by individuals (both PRC or non-PRC citizens)
under either the current account or the capital account. In January 2007, SAFE issued the Individual Foreign Exchange Rule, which,
among other things, specified approval requirements for certain capital account transactions such as a PRC citizen’s participation in the
employee stock ownership plans or stock option plans of an overseas publicly-listed company. On February 15, 2012, SAFE issued the
Stock Incentive Plan Rules, which terminated the Application Procedures of Foreign Exchange Administration for Domestic Individuals
Participating in Employee Stock Ownership Plan or Stock Option Plan of Overseas Listed Company issued by SAFE on March 28,
2007. The purpose of the Stock Incentive Plan Rules is to regulate foreign exchange administration of PRC domestic individuals who
participate in employee stock holding plans and stock option plans of overseas listed companies.
According to the Stock Incentive Plan Rules, if PRC “domestic individuals” (both PRC residents and non-PRC residents who
reside in the PRC for a continuous period of not less than one year, excluding the foreign diplomatic personnel and representatives of
international organizations) participate in any stock incentive plan of an overseas listed company, a PRC domestic qualified agent,
which could be the PRC subsidiary of such overseas listed company, shall, among others things, file, on behalf of such individual, an
application with SAFE to conduct the SAFE registration with respect to such stock incentive plan, and obtain approval for an annual
allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises. With the SAFE
registration certificate for stock incentive plan, the PRC domestic qualified agent shall open a special foreign exchange account at a
PRC domestic bank to hold the funds required in connection with the stock purchase or option exercise, any returned principal or profits
upon sales of stock, any dividends issued upon the stock and any other income or expenditures approved by SAFE. Such PRC
individuals’ foreign exchange income received from the sale of stock and dividends distributed by the overseas listed company and any
other income shall be fully remitted into a special foreign currency account opened and managed by the PRC domestic qualified agent
before distribution to such individuals.
Many issues regarding the Stock Incentive Plan Rules require further interpretation. We and our employees who have
participated in an employee stock ownership plan or stock option plan as “domestic individuals”, or PRC optionees, were subject to the
Stock Incentive Plan Rules when our company became an overseas listed company. However, we cannot assure you that each of the
above optionees will fully comply with the Individual Foreign Exchange Rule and Stock Incentive Plan Rules. If we or our PRC
employees fail to comply with the Stock Incentive Plan Rules, we and our PRC employees may be subject to fines and other legal
sanctions. In addition, the General Administration of Taxation has issued a few circulars concerning employee stock options. Under
these circulars, our employees working in China who exercise stock options will be subject to PRC individual income tax. Our PRC
subsidiaries have obligations to file documents related to employee stock options with relevant tax authorities and withhold individual
income taxes of those employees who exercise their stock options. If our employees fail to pay and we fail to withhold their income
taxes, we may face sanctions imposed by tax authorities or any other PRC government authorities.
66
C.
Organizational Structure
We are an exempted company incorporated with limited liability under the laws of the Cayman Islands with subsidiaries and
affiliated entities in China and Hong Kong. We currently mainly operate our business through the following significant subsidiaries and
significant affiliated PRC entities and certain of their subsidiaries:
Name
Shanghai Noah Investment (Group) Co., Ltd.(1)
Noah Upright (Shanghai) Fund Investment Consulting Co., Ltd.
Shanghai Noah Financial Services Corp.(2)
Kunshan Noah Xingguang Investment Management Co., Ltd.
Noah Holdings (Hong Kong) Limited
Shanghai Rongyao Information Technology Co., Ltd.
Zigong Noah Financial Service Co., Ltd.
Noah Financial Express (Wuhu) Microfinance Co., Ltd.
Shanghai Noah Chuangying Enterprise Management Co., Ltd.
Shanghai Noah Yijie Finance Technology Co., Ltd
Noah Commercial Factoring Co., Ltd.
Noah (Shanghai) Financial Leasing Co., Ltd
Noah Holdings International Limited
Kunshan Noah Group Investment Management Co., Ltd.
Noah Insurance (Hong Kong) Limited
Gopher Holdings (Hong Kong) Limited
Gopher International Investment Management (Shanghai) Limited
Shanghai Noah Investment Management Co., Ltd.
Shanghai Noah Rongyao Insurance Broker Co., Ltd.
Gopher Asset Management Co., Ltd.(3)
Wuhu Gopher Asset Management Co., Ltd.
Gopher Nuobao (Shanghai) Asset Management Co., Ltd.
Relationship with us
Jurisdiction of
Incorporation
Wholly owned subsidiary
China
Wholly owned subsidiary
China
Wholly owned subsidiary
China
Wholly owned subsidiary
China
Hong Kong Wholly owned subsidiary
Wholly owned subsidiary
China
Wholly owned subsidiary
China
Wholly owned subsidiary
China
Wholly owned subsidiary
China
Majority owned subsidiary
China
Majority owned subsidiary
China
China
Wholly owned subsidiary
Hong Kong Wholly owned subsidiary
China
Wholly owned subsidiary
Hong Kong Wholly owned subsidiary
Hong Kong Wholly owned subsidiary
Wholly owned subsidiary
China
Consolidated affiliated entity
China
Consolidated affiliated entity
China
Consolidated affiliated entity
China
Consolidated affiliated entity
China
Consolidated affiliated entity
China
(1) Formerly known as Shanghai Noah Rongyao Investment Consulting Co., Ltd.
(2) Formerly known as Shanghai Noah Yuanzheng Investment Consulting Co., Ltd., and subsequently as Shanghai Noah Financial
Services Co., Ltd.
(3) Previously translated as “Tianjin Gefei Asset Management Co., Ltd.”
In August 2005, our founders started our business through the incorporation of Shanghai Noah Investment Management Co.,
Ltd., or Noah Investment, a domestic company in China. During the past few years, we have gradually transitioned from a consulting
services provider focusing on wealth management to a comprehensive integrated financial services group with capabilities in wealth
management, asset management and internet financial services. On April 12, 2017, Shanghai Noah Rongyao Investment Consulting
Co., Ltd., our PRC subsidiary, was renamed into Shanghai Noah Investment (Group) Co., Ltd. to better represent our future business
plan.
We conduct our wealth management business in China primarily through our subsidiary Noah Financial Services. Our asset
management business and onshore insurance brokerage business are conducted through Noah Investment and its subsidiaries. We
conduct our overseas wealth management and asset management business through Noah Holdings (Hong Kong) Limited, our subsidiary
in Hong Kong.
67
In March 2012, Noah Investment acquired 100% equity interest of Tianjin Gopher Asset Management Co., Ltd., or Tianjin
Gopher, and Gopher Asset Management from Noah Financial Services at cost in order to facilitate the development of fund of funds, a
part of our asset management business. Tianjin Gopher, Gopher Asset Management and their thirteen affiliated institutions have
completed the private investment fund manager registration with AMAC, which enable such affiliated institutions to launch self-
developed products at lower costs. Tianjin Gopher, Shanghai Gopher and Gopher Asset Management mainly serve as general partners
in fund of private equity funds, secondary market equity funds and real estate funds. Such funds have invested in and plan to continue to
invest in equity funds with portfolio companies that may prefer to remain wholly PRC-owned. As of the date of this annual report,
Gopher Asset Management has grown to be the core of our asset management business, having become a leading asset management
company in China focused on funds of funds in private equity, real estate, secondary market equity funds, credit products and family
office business, offering both investment opportunities in RMB and US$ in all of the these products. In March 2016, Noah Upright,
previously a subsidiary of Noah Investment, was restructured to be a subsidiary of Noah Financial Services through equity transfer. On
December 19 2016, Noah Holdings Limited, Noah Investment, Noah Group, Gopher Holdings (Hong Kong) Limited, Gopher Holdings
Limited, Gopher Asset Management and Beijing Sequoia Equity Investment Center (Limited Partnership), or Sequoia Mingde, an
affiliate of Sequoia Capital China entered into an Investment and Cooperation Agreement, pursuant to which Sequoia Mingde acquired
8% of equity interests in Gopher International Investment Management (Shanghai) Co., Ltd., a majority-owned subsidiary of Gopher
(Hong Kong) Holdings Limited.
We primarily conduct our internet financial service business through Shanghai Noah Yijie Finance Technology Co., Ltd., our
majority-owned subsidiary. In July 2015, Beijing Sequoia Mingde Equity Investment Center (Limited Partnership), an affiliate of
Sequoia Capital China, acquired 9.8% of equity interests in Shanghai Noah Yijie Finance Technology Co., Ltd., at purchase price of
RMB31.6 million. We hold a 54.93% interest of Shanghai Noah Yijie Finance Technology Co., Ltd. as of the date of this annual report.
As foreign-invested companies engaged in onshore insurance brokerage business are subject to stringent requirements
compared with Chinese domestic enterprises under current PRC laws and regulations, our PRC subsidiaries and their subsidiaries,
which are foreign-invested companies, do not meet all the requirements and therefore none of them is permitted to engage in the
onshore insurance brokerage business. We conduct our onshore insurance brokerage business in China through Noah Investment and its
subsidiaries, which are PRC domestic companies owned by our founders. Since we do not have equity interests in Noah Investment, in
order to exercise effective control over its operations, in September 2007, Noah Group entered into certain contractual arrangements
with Noah Investment and its shareholders.
Our contractual arrangements with Noah Investment and its shareholders enable us to (i) have power to direct the activities
that most significantly affect the economic performance of Noah Investment; (ii) receive substantially all of the economic benefits from
Noah Investment in consideration for the services provided by Noah Group; and (iii) have an exclusive option to purchase all or part of
the equity interests in Noah Investment when and to the extent permitted by PRC law, or request any existing shareholder of Noah
Investment to transfer any or part of the equity interest in Noah Investment to another PRC person or entity designated by us at any time
at our discretion. We define “economic benefits” as the net income of and residual interests in Noah Investment and its subsidiaries.
Through powers of attorney signed by all shareholders of Noah Investment, Noah Group has been granted the power of attorney to act
on their behalf on all matters pertaining to Noah Investment and to exercise all of their rights as shareholders of Noah Investment.
Through the exclusive support service agreement between Noah Investment and Noah Group, Noah Group has agreed to provide certain
technical and operational consulting services and to license its intellectual property rights to Noah Investment in exchange for service
fees. Pursuant to this agreement, the fees for the consulting services are determined by both parties based on actual services provided,
after deducting costs and licensing fees. The licensing fees for the intellectual property are determined by both parties based on actual
services provided on a quarterly basis. Through this agreement, we are entitled to fees that are equivalent to all of Noah Investment’s
revenues for a given period. In addition, pursuant to the exclusive option agreement, Noah Investment’s shareholders are prohibited
from transferring their equity interests to any third party, and Noah Investment is prohibited from declaring and paying any dividends
without Noah Group’s prior consent. Through this arrangement, we can prevent leakage of any residual interests of Noah Investment.
Through the share pledge agreement between Noah Investment’s shareholders and Noah Group, Noah Investment’s shareholders have
pledged their shares to Noah Group to secure Noah Investment’s obligations under the exclusive support service agreement and the
exclusive option agreement. If Noah Investment or its shareholders breach any of their obligations under the exclusive support service
agreement or the exclusive option agreement, Noah Group, as the pledgee, will be entitled to foreclose on the pledged shares. As a
result of these contractual arrangements, under GAAP, we are considered the primary beneficiary of Noah Investment and thus
consolidate its results in our consolidated financial statements. Under PRC law, each of Noah Group and Noah Investment is an
independent legal entity and neither of them is exposed to liabilities incurred by the other. See “Item 3. Key Information—D. Risk
Factors—Risks Related to Our Corporate Structure—Contractual arrangements we have entered into among our PRC subsidiary, Noah
Group, our variable interest entity and its shareholders may be subject to scrutiny by the PRC tax authorities and they may determine
that we or our PRC variable interest entity and its subsidiaries owe additional taxes, which could substantially reduce our consolidated
net income and the value of your investment.”
68
We conducted our commercial factoring business through Noah Factoring and our high net worth client education business
through Enoch Education, both of which are majority-owned subsidiaries of Noah Group.
Contractual Arrangements
Exclusive Option Agreement. The shareholders of Noah Investment have entered into an exclusive option agreement with
Noah Group in September 2007, under which the shareholders granted Noah Group or its third-party designee an irrevocable and
exclusive option to purchase their equity interests in Noah Investment when and to the extent permitted by PRC law. The purchase price
shall be the higher of the minimum amount required by PRC law and an amount determined by Noah Group. Noah Group may exercise
such option at any time and from time to time until it has acquired all equity interests of Noah Investment. The term of this exclusive
option agreement is ten years and will automatically extend for another ten years upon expiry if no party objects. During the term of this
agreement, the shareholders of Noah Investment are prohibited from transferring their equity interests to any third party, and Noah
Investment is prohibited from declaring and paying any dividend without Noah Group’s prior consent.
Exclusive Support Service Agreement. Under the exclusive support service agreement entered into between Noah
Investment and Noah Group in September 2007, Noah Investment engages Noah Group as its exclusive technical and operational
consultant and under which Noah Group agrees to assist in arranging financing necessary to conduct Noah Investment’s operational
activities. Noah Group will provide certain support services to Noah Investment, including client management, technical and
operational support and other services, for which Noah Investment shall pay to Noah Group service fees determined based on actual
services provided. Noah Group is also obligated to grant Noah Investment licenses to use certain intellectual property rights, for which
Noah Investment shall pay license fees at the rates set by Noah Group. As of the date of this filing, Noah Group has not received any
service fees from Noah Investment because Noah Group has not provided any service to Noah Investment yet. This agreement has a
term of ten years, which will automatically extend for another ten years upon expiry if neither party objects.
Share Pledge Agreement. All shareholders of Noah Investment have entered into a share pledge agreement with Noah
Group in September 2007, under which the shareholders pledged all of their equity interests in Noah Investment to Noah Group as
collateral to secure their obligations under the exclusive option agreement and Noah Investment’s obligations under the exclusive
support service agreement. If Noah Investment or its shareholders violates any of their respective obligations under the exclusive
support service agreement or the exclusive option agreement, Noah Group, as the pledgee, will be entitled to certain rights, including
the right to sell the pledged share interests. The term of the share pledge is same as that of the exclusive option agreement
Powers of Attorney. Each shareholder of Noah Investment has executed a power of attorney to grant Noah Group or its
designee the power of attorney to act on his or her behalf on all matters pertaining to Noah Investment and to exercise all of his or her
rights as a shareholder of Noah Investment, including the right to attend shareholders meeting, appoint board members and senior
management members, other voting rights and the right to transfer all or a part of his or her equity interest in Noah Investment.
In the opinion of Zhong Lun Law Firm, our PRC legal counsel:
•
•
the ownership structures of our variable interest entity, our PRC subsidiary, Noah Group, and Noah Holdings Limited,
as described in “Item 4. Information on the Company—History and Development of the Company,” both prior to our
initial public offering and currently, comply with all existing PRC laws and regulations; and
the contractual arrangements among our PRC subsidiary, Noah Group, our variable interest entity and its shareholders
governed by PRC laws are valid, binding and enforceable, and will not result in a violation of PRC laws or regulations
currently in effect.
69
We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation
and application of current and future PRC laws and regulations. Accordingly, the PRC regulatory authorities may in the future take a
view that is contrary to the above opinion of our PRC legal counsel. For example, substantial uncertainties exist as to how the draft PRC
Foreign Investment Law or its implementation rules may impact the viability of our current corporate structure in the future. See
“Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Substantial uncertainties exist with respect to
the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability
of our current corporate structure, corporate governance and business operations.” It is uncertain whether any other new PRC laws or
regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. We have been further
advised by our PRC legal counsel that if the PRC government finds that the agreements that establish the structure for operating our
onshore insurance brokerage business and other business do not comply with PRC government restrictions on foreign investment in the
onshore insurance brokerage business or other businesses, we could be subject to severe penalties, including being prohibited from
continuing our operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC
government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC
regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations
change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “Item 3.
Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system
could adversely affect us.”
D.
Property, Plants and Equipment
Our Changyang and Qinghuangdao office sites in Shanghai, including wealth management, asset management and internet
financial service businesses, consist of approximately 23,263 square meters of leased space. Our 185 branch offices lease approximately
42,055 square meters of office space in aggregate. Our overseas business is mainly conducted by our Hong Kong office, with 1,235
square meters of leased office space.
ITEM 4A UNRESOLVED STAFF COMMENTS
Not applicable.
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 on Form 20-F. This discussion
may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may
differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under
“Item 3. Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F
A.
Operating Results
Overview
We derive revenues from three business segments: wealth management, asset management and internet financial services.
We generate revenues primarily from (i) one-time commissions derived from wealth management products, paid by our product
providers, underlying corporate borrowers or clients, based on the value of the wealth management products purchased by our clients;
(ii) recurring service fees paid by our clients providers of certain types of wealth management products or underlying corporate
borrowers, based on the value of such products purchased by our clients or the net asset value of the portfolio underlying the products
purchased by our clients; (iii) performance based income from some funds, including real estate funds, private equity funds and
secondary market equity funds, distributed, raised and managed by us as part of our wealth management and asset management
business; and (iv) other service fees, primarily including (a) revenues from small short-term loan; (b) revenues generated by our internet
financial service business.
We have experienced significant growth in recent years. Our net revenues increased from RMB1,528.5 million in 2014 to
RMB2,119.9 million in 2015 and to RMB2,513.6 million (US$362.0 million) in 2016, representing a CAGR of 28.2%. We recorded net
income attributable to our shareholders of RMB446.6 million in 2014, RMB535.8 million in 2015 and RMB643.8 million (US$92.7
million) in 2016. The net income amounts include the impact of non-cash charges relating to share-based compensation in an aggregate
amount of RMB32.7 million in 2014, RMB67.7 million in 2015 and RMB79.2 million (US$11.4 million) in 2016.
70
Factors Affecting Our Results of Operations
We have benefited from the overall economic growth, the growing high net worth and mass affluent populations and the
increasing demand for sophisticated and personalized wealth management solutions through different platforms in China, all of which
we anticipate will continue to increase as the overall economy and the high net worth population and mass affluent population continue
to grow in China. However, any adverse changes in the economic conditions or regulatory environment in China may have a material
adverse effect on China’s wealth management services and asset management industry, which in turn may harm our business and results
of operations.
Our financial condition and results of operations are more directly affected by factors specific to our company, primarily
including the following:
•
•
•
•
•
•
number of clients;
average transaction value per client;
accumulated aggregate value of finance products with recurring service fees previously distributed by us;
product mix;
AUM;
operating cost and expenses.
Number of Clients
Our revenue growth has been driven primarily by the increasing number of clients we serve. We primarily serve two types of
clients: (i) registered individual clients, consisting of (a) high net worth individuals and (b) mass affluent individuals, which we serve
through our internet financial service business, and (ii) enterprise and institutional clients affiliated with high net worth individuals. Our
current core business is the distribution of wealth management products to high net worth individuals, which contributed 77.9%, 77.5%
and 75.2% of our total revenues in 2014, 2015 and 2016, respectively. The number of our clients, particularly the number of our high
net worth individual clients, is a key factor affecting our results of operations. An increasing number of high net worth individual clients
may also result in a growing number of enterprise and institutional clients, as many high net worth individuals in China own or control
small and medium-sized enterprises. In addition, our internet financial service business targets mass affluent individuals as part of its
primary client base, although it also serves high net worth individuals. As our internet financial service business expands, we expect to
serve an increasing number of mass affluent individuals, who form a significant portion of the expanding middle class in China.
The cumulative number of our registered clients increased from 70,557 as of December 31, 2017 to 99,019 as of
December 31, 2015 and to 135,396 as of December 31, 2016, while the number of our active clients increased from 9,010 in 2014 to
12,573 in 2015 and to 12,027 in 2016. The total number of clients through our internet financial service platform increased from 28,985
as of December 31, 2014 to 277,372 as of December 31, 2015 and to 402,815 as of December 31, 2016. Although we generate no
revenue from those registered clients who currently do not purchase products or services we distribute, with an increasing number of
registered clients, we have the opportunity to introduce and recommend wealth management products that we distribute and asset
management and internet financial services that we provide to a greater number of high net worth individuals and enterprise and
institutional clients and accordingly may convert more registered clients into active clients. An increase in the number of active clients
has contributed significantly to the growth of the total value of the products we distribute and the services we provide. We expect that
the number of active clients will continue to be a key factor affecting our revenue growth. The number of new clients we may develop
is affected by the breadth of our coverage network. As we expand our coverage network, we expect to increase our capacity and
capability to cultivate and serve new clients, which may result in an increase in the number of new registered and active clients.
Average Transaction Value per Client
Average transaction value per client directly affects the total value of products we distribute and services we provide through
our wealth management business, which in turn affects the amount of our revenue, primarily one-time commissions and recurring
service fees. Average transaction value per client refers to the average value of wealth management products we distribute that are
purchased by our active clients during a given period. The average transaction value per client for the wealth management business
increased 11.9% from RMB7.0 million in 2014 to RMB7.9 million in 2015, and increased by 7.1% to RMB8.4 million (US$1.2
million) in 2016, primarily reflecting a change in product mix.
71
In recent years, we have been raising the required level of investable assets when we target high net worth individuals in
order to focus our resources on serving the high-end segment of China’s high net worth population. Currently, we expect our registered
individual clients to have investable assets (excluding primary residence) with an aggregate value exceeding RMB3.0 million (US$0.4
million).
Product Mix
Our product mix affects our revenues and operating profit. For our wealth management business, we distribute to our clients
five types of products that are originated in China and Hong Kong: (i) fixed income products which provide investors with prospective
fixed rates of return; (ii) private equity funds, including investments in various private equity funds sponsored by domestic and
international asset/fund management firms, real estate funds and fund of funds; (iii) secondary market equity funds; (iv) mutual funds;
and (v) insurance products. For our asset management business, we offer four types of asset management investments: (i) private
equity; (ii) real estate; (iii) secondary market; and (iv) other fixed income investments as well as family office services and multiple-
strategy asset management services. Beginning in 2014, we also offer internet financial services, which include online financial services
platform for mass affluent individuals, small short-term loans and transaction data processing and online services for independent
financial advisors.
The composition and level of revenues that we derive from the products are affected by product type. The product type
determines whether we can receive one-time commissions, recurring service fees and/or performance-based income. For our wealth
management business, we receive one-time commissions paid by our clients or by product providers or underlying corporate borrowers,
calculated as a percentage of the value of the products that our clients purchase. In addition, we also receive recurring service fees or
management fees where we are engaged by the product providers to provide recurring services to our clients who have purchased their
products. We may also receive performance based income from some funds distributed by us, including real estate funds, private equity
funds and secondary market equity funds. For our asset management business, we mainly receive management fees for all products we
manage and performance-based income for some funds, especially those in the private equity, real estates and secondary market asset
classes. We also generate revenues from other sources, primarily including (a) upfront subscription fees, management fees and
redemption fees, paid by fund companies for distributing mutual fund products, (b) insurance brokerage commissions and (c) service
fees paid by clients for the internet financial services we provide.
Wealth Management
The table below sets forth the total value of different types of wealth management products that we distributed, both in
absolute amount and as a percentage of the total value of all products distributed, during the periods indicated:
Years Ended December 31,
2014
2015
RMB in
millions
RMB in
millions
%
RMB in
millions
%
2016
US$ in
millions
%
Product type
Fixed income products
Private equity fund products
Secondary market equity fund products
Other products
All products
40,212
11,971
10,328
860
63,371
63.5 36,621
18.9 31,917
16.3 28,054
2,402
1.3
63.6
27.2
7.7
1.5
100.0 98,994 100.0 101,385 14,602 100.0
64,494
27,545
7,846
1,499
9,289
3,967
1,130
216
37.0
32.2
28.4
2.4
In the fourth quarter of 2013, we increased the distribution of insurance products in order to better serve our customers. In
2014, our most popular insurance policies are high-coverage accident injury insurance and global medical insurance products, and we
launched new high-end medical insurance, general accident insurance, aviation accident insurance, serious and terminal illness
insurance and life insurance. Our domestic insurance brokerage business currently represents an insignificant percentage of our
revenues, while our oversea insurance brokerage business grew rapidly in 2015 and 2016.
72
On February 22, 2012, CSRC granted Noah Upright, one of Noah Investment’s subsidiaries, a fund distribution license, and
we started our fund distribution business thereafter. In 2013, we increased distribution of these products in response to an increase in the
demand for liquidity management. Fees generated from insurance products and mutual fund products have been insignificant to our
financial results in 2014, 2015 and 2016. Therefore, we combine the total value of these products in the table above.
Asset Management
We are growing our asset management business under Noah Investment. In May 2010, we started distributing our own fund
of funds products under our management. These fund products’ lives typically range from 5 to 7 years. In 2012, we began distributing
real estate funds under our management. Such real estate funds are either fixed income products or private equity fund products,
depending on the underlying assets, and their lives range from 0.5 to 5 years. As we receive recurring service fees over the life cycle of
these funds, our distribution of these products represent a source of steady flow of recurring revenues. Our net revenues generated from
asset management services increased from RMB366.1 million in 2014 to RMB465.0 million in 2015 and to RMB531.8 million
(US$76.6 million) in 2016. Revenues generated from asset management services now represent 21.2% of our overall total revenues. We
also provide family office and discretionary portfolio management services business focused on ultra-high net worth and family office
clients. In 2016, we continued our growth in this area by building deeper, long term client relationships and providing services for our
family office clients.
The table below summarizes our AUM as of December 31, 2015 and 2016.
Product type
Real estate investments
Private equity investments
Secondary market investments
Other investments
All products
Internet Financial Services
2015
RMB in
billions
31.8
37.9
10.7
6.3
86.7
As of December 31,
RMB in
billions
2016
US$ in
billions
23.2
61.7
8.3
27.8
120.9
3.3
8.9
1.2
4.0
17.4
%
36.7
43.7
12.3
7.3
100.0
%
19.2
51.0
6.9
23.0
100.0
Starting from the second quarter of 2014, we began offering a range of internet financial services. We launched Cai Fu Pai,
an internet financial service platform that provides financial products and services to mass affluent individuals in China. Through our
Jintong Zhifu platform, we facilitate transaction data processing services by transferring customer data to licensed third-party payment
related companies. Our internet financial service business generates service fees collected from clients for the services we provide and
interest for small short-term loans collateralized by our financial products or real estate properties, through our Rong Yi Tong platform.
Operating Cost and Expenses
Our financial condition and operating results are directly affected by our operating cost and expenses, primarily consisting of
(i) compensation and benefits, including salary and commissions for our relationship managers, share-based compensation expenses,
bonus related performance-based income, and other employee salary and bonuses, (ii) selling expenses, (iii) general and administrative
expenses and (iv) other operating expenses, deducting government subsidies. Our operating costs and expenses are primarily affected
by several factors, including the number of our employees, rental expenses and certain non-cash charges.
The number of our employees was 1,860, 2,688 and 2,823 as of December 31, 2014, 2015 and 2016, respectively. The
increase was primarily a result from the expansion of our relationship managers, product design team and new business entities. We
plan to continue to expand our coverage network, and anticipate that our operating expenses related to compensation and benefits will
increase as a result of hiring new employees. However, as we continue to grow our business, we are focused on reducing other
operating costs and expenses through leveraging economies of scale.
73
The number of our branch and sub-branch offices was 94, 135 and 185 as of December 31, 2014, 2015 and 2016,
respectively. Our operating costs and expenses include share-based compensation charge related to the share options or restricted shares
granted to employees. We expect to incur additional share-based compensation expenses related to share options or restricted shares in
the future as we plan to continue to grant share options or restricted shares to our employees.
Key Components of Results of Operations
Net Revenues
Our net revenues are total revenues, net of business taxes and related surcharges, which ranged from 5.35% to 5.65% of
gross revenue in 2014 and 2015. With the rollout of the Value-added Tax (“VAT”) reform on May 1, 2016, business tax is no longer
applicable to us, and the applicable VAT rate is 3%, 6%, and 17%. As VAT liability is excluded when calculating net revenues, our net
revenues are total revenues, net of only VAT related surcharges, which range from 7.0% to 13.0% of VAT liabilities. We recorded net
revenues of RMB1,528.5 million, RMB2,119.9 million and RMB2,513.6 million (US$362.0 million), respectively. Our net revenues
come from three business segments: wealth management, asset management and internet financial services.
We derive revenues primarily from the following sources and business segments:
One-time commissions
•
•
for wealth management: we generally receive the one-time commission from our product providers, underlying
corporate borrowers or clients upon the establishment of a wealth management product;
for asset management: we generally do not receive one-time commission for our directly managed funds.
Recurring service fees
•
•
for wealth management: (i) recurring service fees over the life cycle of the private fund products previously
distributed by us to our clients, which are paid on a periodic basis and typically calculated as a percentage of the total
value of investments in the underlying funds, at the establishment date of the wealth management product;
(ii) recurring service fees for investments in funds focusing on mutual funds and insurance products, which are paid
on a periodic basis and calculated daily as a percentage of the net asset value of the portfolio underlying the products
purchased by our clients;
for asset management: includes recurring service fees over the life cycle of the funds managed by us, which are paid
on a periodic basis and typically calculated as a percentage of the total value of investments in the underlying funds
previously distributed by us to our clients;
Performance based income are revenues generated from some funds, distributed, raised and/or managed by us;
Other service fees are derived from small short-term loans, our internet financial service business and other businesses.
•
•
for internet financial services: service fees paid by clients for the online platform, small, short-term loan services or
transaction data processing and related service we provide.
for wealth management: revenues generated from our Enoch education business, and other services;
74
The table below sets forth the amounts of total one-time commissions, recurring service fees, performance based income and
other service fees, respectively, for our wealth management business, asset management business and internet financial service
business, respectively, for the periods indicated:
Wealth Management Business
Revenues:
One-time commissions
Recurring service fees
Performance based income
Other service fees
Third-party net revenues
One-time commissions
Recurring service fees
Performance based income
Other service fees
Related party net revenues
2014
RMB
Years Ended December 31,
2015
RMB
2016
RMB
US$
423,218,934
243,619,600
7,952,243
13,246,685
688,037,462
180,943,785
342,603,359
2,444,365
75,050
526,066,559
390,668,384
334,983,117
141,773,493
69,447,545
936,872,539
424,354,473
324,182,643
—
393,683
748,930,799
809,461,138
413,085,113
11,143,779
67,435,787
1,301,125,817
318,554,406
347,818,641
706,390
722,009
667,801,446
116,586,654
59,496,632
1,605,038
9,712,774
187,401,097
45,881,378
50,096,304
101,741
103,991
96,183,414
Total revenues
Less: business taxes and related surcharges
Net revenues
1,214,104,021
1,685,803,338
1,968,927,263
283,584,511
(68,598,144)
(88,285,200)
(37,274,715)
(5,368,676)
1,145,505,877
1,597,518,138
1,931,652,548
278,215,836
Asset Management Business
Revenues:
One-time commissions
Recurring service fees
Performance based income
Other service fees
Third-party net revenues
One-time commissions
Recurring service fees
Performance based income
Other service fees
Related party net revenues
Total revenues
Less: business taxes and related surcharges
Net revenues
Internet Financial Service Business
Revenues:
Other service fees
Third-party net revenues
Recurring service fees
Other service fees
Related party net revenues
Total revenues
Less: business taxes and related surcharges
Net revenues
Years Ended December 31,
2014
RMB
2015
RMB
2016
RMB
US$
—
76,313,477
16,680,481
—
92,993,958
—
217,438,078
73,897,688
1,105,055
292,440,821
520,001
66,309,348
52,165,537
512,475
119,507,361
4,333,018
310,730,732
53,825,293
—
368,889,043
1,184,221
61,915,165
8,596,434
—
71,695,820
2,887,327
427,907,685
38,793,992
—
469,589,004
170,563
8,917,639
1,238,144
—
10,326,346
415,862
61,631,526
5,587,497
—
67,634,885
385,434,779
(19,319,443)
366,115,336
488,396,404
(23,408,513)
464,987,891
541,284,824
(9,474,316)
531,810,508
77,961,231
(1,364,585)
76,596,645
Years Ended December 31,
2014
RMB
2015
RMB
2016
RMB
US$
16,732,441
16,732,441
30,326
856,695
887,021
58,330,241
58,330,241
—
166,123
166,123
50,358,068
50,358,068
—
1,065,914
1,065,914
7,253,070
7,253,070
—
153,524
153,524
17,619,462
(755,784)
16,863,678
58,496,364
(1,074,552)
57,421,812
51,423,982
(1,314,268)
50,109,714
7,406,594
(189,294)
7,217,300
75
In the past, our one-time commissions from our wealth management business accounted for more than half of our net
revenues. Starting in 2013, our recurring service fees constituted more than half of our net revenues, primarily due to an increase in
assets under our management.
We also receive performance-based revenues from some funds previously distributed by us and funds for which we serve as
the general partners. For more details about performance-based income, please refer to “Item 4. Information On The Company—B.
Business Overview—Our Products and Services—Asset Management Investments.”
Operating Cost and Expenses
Our operating cost and expenses currently consist of compensation and benefits, selling expenses, general and administrative
expenses and other operating expenses, offset by certain government subsidies that we receive. The following table sets forth the
components of our operating cost and expenses, both in absolute amount and as a percentage of net revenues for the periods indicated:
2014
Years Ended December 31,
2015
2016
RMB
%
RMB
%
RMB
US$
%
(737,460,338) 48.2
9.6
(147,265,810)
9.9
(151,626,278)
2.0
(29,961,830)
(5.9)
90,931,462
(1,164,492,379) 54.9
(263,815,409) 12.4
8.1
(170,929,513)
4.5
(94,624,304)
(6.3)
132,709,712
(1,300,403,960) (187,297,128) 51.7
(46,473,789) 12.8
9.3
(33,773,306)
6.0
(21,761,115)
(6.5)
23,385,319
(322,667,518)
(234,488,066)
(151,087,419)
162,364,268
(975,382,794) 63.8
(1,561,151,893) 73.6
(1,846,282,695) (265,920,019) 73.5
Operating cost and expenses:
Compensation and benefits
Selling expenses
General and administrative expenses
Other operating expenses
Government subsidies
Total operating cost and expenses
Compensation and Benefits
Compensation and benefits mainly include salaries and commissions for our relationship managers and investment
professionals, share-based compensation expenses, bonus related to performance-based income, and salaries and bonuses for our
middle-office and back-office employees. In 2014, 2015 and 2016, we incurred commission expenses to our relationship managers of
RMB213.7 million, RMB370.2 million and RMB371.4 million (US$53.5 million), respectively, representing 14.0%, 17.5% and 14.8%
of our net revenues in the same period, respectively. We anticipate that our compensation and benefits will continue to increase as we
hire more relationship managers for our existing and new branch offices and distribute more wealth management products. In addition,
there is an increase in commission rates to relationship managers driven by the change in product mix to more products with recurring
service fees and longer durations, which is in line with the market trend.
Share-Based Compensation Expenses
Our operating cost and expenses include share-based compensation expenses due to grants of stock options to our employees
and directors and the vesting of restricted shares. Share-based compensation was included in compensation and benefits for the years
ended December 31, 2014, 2015 and 2016, respectively. The following table sets forth our share-based compensation expenses both in
absolute amounts and as a percentage of net revenues for the periods indicated:
2014
Years Ended December 31,
2015
2016
Share options
Restricted shares
Total share-based compensation
%
RMB
RMB
%
9,043,829 0.6 33,912,040 1.6 39,008,208 1.5
23,647,858 1.5 33,760,448 1.6 40,163,109 1.6
32,691,687 2.1 67,672,488 3.2 79,171,317 3.1
RMB
%
We adopted a share incentive plan in 2008 and another share incentive plan in 2010.
76
Selling Expenses
Our selling expenses primarily include expenses associated with the operations of branch offices, such as rental expenses,
and expenses attributable to marketing activities.
General and Administrative Expenses
Our general and administrative expenses primarily include rental and related expenses of our leased office spaces and
professional service fees.
Other Operating Expenses
Our other operating expenses mainly included costs incurred directly in relation to our revenues.
Government Subsidies
Government subsidies are cash subsidies received in the PRC from local governments as incentives for investing in certain
local districts. Such subsidies are used by us for general corporate purposes and are reflected as an offset to our operating cost and
expenses.
Share Options
On April 15, 2014, we granted options to purchase a total of 398,500 ordinary shares to our newly appointed independent
directors at an exercise price of US$27.82. The options have a four-year vesting schedule with 25% of each option vesting on the first
anniversary of the applicable grant date and the remainder vesting ratably over the next 36 months.
On May 7, 2014, we granted options to purchase a total of 2,500 ordinary shares to one of our independent directors at an
exercise price of US$26.86. The options have a 5-month vesting schedule with 25% of the options vesting on the vesting
commencement date and the remaining vesting about 5 months after the vesting commencement date.
We modified the exercise price for certain outstanding options that have been granted but not exercised under the 2008 and
2010 share incentive plans as of January 16, 2012 in order to provide appropriate incentives to the relevant employees, officers and
directors. The exercise prices of the eligible options were modified to be US$12.12 per ordinary share, or US$6.06 per ADS, which
represents the average closing price of the our ADSs traded on the New York Stock Exchange during the preceding week, with other
conditions remaining unchanged. We compared the fair value of the modified options against the original awards as of the modification
date and concluded that there is US$1.0 million incremental compensation cost related to options not yet vested to be recognized over
the remaining vesting period. The weighted average exercise price before and after the modification are US$19.81 and US$12.12 per
ordinary share, respectively.
We converted the granted but unvested options as of May 21, 2012 into restricted shares. The conversion reduced the
number of options and made the exercise prices to be zero, but other conditions remaining unchanged. We compared the fair value of
the modified options against the original awards as of the modification date and concluded that there is US$2.0 million incremental
compensation cost related to restricted shares not yet vested to be recognized over the remaining vesting period. The weighted average
exercise price before and after the modification are US$9.52 and nil per ordinary share, respectively.
On August 6, 2014, we granted 19,375 restricted shares to certain independent directors to replace options previously granted
to them and modified the purchase price of the unvested restricted shares from an average of US$37.07 per share to zero, but other
conditions remained unchanged. We compared the fair value of the modified options against the original awards as of the modification
date and concluded that there remains a US$0.3 million incremental compensation cost related to restricted shares not yet vested to be
recognized over the remaining vesting period.
On May 5, 2015, we granted options to purchase a total of 362,700 ordinary shares to our newly appointed independent
directors at an exercise price of US$34.74, US$41.54, or US$58.70. The options have a four-year vesting schedule with 25% of each
option vesting on the first anniversary of the applicable grant date and the remainder vesting ratably over the next 36 months.
77
On July 1, 2016, we granted options to purchase a total of 372,850 ordinary shares to our newly appointed independent
directors at an exercise price of US$38.72. The options have a four-year vesting schedule with 25% of each option vesting on the first
anniversary of the applicable grant date and the remainder vesting ratably over the next 36 months.
We recorded RMB9.0 million, RMB33.9 million and RMB39.0 million (US$5.6 million) for share-based compensation
expenses related to share options expenses in 2014, 2015 and 2016, respectively. 128,457, 49,887 and 62,430 share options were
exercised during 2014, 2015 and 2016, respectively. As of December 31, 2016, there was RMB117.7 million unrecognized
compensation expenses related to unvested share options granted under our share incentive plan, which is expected to be recognized
over a weighted-average period of 2.66 years.
Restricted Shares
On April 15, 2014, we issued 75,000 restricted shares in accordance with the provisions of the 2010 share incentive plan to
certain employees. The restrictions on these restricted shares have a four-year vesting schedule with restrictions on 25% of the restricted
shares to be removed on the first anniversary of the issue date and the remainder to be removed ratably over the next 36 months.
On August 6, 2014, we granted 19,375 restricted shares to certain independent directors to replace options previously granted
and modify the purchase price of the unvested restricted shares from an average of $37.03 per share to zero, but other conditions remain
unchanged. We compared the fair value of the modified awards against the original awards as of the modification date and concluded
that there remains a US$0.3 million incremental compensation cost related to restricted shares not yet vested to be recognized over the
remaining vesting period.
On December 19, 2014, we issued 8,000 restricted shares in accordance with the provisions of the 2010 share incentive plan
to a newly appointed independent director. The restrictions on these restricted shares have a two-year vesting schedule, with 25% of the
options vesting on the vesting commencement date, 25% vesting on the first anniversary date and the remaining 50% vesting on the
second anniversary date.
On February 8, 2015, we issued 8,000 restricted shares and on May 1, 2015, we issued 8,000 restricted shares, in accordance
with the provisions of the 2010 share incentive plan to two independent directors. The restrictions on these restricted shares have a
two-year vesting schedule, with 25% of the options vesting on the vesting commencement date, 25% vesting on the first anniversary
date and the remaining 50% vesting on the second anniversary date.
On May 5, 2015, we issued 137,393 restricted shares in accordance with the provisions of the 2010 share incentive plan to
certain employees. The restrictions on these restricted shares have a four-year vesting schedule, with restrictions on 25% of the
restricted shares to be removed on the first anniversary of the issue date and the remainder to be removed ratably over the next 36
months.
On July 1, 2016, we issued 106,719 restricted shares in accordance with the provisions of the 2010 share incentive plan to
certain employees. The restrictions on these restricted shares have a four-year vesting schedule, with restrictions on 25% of the
restricted shares to be removed on the first anniversary of the issue date and the remainder to be removed ratably over the next 36
months.
On November 1, 2016, we issued 8,000 restricted shares in accordance with the provisions of the 2010 share incentive plan
to an independent director. The restrictions on these restricted shares have a two-year vesting schedule, with 25% of the options vesting
on the vesting commencement date, 25% vesting on the first anniversary date and the remaining 50% vesting on the second anniversary
date.
On December 19, 2016, we issued 8,000 restricted shares in accordance with the provisions of the 2010 share incentive plan
to an independent director. The restrictions on these restricted shares have a two-year vesting schedule, with 25% of the options vesting
on the vesting commencement date, 25% vesting on the first anniversary date and the remaining 50% vesting on the second anniversary
date.
As of December 31, 2016, there was RMB59.3 million in total unrecognized compensation expense related to such
non-vested restricted shares, which is expected to be recognized over a weighted-average period of 2.38 years.
78
Taxation
The 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, payments of capital or dividends in respect of our shares are not subject to taxation in the Cayman Islands
and are not subject to withholding tax in the Cayman Islands. Gains derived from the disposal of our shares are not subject to Cayman
Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty,
inheritance tax or gift tax.
Hong Kong
Under the current Hong Kong Inland Revenue Ordinance, our subsidiaries established in Hong Kong are subject to 16.5%
income tax on their taxable income generated from operations in Hong Kong. Under the Hong Kong tax laws, it is exempted from the
Hong Kong income tax on its foreign-derived income. In addition, payments of dividends from our Hong Kong subsidiaries to us are
not subject to any Hong Kong withholding tax.
PRC
Our PRC subsidiaries and our PRC variable interest entity and their respective subsidiaries were established in the PRC and
as such are subject to value-added tax, education surtax and urban maintenance and construction tax on the services provided in the
PRC. Business tax and related surcharges are primarily levied based on revenues concurrent with a specific revenue- producing
transaction at combined rates ranging from 5.35% to 5.65%. They can be presented either on a gross basis (included in revenues and
costs) or on a net basis (excluded from revenues) at our accounting policy decision under GAAP. We have elected to report such
business tax and related surcharges on a net basis as a reduction of revenues. Business tax and related surcharges of RMB88.7 million,
RMB112.8 million and RMB48.1 million (US$6.9 million) are deducted from our total revenues for the years ended December 31,
2014, 2015 and 2016, respectively. With the rollout of the Value-added Tax (“VAT”) reform on May 1, 2016, business tax is no longer
applicable to us, and the applicable VAT rate is 3%, 6%, and 17%. As VAT liability is excluded when calculating net revenues, our net
revenues are total revenues, net of only VAT related surcharges, which range from 7.0% to 13.0% of VAT liabilities. We recorded net
revenues of RMB1,528.5 million, RMB2,119.9 million and RMB2,513.6 million (US$362.0 million), respectively.
On March 23, 2016, the Ministry of Finance and the State Administration of Taxation jointly issued the Circular on the Pilot
Program for Overall Implementation of the Collection of Value Added Tax Instead of Business Tax, or Circular 36, which will take
effect on May 1, 2016. Pursuant to Circular 36, all companies operating in construction industry, real estate industry, finance industry,
modern service industry or other industries which were required to pay business tax are required to pay value-added tax, in lieu of
business tax. According to Circular 36, the applicable value-added tax rate for our PRC subsidiaries, our PRC variable interest entity
and its subsidiaries is 6%.
In addition, our PRC subsidiaries, our PRC variable interest entity and its subsidiaries are subject to PRC enterprise income
tax on their taxable income in accordance with the relevant PRC income tax laws. On January 1, 2008, the EIT Law in China took
effect. It applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except where a
special preferential rate applies.
Under the EIT Law, dividends from our PRC subsidiaries out of earnings generated after the new law came into effect on
January 1, 2008 are subject to a withholding tax. Distributions of earnings generated before January 1, 2008 are exempt from PRC
withholding tax.
Under the EIT Law, enterprises that are established under the laws of foreign countries or regions and whose “de facto
management bodies” are located within the PRC territory are considered PRC resident enterprises, and will be subject to the PRC
enterprise income tax at the rate of 25% on their worldwide income. Under the Implementation Rules of the EIT Law, “de facto
management bodies” are defined as the bodies that have material and overall management and control over the manufacturing and
business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other
assets of an enterprise. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The dividends we
receive from our PRC subsidiaries may be subject to PRC tax under the PRC Enterprise Income Tax Law, which would have a material
adverse effect on our financial condition and results of operations.” In addition, 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.
79
For more information on PRC tax regulations, see “Item 4. Information on the Business—B. Business
Overview—Regulations—Regulations on Tax.”
Critical Accounting Policies
We prepare financial statements in accordance with GAAP, which requires us to make judgments, estimates and assumptions
that affect the reported amounts of our assets and liabilities and the disclosure of our contingent assets and liabilities at the end of each
fiscal period and the reported amounts of revenues and expenses during each fiscal period. 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.
Consolidation of Variable Interest Entities
As foreign-invested companies engaged in the onshore insurance brokerage business are subject to stringent requirements
compared with Chinese domestic enterprises under the current PRC laws and regulations, our PRC subsidiary, Noah Group, and its
subsidiaries, as foreign-invested companies, do not meet all such requirements and therefore none of them is permitted to engage in the
onshore insurance brokerage business in China. Therefore, our founders decided to conduct the onshore insurance brokerage business in
China through Noah Investment, our variable interest entity, and its subsidiaries, which are PRC domestic companies beneficially
owned by our founders. In addition, we currently conduct our asset management business and certain other restricted services in China
through Noah Investment and its subsidiaries.
Since we do not have any equity interests in Noah Investment, in order to exercise effective control over its operations,
through Noah Group, we entered into a series of contractual arrangements with Noah Investment and its shareholders, pursuant to
which we are entitled to receive effectively all economic benefits generated from Noah Investment. The exclusive option agreement and
power of attorney provide us effective control over Noah Investment and its subsidiaries, while the equity pledge agreements secure the
equity owners’ obligations under the relevant agreements. Because we have both the power to direct the activities of Noah Investment
that most significantly affect its economic performance and the right to receive substantially all of the benefits from Noah Investment,
we are deemed the primary beneficiary of Noah Investment. Accordingly, we have consolidated the financial statements of Noah
Investment since its inception. The aforementioned contractual agreements are effective agreements between a parent and a
consolidated subsidiary, neither of which is accounted for in the consolidated financial statements (i.e., a call option on subsidiary
shares under the exclusive option agreement or a guarantee of subsidiary performance under the share pledge Agreement) or are
ultimately eliminated upon consolidation (i.e., service fees under the exclusive support service agreement or loans payable/receivable
under the loan agreement).
We believe that our contractual arrangements with Noah Investment are in compliance with PRC law and are legally
enforceable. However, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. The
interests of the shareholders of Noah Investment may diverge from that of our company, which may potentially increase the risk that
they would seek to act contrary to the contractual terms.
We also make equity investments in entities that are considered VIEs and perform evaluation on an ongoing basis to
determine whether we are the primary beneficiary of any of these investments. See accounting policy for “investments in affiliates”
below.
80
Investments in Affiliates
We serve as the general partner for our proprietary fund of funds and real estate funds. For all the funds we serve as general
partner, we are required by the limited partnership agreements to also hold equity interest in those funds. From time to time, we may
also invest in those funds to the extent the risk and return profile is deemed acceptable by our established investment policy. Our equity
interest in each individual fund is normally less than 3%. Such investments are accounted for using equity method of accounting and
reported in Investment in Affiliates on consolidated balance sheets.
Affiliated companies are entities over which we have significant influence, but do not have control. We generally consider an
ownership interest of 20% or higher to represent significant influence. Investments in limited partnerships of more than 3% to 5% have
generally been viewed as more than minor so that may imply significant influence. We also consider that we have significant influence
over the funds that we serve as general partner or fund manager of, and our ownership interest in these funds as limited partner is
generally lower than 3%. We do not consolidate the funds of which we serve as general partner or fund manager of, mainly because
substantive kick-out rights exist and are exercisable by non-related limited partners of these funds, and/or we are not the primary
beneficiary of these funds. We have early adopted ASU 2015-02 as of December 31, 2015 and ASU 2016-17 and concluded that none
of the existing funds require consolidation under the new guidance. Investments in affiliates are accounted for by the equity method of
accounting. Under this method, our share of the post-acquisition profits or losses of affiliated companies is recognized in the statements
of operation and our shares of post-acquisition movements in other comprehensive income are recognized in other comprehensive
income. Unrealized gains on transactions between us and affiliated companies are eliminated to the extent of our interest in the
affiliated companies; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred. When our share of losses in an affiliated company equals or exceeds its interest in the affiliated company, we do not
recognize further losses, unless we have incurred obligations or made payments on behalf of the affiliated company. An impairment
loss is recorded when there has been a loss in value of the investment that is other than temporary. We have not recorded any
impairment losses in any of the periods reported.
Under ASU 2015-02, the service fees we earn, including carried interest earned in the capacity of general partner or fund
manager, are commensurate with the level of effort required to provide such services and are at arm’s length and therefore are not
deemed as variable interests.
In evaluating whether the limited partnership investment funds which we managed as general partner are VIEs or not, we
firstly assessed whether a simple majority or lower threshold of limited partnership interests, excluding interests held by the general
partner, parties under common control of the general partner, or parties acting on behalf of the general partner, have substantive
kick-out rights or participating rights. If such rights exist, the limited partnership is not deemed a VIE and no further analysis will be
performed. If the limited partnership is assessed to be a VIE, we further assesses whether any interest it has constitutes a variable
interest. Before 2015, all limited partnerships we managed as general partner had substantive kick-out rights exercisable by a simple
majority of non-related limited partners and therefore were not deemed VIEs. Since 2015, some of the newly formed limited
partnerships we manage as general partner do not have substantive kick-out rights exercisable by a simple majority of non-related
limited partners and therefore constitute VIEs. As a result, such limited partnerships are deemed VIEs not consolidated by us due to the
fact that the general partner interest to absorb losses or receive benefits is not potentially significant to the VIEs.
We started to manage the contractual funds which we manage as fund manager and earns management fee and/or carried
interest from second half of 2014. The contractual funds are VIEs as the fund investors do not have substantive kick-out rights or
participating rights. We sometimes invested in the contractual funds we manage for investment income. Such investments constitute
variable interests to the contractual funds which are believed to be VIEs. We performed a qualitative analysis to determine if its interest
could absorb losses or receive benefits that could potentially be significant to the VIEs and concluded we are not the primary
beneficiary.
We account for these investments using the equity method of accounting due to the fact that we have significant influence on
these investees. We recorded investments in affiliates of RMB326.2 million and RMB 539.2 million (US$77.7 million) as of
December 31, 2015 and 2016, respectively and income from equity in affiliates of RMB13.6 million, RMB21.4 million and
RMB 22.3 million (US$3.2 million) for the years ended December 31, 2014, 2015 and 2016, respectively.
81
Revenue Recognition
We derive revenue from distributing wealth management products and providing recurring services to our clients over the
duration of the wealth management product, which is typically several years. Prior to a client’s purchase of a wealth management
product, we provide the client with a wide spectrum of consultation services, including product selection, review, risk profile
assessment and evaluation and recommendation for the client.
We recognize revenues when there is persuasive evidence of an arrangement, service has been rendered, the sales price is
fixed or determinable and collectability is reasonably assured. Revenues are recorded, net of sales related taxes and surcharges.
One-time commissions. Upon establishment of a wealth management product, we earn a one-time commission paid by our
clients, product providers or the underlying corporate borrowers calculated as a percentage of the wealth management products
purchased by our clients. We enter into one-time commission agreements with product providers or underlying corporate borrowers,
which specifies the key terms and conditions of the arrangement. Such agreements do not include rights of return, credits or discounts,
rebates, price protection or other similar privileges.
We define the “establishment of a wealth management product” for its revenue recognition purpose as the time when both of
the following two criteria are met: (1) the client has entered into a purchase or subscription contract with the relevant product provider
and, if required, the client has transferred a deposit to an escrow account designated by the product provider and (2) the product
provider has issued a formal notice to confirm the establishment of a wealth management product.
Revenues are recorded upon the establishment of the wealth management product, when the provision of service concludes
and the fee becomes fixed and determinable, assuming all other revenue recognition criteria have been met, and there are no future
obligations or contingencies. Certain contracts require that a portion of the payment be deferred until the end of the wealth management
product’s life or other specified contingency. In such instances, we defer the contingent amount until the contingency has been resolved.
A small portion of our one-time commission arrangements require the provision of certain after sales activities, which primarily relate
to disseminating information to clients related to investment performance. We accrue the estimated cost of providing these services,
which are inconsequential, when the one-time commission is earned as the services to be provided are substantially complete, we have
historically completed the after sales services in a timely manner and can reliably estimate the remaining costs.
Recurring Service Fees. Recurring service fees depend on the types of wealth management products we distribute and/or
manage and are calculated as either (1) a percentage of the total capital commitments of investments made by the investors or (2) as a
percentage of the fair value of the total investment in the wealth management product, calculated daily. As we provide these services
throughout the contract term for either method of calculation, revenues are recognized on a daily basis over the contract term, assuming
all other revenue recognition criteria have been met. Recurring service agreements do not include rights of return, credits or discounts,
rebates, price protection or other similar privileges. Prepayments for recurring service fees are deferred and recognized as revenue on a
daily basis over the contract term, assuming all other revenue recognition criteria have been met.
Multiple Element Arrangements. We enter into multiple element arrangements when a product provider or underlying
corporate borrowers engages us to provide both wealth management product distribution and recurring services. We also provide both
wealth management product distribution and recurring services to funds that we serve as general partner or fund manager.
We allocate arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to
all deliverables based on the relative selling price in accordance with the selling price hierarchy, which includes: (i) vendor-specific
objective evidence, or VSOE if available; (ii) third-party evidence, or TPE if VSOE is not available; and (iii) best estimate of selling
price, or BESP if neither VSOE nor TPE is available.
VSOE. We determine VSOE based on our historical pricing and discounting practices for the specific service when sold
separately. In determining VSOE, we require that a substantial majority of the selling prices for these services fall within a reasonably
narrow pricing range. We historically had provided wealth management product distribution services on a stand-alone basis but the
volume of such services has been significantly decreased in recent years. Therefore, VSOE is no longer available for our wealth
management product distribution services. We have not sold our recurring services on a stand-alone basis, so no VSOE exists for
recurring services.
TPE. When VSOE cannot be established for deliverables in multiple element arrangements, we apply judgment with respect
to whether we can establish a selling price based on TPE. TPE is determined based on competitor prices for similar deliverables when
sold separately. Generally, our products and services contain certain level of differentiation such that the comparable pricing of services
with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor services’
selling prices are on a stand-alone basis. As a result, we have not been able to establish selling price based on TPE.
82
BESP. When it is unable to establish selling price using VSOE or TPE, the Group uses BESP in its allocation of arrangement
consideration. The objective of BESP is to determine the price at which the Group would transact a sale if the service were sold on a
stand-alone basis. The Group determines BESP for deliverables by considering multiple factors including, but not limited to, prices it
charged for similar offerings, market conditions, specification of the services rendered, product lifecycles, and pricing strategies and
practices. The Group has used BESP to allocate the selling price of wealth management product distribution service and recurring
services under these multiple element arrangements.
Revenue for the respective units of accounting is also recognized in the same manner as described above.
Performance-based Income. In a typical arrangement in which we serve as fund manager, and in some cases in which we
serve as distributor, except for secondary market funds of funds, we are entitled to a performance-based fee based on the extent by
which the fund’s investment performance exceeds a certain threshold. Such performance-based fees are typically calculated and
distributed when the cumulative return of the fund can be determined (ie. investment gains are realized), and is not subject to clawback
provisions. We do not accrue any performance-based income when the investment gains are not realized.
Beginning in 2015, for certain secondary market fund products for which we provide recurring services, including both the
funds for which we serve as distribution channel and the funds of funds for which we act as the fund manager, the performance-based
income may also include a variable performance fee contingent upon the performance of the underlying investment in the measurement
period, typically calculated at the end of the measurement period and settled subsequently. Such performance-based fee is not subject to
clawback provisions and is recognized when the contingent criteria are met at the end of the measurement period.
Other Service Fees. We also derived revenues from small short-term loan, internet financial service business and payment-
related service, which were recorded as other service fees and represented 1.0%, 0.4%, and 0.6% of our total net revenue for the year
ended December 31, 2016.
From November 2013, we started offering small short-term loan services. Revenue is recognized when there are probable
economic benefits to us and when the revenue can be measured reliably. Interest on loan receivables is accrued monthly in accordance
with their contractual terms and recorded as accrued interest receivable. We do not charge prepayment penalties to customers.
In 2014, we started internet financial service business to provide financial services to mass affluent individuals in China
through our proprietary internet financial platforms. Revenues derived from internet financial service business is recorded in other
service fees.
Our transaction data processing entity provides information processing services by transferring payment information to
licensed third-party payment related companies and charges the customers fixed transaction fees based on the number of transactions it
facilitates. We recognize the transaction fees as revenue.
83
Results of Operations
The following table sets forth a summary of our consolidated results of operations for the periods indicated. The information
should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report. The
operating results in any period are not necessarily indicative of results that may be expected for any future period.
Revenues
Third-party revenues:
One-time commissions
Recurring service fees
Performance-based income
Other service fees
Third-party revenues
Related party revenues:
One-time commissions
Recurring service fees
Performance-based income
Other service fees
Related-party revenues
Total Revenues
Less: business taxes and related surcharges
Net Revenues
Operating cost and expenses:
Compensation and benefits
Selling expenses
General and administrative expenses
Other operating expenses
Government subsidies
Total operating cost and expenses
Income from operations:
Other income (expenses):
Interest income
Interest expenses
Investment income
Other income (expense), net
Total other income
Income before taxes and income from equity in affiliates
Income tax expense
Income from equity in affiliates
Net income
Less: net income (loss) attributable to non-controlling interests
Less: Loss attributable to redeemable non-controlling interest of
a subsidiary
Net income attributable to Noah Holdings Limited
shareholders
2014
RMB
Years Ended December 31,
2015
RMB
RMB
2016
US$
423,218,934
319,933,077
24,632,724
29,979,126
797,763,861
391,188,385
401,292,465
193,939,030
128,290,261
1,114,710,141
180,943,785
560,071,763
76,342,053
2,036,800
819,394,401
1,617,158,262
(88,673,371)
1,528,484,891
428,687,491
634,913,375
53,825,293
559,806
1,117,985,965
2,232,696,106
(112,768,265)
2,119,927,841
810,645,359
475,000,278
19,740,213
117,793,855
1,423,179,705
321,441,733
775,726,326
39,500,382
1,787,923
1,138,456,364
2,561,636,069
116,757,217
68,414,270
2,843,182
16,965,844
204,980,513
46,297,239
111,727,830
5,689,238
257,514
163,971,821
368,952,334
(48,063,299)
(6,922,555)
2,513,572,770
362,029,779
(737,460,338)
(147,265,810)
(151,626,278)
(29,961,830)
90,931,462
(975,382,794)
553,102,097
(1,164,492,379)
(263,815,409)
(170,929,513)
(94,624,304)
132,709,712
(1,561,151,893)
558,775,948
(1,300,403,960)
(322,667,518)
(234,488,066)
(151,087,419)
162,364,268
(1,846,282,695)
667,290,075
(187,297,128)
(46,473,789)
(33,773,306)
(21,761,115)
23,385,319
(265,920,019)
96,109,760
38,901,980
—
23,552,297
(13,961,307)
48,492,970
601,595,067
(151,293,021)
13,583,865
463,885,911
17,333,060
39,698,790
(16,050,359
51,954,918
455,030
76,058,379
634,834,327
(129,885,747)
21,352,767
526,301,347
(9,522,737)
39,537,775
(19,288,813)
48,537,737
(2,531,621)
66,255,078
733,545,153
(157,996,588)
22,342,896
597,891,461
(40,601,294)
5,694,624
(2,778,167)
6,990,888
(364,629)
9,542,716
105,652,476
(22,756,242)
3,218,046
86,114,280
(5,847,803)
—
—
(5,335,678)
(768,498)
446,552,851
535,824,084
643,828,433
92,730,581
84
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Net Revenues. Our net revenues increased by 18.6% from RMB2,119.9 million for the year ended December 31, 2015 to
RMB2,513.6 million (US$362.0 million) for the year ended December 31, 2016. The increase was attributable to increases in one-time
commission revenues and recurring service fees.
•
•
•
For the wealth management business, our net revenues from one-time commissions increased by 39.5% from
RMB772.3 million for the year ended December 31, 2015 to RMB1,106.7 million (US$159.4 million) for the year
ended December 31, 2016, primarily due to the aggregate value of the wealth management products distributed by us.
Our net revenues from recurring service fees increased by 19.5% from RMB624.6 million for the year ended
December 31, 2015 to RMB746.5 million (US$107.5 million) for the year ended December 31, 2016, mainly due to
the cumulative effect of wealth management products with recurring service fees previously distributed by us. Our net
revenues from performance-based income for the full year 2016 were RMB11.6 million (US$1.7 million), a 91.3%
decrease from 2015, primarily due to a decrease in performance-based income from secondary market products
distributed by us. Our net revenues from other service fees for the full year 2016 were RMB66.9 million (US$9.6
million), representing a 48.2% increase from 2015.
For the asset management business, our net revenues from one-time commissions were RMB4.0 million (US$0.6
million) for the year ended December 31, 2016 as compared to RMB4.6 million for the year ended December 31,
2015. Our net revenues from recurring service fees increased by 34.1% from RMB359.0 million for the year ended
December 31, 2015 to RMB481.2 million (US$69.3 million) for the year ended December 31, 2016, mainly due to the
increase in assets under management by us, which was partially offset by the impact of lower management fee rates
due to a change in composition of asset types under management. Our net revenues from performance-based income
for the full year 2016 were RMB46.6 million (US$6.7 million), a 53.9% decrease from the full year 2015, primarily
due to a year-over-year decrease in performance-based income received for positive performance of secondary market
investments by us.
For the internet financial service business, our net revenues were RMB50.1 million (US$7.2 million), a 12.7%
decrease from RMB57.4 million for the full year 2015, mainly due to the modification of the business model starting
from the second half of 2015.
Operating cost and expenses. Operating cost and expenses increased by 18.3% from RMB1,561.2 million in the year ended
December 31, 2015 to RMB1,846.3 million (US$265.9 million) in the year ended December 31, 2016. The increase in operating costs
and expenses was primary driven by increased expenses related to marketing and client engagement events, and increased rental
expenses due to office expansion and relocation.
For the wealth management business, our operating cost and expenses increased by 24.2% from RMB1,131.5 million in the
year ended December 31, 2015 to RMB1,405.6 million (US$202.5 million) in the year ended December 31, 2016.
•
•
•
•
•
Compensation and benefits includes compensation for relationship managers and back-office employees.
Compensation and benefits for the full year 2016 were RMB1,000.3 million (US$144.1 million), a 16.9% increase
from 2015. In 2016, relationship manager compensation increased by 9.7% from 2015. Other compensation for the
full year 2016 increased by 27.3% from 2015, primarily due to increases in both the number of back-office employees
and share-based compensation.
Selling expenses increased by 28.1% from RMB219.3 million in the year ended December 31, 2015 to
RMB281.0 million (US$40.5 million) in the year ended December 31, 2016, primarily due to an increase in marketing
initiatives and rental fees.
General and administrative expenses for the full year 2016 were RMB120.8 million (US$17.4 million), a 53.2%
increase from 2015, primarily due to increased rental and related expenses and depreciation.
Other operating expenses, which include other costs incurred directly in relation to our revenues, for the full year 2016
were RMB82.1 million (US$11.8 million), an increase of 53.7% from 2015. The increase was primarily due to the
growth of other businesses within the wealth management segment.
Government subsidies increased from RMB76.0 million in the year ended December 31, 2015 to RMB78.4 million
(US$11.3 million) in the year ended December 31, 2016.
85
For the asset management business, our operating cost and expenses decreased by 3.2% from RMB217.4 million in the year
ended December 31, 2015 to RMB210.5 million (US$30.3 million) in the year ended December 31, 2016.
•
•
•
•
Compensation and benefits include compensation of managers of institutional client relationships, fund managers and
back-office employees. Compensation and benefits for the full year 2016 were RMB165.2 million (US$23.8 million),
a 10.0% decrease from the full year 2015. The decrease was primarily due to less performance-based compensation to
fund managers as lower performance based income was recognized in the full year 2016 compared with the
corresponding period in 2015.
Selling expenses for the full year 2016 were RMB16.2 million (US$2.3 million), a 6.4% decrease from 2015,
primarily due to an increase in expenses related to brand promotion.
General and administrative expenses for the full year 2016 were RMB77.2 million (US$11.1 million), a 44.2%
increase from 2015, primarily due to increased consulting fee.
Government subsidies represent cash subsidies received from local governments for general corporate purposes. The
Company received RMB83.9 million (US$12.1 million) in government subsidies in the full year 2016, compared to
RMB56.3 million in 2015.
For the internet financial service business, our operating costs and expenses for the full year 2016 were RMB230.1 million
(US$33.1 million), an increase of 8.4% from 2015, and represent our expenses in human resources, marketing and internet
infrastructure, as well as expenses incurred in promoting our internet financial service business. Operating costs and expenses primarily
consisted of compensation and benefits of RMB135.0 million (US$19.4 million), selling expenses of RMB25.5 million (US$3.7
million), general and administrative expenses of RMB36.5 million (US$5.3 million) and other operating expenses of RMB33.1 million
(US$4.8 million).
Interest Income. Interest income decreased to RMB39.5 million (US$5.7 million) for the year ended December 31, 2016
from RMB39.7 million for the year ended December 31, 2015.
Interest Expenses. Interest expenses were RMB19.3 million (US$2.8 million) for the year ended December 31, 2016, as
compared to RMB 16.1 million for the year ended December 31, 2015, primarily due to the issuance of our convertible note in 2015.
Investment Income. Investment income was RMB48.5 million (US$7.0 million) for the year ended December 31, 2016, as
compared to RMB52.0 million for the year ended December 31, 2015, primarily due to a decrease in financial investments.
Income Tax Expense. Income tax expense increased by 21.6% to RMB158.0 million (US$22.8 million) for the year ended
December 31, 2016 from RMB129.9 million for the year ended December 31, 2015, primarily due to an increase in taxable income.
Net Income Attributable to Noah Holdings Limited Shareholders. Net income attributable to Noah Holdings Limited
increased by 20.2% from RMB535.8 million for the year ended December 31, 2015 to RMB643.8 million (US$92.7 million) for the
year ended December 31, 2016.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Net Revenues. Our net revenues increased by 38.7% from RMB1,528.5 million for the year ended December 31, 2014 to
RMB2,119.9 million (US$327.3 million) for the year ended December 31, 2015. The increase was attributable to increases in one-time
commission revenues, recurring service fees and performance-based income.
For the wealth management business, our net revenues from one-time commissions increased by 35.5% from
RMB570.0 million for the year ended December 31, 2014 to RMB772.3 million (US$119.2 million) for the year ended December 31,
2014, primarily due to the aggregate value of the wealth management products distributed by the Company. Our net revenues from
recurring service fees increased by 12.9% from RMB553.1 million for the year ended December 31, 2014 to RMB624.6 million
(US$96.4 million) for the year ended December 31, 2015, mainly due to the cumulative effect of finance products with recurring
service fees previously distributed by the Company, which was partially offset by the impact of lower recurring service fee rates due to
a change in product mix. Our net revenues from performance-based income for the full year 2015 were RMB134.3 million (US$20.7
million), a 1,269.6% increase from 2014, primarily consisting of performance-based income received for the positive performance of
the secondary equity market fund products distributed by the Company. Our net revenues from other service fees for the full year 2015
were RMB66.2 million (US$10.2 million), representing a 426.6% increase from 2014.
86
For the asset management business, our net revenues from one-time commissions were RMB4.6 million (US$0.7 million) for
the year ended December 31, 2015 as compared to nil for the year ended December 31, 2014. Our net revenues from recurring service
fees increased by 28.6% from RMB279.0 million for the year ended December 31, 2014 to RMB359.0 million (US$55.4 million) for
the year ended December 31, 2015, mainly due to the increase in assets under management by the Company, which was partially offset
by the impact of lower management fee rates due to a change in composition of asset types under management. Our net revenues from
performance-based income for the full year 2015 were RMB100.9 million (US$15.6 million), a 17.3% increase from the full year 2014,
primarily consisting of performance-based income received for the positive performance of secondary equity market funds of funds
managed by the Company.
For the internet financial service business, our net revenues were RMB57.4 million (US$8.9 million), a 241.1% increase
from RMB16.8 million for the full year 2014, primarily because this is a fast growing business segment for the Company.
Operating cost and expenses. Operating cost and expenses increased by 60.1% from RMB975.4 million in the year ended
December 31, 2014 to RMB1,561.2 million (US$241.0 million) in the year ended December 31, 2015. The increase in compensation
expenses was partially driven by a change in product mix to more products with recurring service fees and longer durations.
For the wealth management business, our operating cost and expenses increased by 61.5% from RMB700.7 million in the
year ended December 31, 2014 to RMB1,131.5 million (US$174.7 million) in the year ended December 31, 2015.
•
•
•
•
•
Compensation and benefits includes compensation for relationship managers and back-office employees.
Compensation and benefits for the full year 2015 were RMB855.9 million (US$132.1 million), a 60.2% increase from
2014. In 2015, relationship manager compensation increased by 58.8% from 2014, reflecting an increase in the
aggregate value of financial products distributed and an increase in commission rates to relationship managers driven
by the change in product mix to more products with recurring service fees and longer durations. Other compensation
for the full year 2015 increased by 62.2% from 2014, primarily due to increases in both the number of back-office
employees and share-based compensation.
Selling expenses increased by 62.1% from RMB135.3 million in the year ended December 31, 2014 to
RMB219.3 million (US$33.9 million) in the year ended December 31, 2015, primarily due to an increase in marketing
initiatives and rental fees.
General and administrative expenses for the full year 2015 were RMB78.9 million (US$12.2 million), a 5.6% increase
from 2014.
Other operating expenses, which include other costs incurred directly in relation to the Company’s revenues, for the
full year 2015 were RMB53.4 million (US$8.2 million), an increase of 125.8% from 2014. The increase was primarily
due to the growth of other businesses within the wealth management segment.
Government subsidies increased from RMB67.3 million in the year ended December 31, 2014 to RMB76.0 million
(US$11.7 million) in the year ended December 31, 2015.
For the asset management business, our operating cost and expenses increased by 11.4% from RMB195.2 million in the year
ended December 31, 2014 to RMB217.4 million (US$33.6 million) in the year ended December 31, 2015.
•
•
•
•
Compensation and benefits include compensation of managers of institutional client relationships, fund managers and
back-office employees. Compensation and benefits for the full year 2015 were RMB183.5 million (US$28.3 million),
a 24.6% increase from the full year 2014. The increase was primarily due to an increase in the number of back-office
employees.
Selling expenses for the full year 2015 were RMB17.3 million (US$2.7 million), a 77.1% increase from 2014,
primarily due to an increase in client services.
General and administrative expenses for the full year 2015 were RMB53.6 million (US$8.3 million), a 10.9%
decrease from 2014, primarily due to decreased legal fees.
Government subsidies represent cash subsidies received from local governments for general corporate purposes. The
Company received RMB56.3 million (US$8.7 million) in government subsidies in the full year 2015, a 138.6%
increase from 2014.
87
For the internet financial service business, our operating costs and expenses for the full year 2015 were RMB212.3 million
(US$32.8 million), an increase of 166.9% from 2014, and represent the Company’s expenses in human resources, marketing and
internet infrastructure, as well as expenses incurred in promoting the Company’s internet financial service business. Operating costs and
expenses primarily consisted of compensation and benefits of RMB125.1 million (US$19.3 million), selling expenses of
RMB27.3 million (US$4.2 million), general and administrative expenses of RMB38.5 million (US$5.9 million) and other operating
expenses of RMB21.8 million (US$3.4 million).
Interest Income. Interest income increased from RMB38.9 million for the year ended December 31, 2014 to
RMB39.7 million (US$6.1 million) for the year ended December 31, 2015.
Interest Expenses. Interest expenses were RMB16.1 million (US$2.5 million) for the year ended December 31, 2015, as
compared to nil for the year ended December 31, 2014, primarily due to the issuance of our convertible note in 2015.
Investment Income. Investment income was RMB52.0 million (US$8.0 million) for the year ended December 31, 2015, as
compared to RMB23.6 million for the year ended December 31, 2014, primarily due to an increase in financial investments.
Income Tax Expense. Income tax expense decreased by 14.1% from RMB151.3 million for the year ended December 31,
2014 to RMB129.9 million (US$20.1 million) for the year ended December 31, 2015, primarily due to lower effective tax rate.
Net Income Attributable to Noah Holdings Limited Shareholders. Net income attributable to Noah Holdings Limited
increased by 20.0% from RMB446.6 million for the year ended December 31, 2014 to RMB535.8 million (US$82.7 million) for the
year ended December 31, 2015.
Inflation
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 January 2014, 2015 and 2016 were
increases of 2.5%, 0.8% and 1.8%, respectively. Although we have not been materially affected by inflation in the past, we can provide
no assurance that we will not be affected in the future by higher rates of inflation in China. For example, certain operating cost and
expenses, such as personnel expenses, real estate leasing expenses, travel expenses and office operating expenses may increase as a
result of higher inflation. Additionally, because a substantial portion of our assets consists of cash and cash equivalents, high inflation
could significantly reduce the value and purchasing power of these assets. We are not able to hedge our exposure to higher inflation in
China.
Foreign Currency
The exchange rate between U.S. dollar and RMB has increased from RMB6.4778 per U.S. dollar as of December 31, 2015 to
RMB6.943 per U.S. dollar as of December 31, 2016. We have not hedged exposures to exchange fluctuations using any hedging
instruments. See also “Item 3. Key Information—D. Risk Factors – Fluctuations in exchange rates could have a material adverse effect
on our results of operations and the value of your investment.” and “Item 11. Quantitative and Qualitative Disclosures about Market
Risk – Foreign Exchange Risk.”
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued, ASU 2014-09, “Revenue from Contracts with
Customers (Topic 606)”, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle
of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The accounting
guidance also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain
or fulfill a contract. ASU 2014-09 can be adopted using one of two retrospective application methods. In August 2015, the FASB issued
ASU 2015-14, “Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date”, which defers the effective date of
ASU 2014-09 by one year, to fiscal years beginning after December 15, 2017, and interim periods therein. We currently expect to adopt
ASU 2014-09 and related topics in the first quarter of 2018, and are evaluating which transition approach to use.
88
Additionally, the FASB issued the following various updates affecting the guidance in ASU 2014-09. The effective dates and
transition requirements are the same as those in ASC Topic 606 above. In March 2016, FASB issued an amendment to the standard,
ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” Under the amendment,
an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is
a principal) or to arrange for that good or service to be provided by the other party (as an agent). In April 2016, FASB issued
ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, to clarify
identifying performance obligations and the licensing implementation guidance, which retaining the related principles for those areas. In
May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Practical Expedients”. This update addresses narrow-scope improvements to the guidance on collectability, noncash consideration and
completed contracts at transition. The update provides a practical expedient for contract modifications at transition and an accounting
policy election related to the presentation of sales taxes and other similar taxes collected from customers. Then, in December 2016, the
FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. The
updates in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes, which requires deferred income tax liabilities and assets to be classified as noncurrent on the balance sheet rather than being
separated into current and noncurrent. The guidance is effective for public entities for annual periods beginning after December 15,
2016, and interim periods within those annual periods with early adoption being permitted. The ASU will only have impact on our
consolidated balance sheets classification upon adoption.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires that equity investments, except for those
accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent
changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily
determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly
transactions for the identical or a similar investment of the same issuer. ASU 2016-01 also impacts the presentation and disclosure
requirements for financial instruments. ASU 2016-01 is effective for public business entities for annual periods, and interim periods
within those annual periods, beginning after December 15, 2017. Early adoption is permitted only for certain provisions. We are in the
process of evaluating the impact of adoption of this guidance on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases
on the balance sheet. This ASU requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than
12 months. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of
twelve months or less. The ASU does not significantly change the lessees’ recognition, measurement and presentation of expenses and
cash flows from the previous accounting standard. Lessors’ accounting under the ASC is largely unchanged from the previous
accounting standard. In addition, the ASU expands the disclosure requirements of lease arrangements. Lessees and lessors will use a
modified retrospective transition approach, which includes a number of practical expedients. The provisions of this guidance are
effective for annual periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted.
We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-06, “Contingent Put and Call Options in Debt Instruments” clarifying the
assessment of whether contingent call or put options that can accelerate the payment of principal on debt instruments are clearly and
closely related to the economic characteristics and risks of their debt hosts, a criteria in assessing whether to bifurcate an embedded
derivative. The new pronouncement clarifies the exercise contingency and the event triggering the contingency does not need to be
evaluated in the clearly and closely analysis relative to interest rates or credit risks. Rather, the call or put would be evaluated as a
derivative regardless of the exercise contingency. Further, if an entity is no longer required to bifurcate a put or call option per the new
guidance, the entity has a one-time option to irrevocably elect to measure that debt instrument in its entirety at fair value with changes
in fair value recognized in earnings. ASU No. 2016-06 is effective for annual periods beginning after December 15, 2016 and early
adoption is permitted. The ASU should be applied using the modified retrospective basis to existing instruments as of the beginning of
the annual period of adoption. We early adopted ASU No. 2016-06 as of December 31, 2016. The adoption of this pronouncement did
not have a material impact on our consolidated financial statements of the prior reporting period.
89
In March 2016, the FASB issued ASU 2016-07, which eliminates eliminate the requirement to retroactively adopt the equity
method of accounting. The amendments require that the equity method investor add the cost of acquiring the additional interest in the
investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the
investment becomes qualified for equity method accounting. The amendments in this Update are effective for all entities for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied
prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of
the equity method. Earlier application is permitted. The ASU will not impact our consolidated balance sheets classification upon
adoption.
In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based
payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax
withholding requirements, as well as classification in the statement of cash flows. For public entities, the ASU is effective for annual
reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Early adoption
will be permitted in any interim or annual period for which financial statements have not yet been issued or have not been made
available for issuance. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial
statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The update is intended to improve
financial reporting in regards to how certain transactions are classified in the statement of cash flows. This update requires that debt
extinguishment costs be classified as cash outflows for financing activities and provides additional classification guidance for the
statement of cash flows. The update also requires that the classification of cash receipts and payments that have aspects of more than
one class of cash flows to be determined by applying specific guidance under generally accepted accounting principles. The update also
requires that each separately identifiable source or use within the cash receipts and payments be classified on the basis of their nature in
financing, investing or operating activities. The update is effective for public companies for fiscal years beginning after December 15,
2017, including interim periods within those fiscal years. We are in the process of evaluating the impact of adoption of this guidance on
our consolidated financial statements.
In October 2016, FASB issued ASU 2016-16, Income Taxes (Topic 740). Current GAAP prohibits the recognition of current
and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new standard, an
entity is to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer
occurs. The new standard does not include new disclosure requirements; however, existing disclosure requirements might be applicable
when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The new standard
is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual periods. The
ASU will not impact our consolidated balance sheets upon adoption.
In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties under
Common Control (“ASU 2016-17”). This guidance in ASU 2016-17 states that reporting entities deciding whether they are primary
beneficiaries no longer have to consider indirect interests held through related parties that are under common control to be the
equivalent of direct interests in their entirety. Reporting entities would include those indirect interests on a proportionate basis. The
Group has adopted this new guidance and has applied the guidance retrospectively beginning with the annual period in which the
amendments in ASU 2015-02 were adopted in 2015.
In October 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. The update applies
to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. The update
addresses diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash
flows, and requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and
amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows. The update is effective for public companies for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The updates should be
applied using a retrospective transition method to each period presented. We are in the process of evaluating the impact of adoption of
this guidance on our consolidated financial statements.
90
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business. The update affects all companies and other reporting organizations that must determine whether they have acquired or sold a
business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.
The update is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. The update provides a more robust framework to use in determining when a set of assets and
activities is a business, and also provides more consistency in applying the guidance, reduce the costs of application, and make the
definition of a business more operable. For public companies, the update is effective for annual periods beginning after December 15,
2017, including interim periods within those periods. We are in the process of evaluating the impact of adoption of this guidance on our
consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment. The update simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill
impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its
carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s
fair value. The update also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a
qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option
to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The update
should be applied on a prospective basis. The nature of and reason for the change in accounting principle should be disclosed upon
transition. For public companies, the update is effective for any annual or interim goodwill impairment tests in fiscal years beginning
after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial statements.
B.
Liquidity and Capital Resources
To date, we have financed our operations primarily through cash generated from our operating activities, the proceeds from
the private placement of our Series A preferred shares, the net proceeds from our initial public offering and the net proceeds from the
issuance of our convertible note through private placement in early 2015. Our principal uses of cash for the years ended December 31
2014 were for operating activities, primarily employee compensations and rental expenses. Starting from the year ended December 31,
2015, in addition to operating activities, we started to invest heavily in information systems. In 2013, we used RMB47.6 million to pay
an annual dividend and RMB19.6 million to repurchase ADSs. In 2014, we did not pay any dividend or repurchase any shares. In 2015,
we used RMB44.6 million (US$6.9 million) to repurchase ADSs. No dividend was paid for the year ended December 31, 2015. In
2016, we used RMB12.6 million (US$1.9 million) to repurchase ADSs. As of December 31, 2016, we had RMB2,982.5 million
(US$429.6 million) in cash and cash equivalents, consisting of cash on hand and demand deposits which are unrestricted as to
withdrawal and use and which have original maturities of three months or less from their respective dates of purchase. We believe that
our current cash and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash
needs for at least the next 12 months.
In March 2014, Noah Financial Services, our wholly owned subsidiary, entered into a RMB50 million revolving credit
facility agreement with PingAn Bank Co., Ltd., which expired in March 2015.
In February 2015, we issued an aggregate principal amount of US$80 million of convertible notes through private placement
to Greenwoods Asset Management, Hillhouse Capital Management and Keywise Capital Management. The convertible notes bear
interest at a rate of 3.5% per annum from the issuance date and mature in February 2020. The holders will have the right, at the holders’
option, to require us to repurchase for cash on February 3, 2018 or on the maturity date, or upon a fundamental change or default, all of
the Notes at a repurchase price that is equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid
interest to, but excluding, the repurchase date.
91
Our PRC subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in
accordance with PRC accounting standards and regulations. Under PRC law, each of our PRC subsidiaries and our variable interest
entity 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. Although the statutory reserves can be used, among other ways, to increase the registered capital and
eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash
dividends except in the event of liquidation. As a result of these PRC laws and regulations, our PRC subsidiaries are restricted in their
ability to transfer a portion of their net assets, including general reserve and registered capital, either in the form of dividends, loans or
advances. Such restricted portion amounted to RMB753.6 million, RMB1,234.0 million and RMB1,325.4 million (US$190.9 million)
as of December 31, 2014, 2015 and 2016, respectively. The increase in the restricted portion from 2014 to 2015 was mainly due to an
increase in the number of our PRC subsidiaries and increase of statutory reserves. The restricted assets of our variable interest entity
amounted to RMB294.9 million, RMB438.9 million and RMB344.4 million (US$49.6 million) as of December 31, 2014, 2015 and
2016, respectively.
Furthermore, cash transfers from our PRC subsidiaries to our subsidiaries outside of China are subject to PRC government
control of currency conversion. Restrictions on the availability of foreign currency may affect the ability of our PRC subsidiaries and
variable interest entity to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign
currency denominated obligations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in
China—Governmental control of conversion of Renminbi into foreign currencies may limit our ability to utilize our revenues
effectively and affect the value of your investment.”
The following table sets forth a summary of our cash flows for the periods indicated:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes
Net increases in cash and cash equivalents
Cash and cash equivalents at the beginning of the
period
Cash and cash equivalents at the end of the period
Operating Activities
2014
RMB
589,637,901
(93,518,339)
60,448,133
6,426,044
562,993,739
2016
Years Ended December 31,
2015
RMB
675,132,348
(759,462,206)
462,771,650
4,276,967
382,718,759
RMB
686,247,631
(883,794,899)
994,635,081
52,498,078
849,585,891
US$
98,840,218
(127,292,943)
143,257,249
7,561,296
122,365,820
1,187,211,176
1,750,204,915
1,750,204,915
2,132,923,674
2,132,923,674
2,982,509,565
307,204,908
429,570,728
Net cash provided by operating activities in 2016 was RMB686.2 million (US$98.8 million), primarily as a result of net
income of RMB597.9 million (US$86.1 million), adjusted by non-cash charges from operating activities of RMB122.7 million
(US$17.7 million), which primarily included share-based compensation expenses of RMB79.2 million (US$11.4 million) and
depreciation and amortization of RMB61.3 million (US$8.8 million), partially offset by gain from equity in affiliates of
RMB22.3 million (US$3.2 million). Net cash provided by proceeds of products purchased through our internet financial services
business in 2016 was RMB125.0 million (US$18.0 million).
Net cash provided by operating activities in 2015 was RMB675.1 million, primarily as a result of net income of
RMB526.3 million, adjusted by non-cash charges from operating activities of RMB81.1 million, which primarily included share-based
compensation expenses of RMB67.7 million, changes in operating assets and liabilities arising from (i) an increase in payroll accrual
and welfare expenses of RMB174.2 million, and (ii) an increase in other current liabilities of RMB167.6 million, offset principally by
purchases of available-for-sale investments through internet financial service business RMB118.4 million and changes in operating
assets and liabilities arising from (x) an decrease in deferred revenue of RMB29.3 million (y) an increase in amounts due from related
parties of RMB86.4 million, (z) an increase in accounts receivable of RMB54.3 million. The significant increases of amounts due from
related parties and accounts receivable are due to the increase of revenues.
92
Net cash provided by operating activities in 2014 was RMB589.6 million, primarily as a result of net income of
RMB463.9 million, changes in operating assets and liabilities arising from (i) an increase in payroll accrual and welfare expenses of
RMB141.9 million, (ii) an increase in other current liabilities of RMB79.2 million and (iii) an increase in income taxes payable of
RMB40.0 million, offset principally by changes in operating assets and liabilities arising from (x) an increase in amounts due from
related parties of RMB93.8 million, (y) an increase in other current assets of RMB30.1 million and (z) an increase in deferred tax assets
and liabilities of RMB22.1 million. The increase in deferred revenue was primarily attributable to the increase in certain wealth
management products, primarily private equity fund products and products with real estate or real estate related businesses as
underlying assets. Prepayments for recurring service fees are deferred and recognized as revenue on a daily basis over the contract term,
assuming all other revenue recognition criteria have been met. The total number of wealth management products with prepayments
from product providers increased from 33 as of December 31, 2013 to 57 as of December 31, 2014.
We typically received most of one-time commissions and recurring service fees after they accrued and we have no bad debt.
Our accounts receivable and amounts due from related parties amounted to RMB260.9 million, RMB360.6 million and
RMB643.0 million (US$92.6 million) as of December 31, 2014, 2015 and 2016, respectively. The increase in accounts receivable was
primarily due to higher revenues as a result of an increase in aggregate value of wealth management products distributed by us.
Investing Activities
Net cash used in investing activities in 2016 was RMB883.8 million (US$127.3 million), primarily attributable to
RMB192.4 million (US$27.7 million) of investment in affiliates, RMB511.2 million (US$73.6 million) used by pledged factoring
receivables net of purchases and collections, RMB106.5 million (US$15.3 million) in loans to related parties, RMB91.2 million
(US$13.1 million) for purchase of long-term investment, RMB101.4 million (US$14.6 million) of purchases of property and equipment,
and RMB119.3 million (US$17.2 million) net cash outflow for held-to-maturity securities while partially offset by RMB229.8 million
(US$33.1 million) net cash inflow for available-for-sale investment and a net RMB8.4 million (US$1.2 million) in originated loans
disbursement to third parties.
Net cash used in investing activities in 2015 was RMB759.5 million (US$117.2 million) primarily attributable to
RMB94.4 million (US$14.6 million) of investment in affiliates, RMB222.4 million (US$34.3 million) for purchase of long-term
investment and RMB323.6 million (US$50.0 million) net cash outflow for available-for-sale investment while partially offset by
proceeds from net sale of held-to-maturity securities of RMB21.2 million (US$3.3 million), RMB136.3 million (US$21.0 million) of
purchases of property and equipment, and a net RMB89.3 million (US$13.8 million) in originated loans disbursement to third parties.
Net cash used in investing activities in 2014 was RMB93.5 million primarily due to purchases of trading securities
investments of RMB218.3 million and purchases of available-for-sale investments of RMB111.9 million, offset principally by principal
collection of loans originated of RMB1,167.0 million, proceeds on trading securities investments of RMB306.1 million and proceeds
from maturity of held-to-maturity securities of RMB122.0 million, and loans originated of RMB1,162.2 million.
Financing Activities
Net cash provided by financing activities was RMB994.6 million (US$143.3 million) in 2016 due to the net of proceeds and
payments related to the transfer of the right to the factoring receivables of RMB500 million (US$72.0 million), proceeds from partial
sale of the asset management business of RMB336.0 million (US$48.4 million) and non-controlling interests of subsidiaries of
RMB166.7 million (US$24.0 million), proceeds from the issuance of ordinary shares upon the exercise of stock options and the vesting
of restricted shares of RMB4.5 million (US$0.7 million) and partly offset by share repurchase of RMB12.6 million (US$1.8 million).
Net cash provided by financing activities was RMB462.8 million in 2015, consisting of proceeds from convertible notes of
RMB518.2 million, net contributions from non-controlling interests of subsidiaries of RMB34.8 million, proceeds from the issuance of
ordinary shares upon the exercise of stock options and the vesting of restricted shares of RMB4.4 million, and partly offset by share
repurchase of RMB44.6 million and repayment of short-term bank borrowings of RMB50.0 million.
Net cash provided by financing activities was RMB60.4 million in 2014, consisting of short-term bank borrowings of
RMB50.0 million, contributions from non-controlling interests of subsidiaries of RMB8.0 million and proceeds from the issuance of
ordinary shares upon the exercise of stock options and the vesting of restricted shares of RMB4.1 million.
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Capital Expenditures
Our capital expenditures were RMB59.5 million, RMB136.3 million and RMB101.4 million (US$14.6 million) for the years
ended December 31, 2014, 2015 and 2016, respectively. We currently do not have any commitment for capital expenditures or other
cash requirements outside of our ordinary course of business.
C.
Research and Development, Intellectual Property
Research and Development
None.
Intellectual Property
Our brand, trade names, trademarks, trade secrets, proprietary database and research reports and other intellectual property
rights distinguish our products and services from those of our competitors and contribute to our competitive advantage in the high net
worth wealth management services industry and asset management industry. We rely on a combination of trademark, copyright and
trade secret laws as well as confidentiality agreements with our relationship managers, investment professionals and other employees,
our product providers and other contractors. We have forty-one registered trademarks in China, eight registered trademarks in Hong
Kong, twelve registered trademarks in Taiwan and one hundred and three registered domain names worldwide.
While we cannot assure you that our efforts will deter others from misappropriating our intellectual property rights, we will
continue to create and protect our intellectual property rights in order to maintain our competitive position.
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 2016 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability,
liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating
results or financial conditions.
E.
Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third
parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as 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 research and development services with us.
F.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2016:
Operating Lease
Convertible notes*
Payment Due by Period
Total
RMB
358,938,635
615,430,310
Less than 1 year
RMB
1-3 years
RMB
3-5 years
RMB
More than 5
years
RMB
71,839,452 111,734,208
38,880,800
19,440,400
80,444,475 94,920,500
—
557,109,110
Note:
* The amounts of contractual obligations of convertible notes include both principal and interest.
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G.
Safe Harbor
This annual report on Form 20-F contains forward-looking statements. These statements are made under the “safe harbor”
provisions of Section 21E of the Exchange Act. These forward-looking statements can be identified by terminology such as “will,”
“expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “may,” “intend,” “is currently reviewing,” “it is
possible,” “subject to” and similar statements. Among other things, the sections titled “Item 3. Key Information—D. Risk Factors,”
“Item 4. Information on the Company,” and “Item 5. Operating and Financial Review and Prospects” in this annual report on
Form 20-F, as well as our strategic and operational plans, contain forward-looking statements. We may also make written or oral
forward-looking statements in our filings with the Securities and Exchange Commission, in our annual report to shareholders, in press
releases and other written materials and in oral statements made by our officers, directors or employees to third parties. Statements that
are not historical facts, including statements about our beliefs and expectations, are forward-looking statements and are subject to
change, and such change may be material and may have a material adverse effect on our financial condition and results of operations for
one or more prior periods. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could
cause actual results to differ materially from those contained, either expressly or impliedly, in any of the forward-looking statements in
this annual report on Form 20-F. Potential risks and uncertainties include, but are not limited to, a further slowdown in the growth of
China’s economy, government measures that may adversely and materially affect our business, failure of the wealth management
services industry in China to develop or mature as quickly as expected, diminution of the value of our brand or image due to our failure
to satisfy customer needs and/or other reasons, our inability to successfully execute the strategy of expanding into new geographical
markets in China, our failure to manage growth, and other risks outlined in our filings with the Securities and Exchange Commission.
All information provided in this annual report on Form 20-F and in the exhibits is as of the date of this annual report on Form 20-F, and
we do not undertake any obligation to update any such information, except as required under applicable law.
ITEM 6
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
Directors and Senior Management
The following table sets forth information regarding our directors and executive officers as of the date of this annual report.
Directors and Executive Officers
Jingbo Wang
Zhe Yin
Boquan He
Chia-Yue Chang
Neil Nanpeng Shen
May Yihong Wu
Tze-Kaing Yang
Jinbo Yao
Zhiwu Chen
Kenny Lam
Shang Yan Chuang
Harry B. Tsai
Co-founder, chairman and chief executive officer
Co-founder, director and chief executive officer of Gopher Asset Management
Co-founder and independent director
Position/Title
Age
45
43
57
57 Director
48 Director
50
61
41
55
42
35
55
Independent director
Independent director
Independent director
Independent director
President
Chief financial officer
Chief operating officer
Ms. Jingbo Wang is our co-founder and has been our chairman of the board of directors and chief executive officer since our
inception. Ms. Wang has over twenty years of experience in the asset and wealth management services industry. Prior to co-founding
our company, from May 2000 to September 2005, Ms. Wang worked in several departments and affiliates of Xiangcai Securities, a
securities firm in China. Ms. Wang served as the head of the private banking department at Xiangcai Securities from August 2003 to
September 2005, where she established the securities firm’s wealth management business. Prior to that, she worked as a deputy head of
ABN AMRO Xiangcai Fund Management Co., Ltd., a joint venture fund management company, from February 2002 to August 2003,
and the head of the asset management department at Xiangcai Securities from May 2000 to February 2002. Ms. Wang was the financial
controller and general manager for the settlement center of Chengpu Group from September 1994 to December 1999. Ms. Wang
received her master’s degree in management and her bachelor’s degree in economics from Sichuan University in China. Ms. Wang also
graduated from the Global CEO Program of China Europe International Business School in 2009.
Mr. Zhe Yin is our co-founder and has been our director since our inception. He is also the chief executive officer of our
asset management business. Mr. Yin has extensive experience in wealth management. Prior to co-founding our company, Mr. Yin was
the deputy general manager of the wealth management department at Xiangcai Securities from November 2003 to September 2005.
Prior to that, he worked at Bank of Communications of China from July 1997 to November 2003. Mr. Yin received his bachelor’s
degree in economics from Shanghai University of Finance and Economics in 1997, and graduated with an Executive MBA degree from
China Europe International Business School in 2010.
95
Mr. Boquan He is our co-founder and has been our director since August 2007, and independent director since October 2011.
Mr. He is the founder and chairman of the board of directors of Guangdong Nowaday Investment Co., Ltd., a private investment
company specializing in greenfield investments in the Chinese retail and service industries. In 1989, he founded and, until 2002, served
as the chief executive officer of Robust Group, a food and beverage company, which is now a member of Danone Group. He also serves
as the chairman of the board of directors of 7 Days Group Holdings Limited and the chairman or vice chairman of the board of directors
of several privately owned companies in China. Mr. He graduated from Guangdong Television Public University in China.
Ms. Chia-Yue Chang has been our director since August 2007 and the chief executive officer of Noah Upright since 2011.
Ms. Chang has 28 years of experience in the asset management industry with in-depth knowledge about developing business in a
dynamic financial world. Ms. Chang was the chief executive officer for Greater China and South East Asia regions of Robeco Hong
Kong Ltd. from October 2007 to June 2011. From 2004 to 2006, she served as China chief executive officer and senior vice president of
ABN AMRO Asset Management Asia Ltd. During the same period, she was the chairman of ABN AMRO Xiangcai Fund Management
Co., Ltd. from 2004 to 2005, and then the vice chairman of ABN AMRO TEDA Fund Management Co., Ltd from 2005 to 2006. From
2000 to 2004, she was the president of ABN AMRO Asset Management in Taiwan. Prior to that, she worked at various positions at
Kwang Hua Securities Investment & Trust Co., Ltd. and entities affiliated with Jardine Fleming Investment in Taiwan. Ms. Chang
received her master degree in library science from University of California, Los Angeles and her bachelor’s degree in library science
from National Taiwan University.
Mr. Neil Nanpeng Shen has been our director since January 2016. Mr. Shen is currently Founding and Managing Partner of
Sequoia Capital China, a co-founder of Ctrip.com and Home Inns, Trustee of Brookings Institution, Trustee of the Asia Society and
Member of Hong Kong Financial Services Development Council. Mr. Shen was named in the “Forbes Global Midas List” from 2012 to
2016 as the highest ranking investor from China, “50 Most Influential Business Leaders in China” and “30 Most Influential Investors in
China” by Fortune Magazine in 2015 and 2016, “Top 100 Venture Capitalists” by CB Insights partnered with The New York Times in
2016, “Figure of the Year” by “Figure” Magazine in 2015, “25 Most Influential Business Leaders” by China Entrepreneur Magazine
from 2014 to 2016, “The Best Business Leaders in China: New Economy Hero of the Year” by China Business Network in 2016,
“Venture Capital Professional of the Year” by AVCJ in 2010 and 2015, and “Top Ten Economic Figures of the Year” by CCTV in
2006. Mr. Shen received his master’s degree from the School of Management at Yale University and his bachelor’s degree from
Shanghai Jiao Tong University.
Ms. May Yihong Wu has served as our independent director since November 2010. Ms. Wu has served as the chief strategy
officer of Homeinns Hotel Group, a leading economy hotel chain based in China and listed on the NASDAQ Global Market until April
2016, and now a subsidiary of BTG Homeinns Group, listed on Shanghai Stock Exchange. From September 2010 to July 2013, she was
an independent director, a member of the audit committee and the corporate governance and nomination committee of Country Style
Cooking Restaurant Chain Co., Ltd., a NYSE listed company at that time. From April 2010 to April 2012, she was an independent
director and chairwoman of the audit committee of E-House (China) Holdings Limited, a NYSE listed company at that time. Ms. Wu
was the chief financial officer of Home Inns from July 2006 to April 2010. From January 2005 to March 2006, Ms. Wu was first vice
president at Schroder Investment Management North America Inc., and a vice president from January 2003 to December 2004,
responsible for investment research and management of various funds specializing in the consumer and services sectors. Ms. Wu holds
a bachelor’s degree from Fudan University in China, a master’s degree from Brooklyn College at the City University of New York and
an MBA degree from the J.L. Kellogg Graduate School of Management at Northwestern University.
Mr. Tze-Kaing Yang has served as our independent director and the chairperson of the audit committee since May 2015.
Mr. Yang is currently the Chairman and CEO of Yangtze Associates, a venture capital and private equity fund management company in
Taiwan. He also serves as the director of ASUSTeK Computer and the Taiwan Stock Exchange, and the independent director of
ASRock and DBS Bank (Taiwan). Mr. Yang was previously the Deputy Minister of Finance in Taiwan, managing director and acting
chairman of Bank of Taiwan, president of China Development Industrial Bank. He was also the executive secretary of National
Development Industrial Bank. Mr. Yang holds an MBA from the University of Illinois at Urbana-Champaign and a Ph.D. in Business
Administration from National Chengchi University in Taiwan. Mr. Yang teaches Investment Banking and Venture Capital courses in
the MBA Program at National Chengchi University in Taiwan.
Mr. Jinbo Yao has been our independent director since November 2014. Mr. Yao is the founder, chairman of the board of
directors and chief executive officer of 58.com Inc. (NYSE: WUBA). Mr. Yao is a pioneer in China’s internet industry. Prior to
founding 58.com, in 2000, Mr. Yao founded domain.cn, a domain name transaction and value-added service website in China. After
domain.cn was acquired by net.cn in September 2000, Mr. Yao served in various managerial roles at net.cn including vice president of
sales until 2005. Mr. Yao currently serves on the board of directors of Xueda Education Group (NYSE: XUE), a company he
co-founded. Mr. Yao received his bachelor’s degrees in computer science and chemistry from Ocean University of China (formerly
known as Ocean University of Qingdao) in 1999.
96
Dr. Zhiwu Chen has been our independent director since January 2014. He is the Director of the Asia Global Institute (AGI)
and the Victor and William Fung Professor in Economics at the University of Hong Kong (HKU). Prior to joining HKU, he was
professor of finance for 17 years at Yale University (1999-present), Associate Professor at Ohio State University (1995-1999) and
Assistant Professor at University of Wisconsin – Madison (1990-1995). Dr. Chen is on the International Advisory Board of the China
Securities Regulatory Commission (CSRC), the Global Advisory Council of China Minsheng Investment Group (CMIG), and on the
board of directors at both IDG Energy Investment and the Bank of Communications. He is also a member of the Global Agenda
Councils, World Economic Forum. Dr. Chen was on the Board of Trustees of the Yale China Association, the 12th and 13th Five-Year
Plan Advisory Commission to the Beijing Municipal Government, chief academic advisor to two 10-episode CCTV documentary
series, “Wall Street” and “Money”, and chief advisor to Permal Group. Dr. Chen previously served on the Expert Advisory Board for
the formation of the China Investment Corporation (CIC) in 2007, and on the board of directors at PetroChina (2011-17), Lord Abbett
China (2007-2015), Jiayuan.com International (2011-2012), and China Eagle Securities Corp (2002-05). He was co-founder and partner
of ZEBRA Capital Management from 2001 to March 2011, and co-chairman of ValuEngine Inc. from 1997 to 2004. Dr. Chen received
his PhD in financial economics from Yale University in 1990; MS in systems engineering from Changsha Institute of Technology in
1986; and BS in computer science from Central-South University in 1983.
Mr. Kenny Lam has been our president since March 2015. Mr. Lam has over 17 years of experience in strategic, operational
and management transformations in the financial industry. Prior to joining our company, he was a Global Senior Partner at McKinsey &
Company, a co-leader of its Asia Financial Institution Practice, and Head of Asia Private Banking and Asset Management Practice. He
has led transformational programs for leading financial institutions across China, India, Taiwan, Singapore, Hong Kong, Korea and
Japan on a wide range of strategic, financial and operational topics and was McKinsey’s expert on private banking and wealth
management. Before McKinsey, he worked at the U.S. law firm Shearman & Sterling LLP in New York and Hong Kong, counseling
multinational corporations in various M&A transactions and NYSE/Nasdaq public offerings. Mr. Lam received his master’s degree in
law with honors from Oxford University and his bachelor’s degree in finance magna cum laude from the Wharton School of the
University of Pennsylvania, where he was a Joseph Wharton Scholar and a Benjamin Franklin Scholar.
Mr. Shang Yan Chuang has been our chief financial officer since September 2016. Mr.Chuang has extensive experience in
financial services. In March 2011, he joined Noah as a Director of Investment Relations and Corporate Development. In 2012, he
founded Noah Holdings (Hong Kong) Limited, one of our major businesses, and served as its Executive Director and Chief Executive
Officer until January 2016. Prior to joining Noah, Mr. Chuang was a senior executive at Bank of America Merrill Lynch in Investment
Banking Division and Asia Private Equity Division from 2003 to 2011 based in Hong Kong. Mr. Chuang graduated Magna Cum Laude
with a Bachelor of Science in Finance from Stern School of Business at New York University.
Mr. Harry B. Tsai has been our chief operating officer since January 2012. Prior to joining our company, he was the
Executive Vice President of Yuanta Securities of Taiwan since July 2008. Prior to that, Mr. Tsai served as the Chief Operating Officer
of ABN AMRO China from July 2004 to July 2008, and the Executive Director of Strategic IT Asset Management of ABN AMRO
Management Services Ltd (London) from September 2003 to July 2004. Before this, he was the chief operating officer of ABN AMRO
Taiwan from August 1997 to August 2003. Between 1989 and 1997, Mr. Tsai worked in the U.S. for major financial institutions such as
Household Financial Services and American Express Financial Advisors. Mr. Tsai holds a master’s degree of science in chemical
engineering from University of Southern California. Mr. Tsai also holds an MBA in finance from University of Illinois, Urbana-
Champaign.
Employment Agreements
We have entered into employment agreements with each of our senior executive officers. We may terminate a senior
executive officer’s employment for cause at any time without remuneration for certain acts of the officer, such as a crime resulting in a
criminal conviction, willful misconduct or gross negligence to our detriment, a material breach of the employment agreement or of our
corporate and business policies and procedures, or providing services for other entities without our consent. We may also terminate a
senior executive officer’s employment by giving one month’s notice or by paying a one-time compensation fee equal to one month’s
salary in lieu of such notice under certain circumstances, such as a failure by such officer to perform agreed-upon duties or the
impracticability of the performance caused by a material change of circumstances. A senior executive officer may terminate his or her
employment at any time by giving one month’s notice or immediately if we delay in the payment of remuneration, fail to pay social
security fees, or fail to provide the necessary working conditions for such officer.
Each senior executive officer, under his or her employment agreement with us, has agreed to hold any trade secrets,
proprietary information, inventions or technical secrets of our company in strict confidence during and after his or her employment.
Each officer also agrees that we shall own all the intellectual property developed by such officer during his or her employment. If an
officer breaches the above contractual obligations in relation with confidentiality and intellectual property, we are entitled to collect
liquidated damages from such officer equal to two months’ salary for such officer as well as to seek compensation of our actual losses.
97
Each officer also agrees to refrain from competing with us, directly or indirectly, for one year after his or her termination of
employment.
B.
Compensation
For the fiscal year ended December 31, 2016, we paid an aggregate of approximately RMB19.1 million (US$2.8 million) in
cash to our senior executive officers, and we did not pay any cash compensation to our non-executive directors. For share incentive
grants to our officers and directors, see “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive
Plans.”
Share Incentive Plans
We have adopted our 2008 share incentive plan, which we refer to as the 2008 plan, and our 2010 share incentive plan,
which we refer to as the 2010 plan. The purpose of these plans is to attract and retain the best available personnel by linking the
personal interests of the members of the board, officers, employees, and consultants to the success of our business and by providing
such individuals with an incentive for outstanding performance to generate superior returns for our shareholders.
The 2008 Plan
Under the 2008 plan, the maximum number of shares in respect of which options or restricted shares may be granted is 8%
of the shares in issue on the date the offer or grant of an option or a restricted share is made. As of April 13, 2017, options to purchase
an aggregate number of 58,851 Class A ordinary shares have been granted and outstanding, and no restricted shares were issued and
outstanding.
The following table summarizes, as of April 13, 2017, the outstanding options granted to our executive officers, directors,
and other individuals as a group under the 2008 plan.
Name
Other Individuals as a Group
Other Individuals as a Group
Other Individuals as a Group
Other Individuals as a Group
Other Individuals as a Group
Other Individuals as a Group
Class A
Ordinary
Shares
Underlying
Options
Awarded
*
*
*
*
*
*
Exercise
Price
(US$/Share)
1.12
1.12
5.58
7.38
7.38
12.12**
Date of Grant
August 19, 2008
March 2, 2009
March 11, 2010
July 20, 2010
October 11, 2010
October 18, 2010
Date of Expiration
August 19, 2018
March 2, 2019
March 11, 2020
July 20, 2020
October 11, 2020
October 18, 2020
Notes:
*
** On January 16, 2012, our Board of Directors approved a modification of the exercise price from US$19.00 to US$12.12 per
Less than 1% of our total outstanding share capital.
ordinary share with other terms and conditions unchanged.
The following table summarizes, as of April 13, 2017, the outstanding restricted shares issued to our executive officers,
directors, and other individuals as a group under the 2008 plan.
Name
Other Individuals as a Group
Restricted Shares
*
Date of Issuance
Issued upon conversion of options on May 21, 2012
Notes:
* Less than 1% of our total outstanding share capital.
98
Types of Awards. The following briefly describes the principal features of the various awards that may be granted under the
2008 plan.
•
•
Options. Options provide for the right to purchase a specified number of our Class A ordinary shares at a specified
price and usually will become exercisable at the discretion of our plan administrator in installments after the grant
date. The option exercise price shall be paid in cash.
Restricted Shares. A restricted share award is the grant of our Class A ordinary shares which are subject to certain
restrictions and may be subject to risk of forfeiture. Unless otherwise determined by our plan administrator, a
restricted share is nontransferable and may be forfeited or repurchased by us upon termination of employment or
service during a restricted period. Our plan administrator may also impose other restrictions on the restricted shares,
such as limitations on the right to vote or the right to receive dividends.
Plan Administration. The plan administrator is our board of directors, or a committee designated by our board of directors.
The plan administrator will determine the provisions and terms and conditions of each grant.
Offer Letter. Options or restricted shares granted under the plan are evidenced by an offer letter that sets forth the terms,
conditions, and limitations for each grant.
Option Exercise Price. The exercise price subject to an option shall be determined by the plan administrator and set forth in
the offer letter.
Eligibility. We may grant awards to our directors, officers, employees, consultants and advisers or those of any related
entities.
Term of the Awards. The term of each grant of option or restricted shares shall be determined by the plan administrator.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is set forth in the offer letter.
Transfer Restrictions. Awards for options may not be transferred to any third party in any manner by the award holders and
may be exercised only by such holders.
Termination. Unless terminated earlier, the 2008 plan will terminate automatically on December 31, 2018. Our board of
directors has the authority to amend or terminate the plan. However, no such action may adversely affect in any material way any
awards previously granted unless agreed by the recipient.
The 2010 Plan
Under the 2010 plan, the maximum number of shares in respect of which options, restricted shares, or restricted share units
may be granted is 2,315,000 shares. As of April 13, 2017, options to purchase an aggregate number of 762,569 Class A ordinary shares
have been granted and outstanding and 100,745 restricted shares have been issued and outstanding.
99
The following table summarizes, as of April 13, 2017, the outstanding options granted to our executive officers, directors,
and other individuals as a group under the 2010 plan.
Name
Zhiwu Chen
May Yihong Wu
Jingbo Wang
Zhe Yin
Chia-Yue Chang
Harry B. Tsai
May Yihong Wu
Other Individuals as a Group
Jingbo Wang
Zhe Yin
Chia-Yue Chang
Shang Yan Chuang
Harry B. Tsai
Other Individuals as a Group
Other Individuals as a Group
Other Individuals as a Group
Jingbo Wang
Zhe Yin
Chia-Yue Chang
Shang Yan Chuang
Harry B. Tsai
Other Individuals as a Group
Notes:
* Less than 1% of our total outstanding share capital.
Exercise
Price
(US$/Share)
Date of Grant
Date of Expiration
February 25, 2014
39.29 December 13, 2013 December 13, 2023
February 25, 2024
31.10
April 15, 2024
27.82 April 15, 2014
April 15, 2024
27.82 April 15, 2014
April 15, 2024
27.82 April 15, 2014
April 15, 2024
27.82 April 15, 2014
May 7, 2024
26.86 May 7, 2014
April 15, 2024
27.82 April 15, 2014
May 5, 2025
34.74 May 5, 2015
May 5, 2025
34.74 May 5, 2015
May 5, 2025
34.74 May 5, 2015
May 5, 2025
34.74 May 5, 2015
May 5, 2025
34.74 May 5, 2015
May 5, 2025
34.74 May 5, 2015
May 5, 2025
41.54 May 5, 2015
May 5, 2025
58.70 May 5, 2015
July 1, 2026
July 1, 2016
38.72
July 1, 2026
July 1, 2016
38.72
July 1, 2026
July 1, 2016
38.72
July 1, 2026
July 1, 2016
38.72
July 1, 2026
July 1, 2016
38.72
July 1, 2026
July 1, 2016
38.72
Class A
Ordinary
Shares
Underlying
Options
Awarded
*
*
*
*
*
*
*
398,500
*
*
*
*
*
345,200
*
*
*
*
*
*
*
308,100
100
The following table summarizes, as of April 13, 2017, the outstanding restricted shares issued to our executive officers,
directors, and other individuals as a group under the 2010 plan.
Name
May Yihong Wu
May Yihong Wu
Jingbo Wang
Zhe Yin
Chia-Yue Chang
Harry B. Tsai
Other Individuals as a Group
Other Individuals as a Group
Other Individuals as a Group
May Yihong Wu
Jinbo Yao
Tze-Kaing Yang
Kenny Lam
Other Individuals as a Group
Harry B. Tsai
Kenny Lam
Other Individuals as a Group
May Yihong Wu
Jinbo Yao
Restricted
Shares
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
Date of Issuance
Issued upon conversion of options on May 21, 2012 and August 6, 2014
November 10, 2012
February 4, 2013
February 4, 2013
February 4, 2013
February 4, 2013
Issued upon conversion of options on May 21, 2012
February 4, 2013
April 15, 2014
November 1, 2014
December 19, 2014
May 1, 2015
May 5, 2015
May 5, 2015
July 1, 2016
July 1, 2016
July 1, 2016
November 1, 2016
December 19, 2016
Notes:
* Less than 1% of our total outstanding share capital.
The following paragraphs summarize the terms of the 2010 plan.
Types of Awards. The following briefly describes the principal features of the various awards that may be granted under the
2010 plan.
•
•
•
Options. Options provide for the right to purchase a specified number of our Class A ordinary shares at a specified
price and usually will become exercisable at the discretion of our plan administrator in one or more installments after
the grant date. The option exercise price may be paid, subject to the discretion of the plan administrator, in cash, in
our Class A ordinary shares which have been held by the option holder for such period of time as may be required to
avoid adverse accounting treatment, in other property with value equal to the exercise price, through a broker-assisted
cashless exercise, or by any combination of the foregoing.
Restricted Shares. A restricted share award is the grant of our Class A ordinary shares which are subject to certain
restrictions and may be subject to risk of forfeiture. Unless otherwise determined by our plan administrator, a
restricted share is nontransferable and may be forfeited or repurchased by us upon termination of employment or
service during a restricted period. Our plan administrator may also impose other restrictions on the restricted shares,
such as limitations on the right to vote or the right to receive dividends.
Restricted Share Units. Restricted share units represent the right to receive our Class A ordinary shares at a specified
date in the future, subject to forfeiture of such right upon termination of employment or service during the applicable
restriction period. If the restricted share units have not been forfeited, then we shall deliver to the holder unrestricted
Class A ordinary shares that will be freely transferable after the last day of the restriction period as specified in the
award agreement.
Plan Administration. The plan administrator is our board of directors or a committee designated by our board of directors.
The plan administrator will determine the provisions and terms and conditions of each grant.
Award Agreement. Options, restricted shares, or restricted share units granted under the plan are evidenced by an award
agreement that sets forth the terms, conditions, and limitations for each grant.
101
Option Exercise Price. The exercise price subject to an option shall be determined by the plan administrator and set forth in
the award agreement. The exercise price may be amended or adjusted in the absolute discretion of the plan administrator, the
determination of which shall be final, binding and conclusive. To the extent not prohibited by applicable laws or the rules of any
exchange on which our securities are listed, a downward adjustment of the exercise prices of options shall be effective without the
approval of the shareholders or the approval of the affected participants.
Eligibility. We may grant awards to our employees, directors, consultants, and advisers or those of any related entities.
Term of the Awards. The term of each option grant shall be stated in the award agreement, provided that the term shall not
exceed 10 years from the date of the grant. As for the restricted shares and restricted share units, the plan administrator shall determine
and specify the period of restriction in the award agreement.
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is set forth in the award
agreement.
Transfer Restrictions. Options to purchase our Class A ordinary shares may not be transferred in any manner by the option
holder other than by will or the laws of succession and may be exercised during the lifetime of the option holder only by the option
holder. Restricted shares and restricted share units may not be transferred during the period of restriction.
Termination of the Plan. Unless terminated earlier, the 2010 plan will terminate automatically in 2020. In the event that the
award recipient ceases employment with us or ceases to provide services to us, the options will terminate after a period of time
following the termination of employment and the restricted shares and restricted share units that are at that time subject to restrictions
will be forfeited to or repurchased by us.
Our board of directors has the authority to amend or terminate the plan subject to shareholder approval with respect to certain
amendments. However, no such action may adversely affect in any material way any awards previously granted unless agreed by the
recipient.
C.
Board Practices
Board of Directors
Our board of directors consists of nine 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 interest at a meeting of our directors and may vote with respect to any contract,
proposed contract or arrangement notwithstanding that he is interested therein, and if he does so his vote shall be counted and he may be
counted in the quorum at any meeting of our directors at which such contract or proposed contract or arrangement is considered. Our
board of directors may exercise all the powers of our company to borrow money and to mortgage or charge its undertaking, property
and uncalled capital or any part thereof, and to issue debentures, debenture stock and other securities whenever money is borrowed or as
security for any debt, liability or obligation of our company or of any third party. The remuneration to be paid to the directors is
determined by the board of directors. There is no age limit requirement for directors.
Committees of the Board of Directors
We established an audit committee, a compensation committee and a corporate governance and nominating committee under
the board of directors in November 2010. We 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. Tze-Kaing Yang, Mr. Zhiwu Chen and Ms. May Yihong Wu, and is
chaired by Mr. Tze-Kaing Yang. Each member of our audit committee satisfies the “independence” requirements of Section 303A of
the Corporate Governance Rules of the NYSE and meet the independence standards under Rule 10A-3 under the Exchange Act. We
have determined that each member of our audit committee 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:
•
•
selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services
permitted to be performed by the independent registered public accounting firm;
reviewing with the independent registered public accounting firm any audit problems or difficulties and
management’s response;
102
•
•
•
•
•
•
reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the
Securities Act;
discussing the annual audited financial statements with management and the independent registered public accounting
firm;
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of
material control deficiencies;
annually reviewing and reassessing the adequacy of our audit committee charter;
meeting separately and periodically with management and the independent registered public accounting firm; and
reporting regularly to the board.
Compensation Committee. Our compensation committee consists of Ms. May Yihong Wu, Mr. Tze-Kaing Yang and
Mr. Boquan He, and is chaired by Ms. May Yihong Wu. Each member of our compensation committee 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 her compensation is deliberated upon.
The compensation committee is responsible for, among other things:
•
•
•
•
reviewing the total compensation package for our most senior executives and making recommendations to the board
with respect to it;
approving and overseeing the total compensation package for our executives other than the three most senior
executives;
reviewing the compensation of our directors and making recommendations to the board with respect to it; and
periodically reviewing and approving any long-term incentive compensation or equity plans, programs or similar
arrangements, annual bonuses, and employee pension and welfare benefit plans.
Corporate Governance and Nominating Committee. Our corporate governance and nominating committee consists of
Ms. May Yihong Wu, Mr. Jinbo Yao and Mr. Zhiwu Chen, and is chaired by Mr. Zhiwu Chen. Each member of our corporate
governance and nominating committee satisfies the “independence” requirements of Section 303A of the Corporate Governance Rules
of the NYSE. The corporate governance and nominating committee assists the board of directors in identifying individuals qualified to
become our directors and in determining the composition of the board and its committees. The corporate governance and nominating
committee is responsible for, among other things:
•
•
•
•
•
identifying and recommending to the board nominees for election or re-election to the board, or for appointment to fill
any vacancy;
reviewing annually with the board the current composition of the board in light of the characteristics of independence,
age, skills, experience and availability of service to us;
identifying and recommending to the board the directors to serve as members of the board’s committees;
advising the board periodically with respect to significant developments in the law and practice of corporate
governance as well as our compliance with applicable laws and regulations, and making recommendations to the
board on all matters of corporate governance and on any corrective action to be taken; and
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and
effectiveness of our procedures to ensure proper compliance.
Duties of Directors
Under Cayman Islands law, our directors owe to us fiduciary duties, 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 also have a duty to exercise the skill they actually
possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their
duty of care to us, our directors must ensure compliance with our memorandum and articles of association. Our company has the right
to seek damages if a duty owed by our directors, or any of them, is breached.
103
Terms of Directors and Officers
Our officers are appointed by and serve at the discretion of the board of directors. Our directors are not subject to a term of
office and hold office until their resignation, death or incapacity or until their respective successors have been elected and qualified in
accordance with our articles of association. A director may be removed from office at any time by an ordinary resolution of our
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 or (ii) is found to be or becomes of unsound mind.
We have no service contracts with any of our directors that provide benefits to them upon termination.
D.
Employees
We had 1,860, 2,688 and 2,823 employees as of December 31, 2014, 2015 and 2016, respectively. The following table sets
forth the number of our employees by function as of December 31, 2016:
Functional Area
Relationship managers
Corporate management and administrative personnel
Product development
Sales and marketing
Total
Number of
Employees
1,169
765
388
501
2,823
% of Total
41.4%
27.1%
13.7%
17.7%
100.0%
Of our employees as December 31, 2016, 1,415 were located in Shanghai and 1,408 in other cities.
As required by regulations in China, we participate in various employee social security plans that are organized by municipal
and provincial governments, including pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical
insurance and housing insurance. We are required under Chinese law to make contributions to employee benefit plans at specified
percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local
government from time to time.
We believe that we maintain a good working relationship with our employees and we have not experienced any significant
labor disputes.
E.
Share Ownership
The following table sets forth information with respect to the beneficial ownership of our Class A ordinary shares, as of
April 13, 2017, by:
•
•
each of our directors and executive officers; and
each person known to us to own beneficially more than 5.0% of our ordinary shares.
104
As of April 13, 2017, we had 28,306,328 ordinary shares outstanding on an as-converted basis, assuming all issued and
outstanding Class B ordinary shares are converted into the same number of Class A ordinary shares. 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 of the date of this
report, 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.
Directors and Executive Officers:(1)
Jingbo Wang(2)
Zhe Yin(3)
Boquan He(4)
Chia-Yue Chang(5)
Neil Nanpeng Shen(6)
May Yihong Wu
Tze-Kaing Yang
Jinbo Yao
Zhiwu Chen
Kenny Lam
Shang Yan Chuang
Harry B. Tsai
All Directors and Officers as a Group
Principal Shareholders:
Jing Investors Co., Ltd.(7)
Affiliates of Sequoia Capital China
Jia Investment Co., Ltd.(8)
Quan Investment Co., Ltd.(9)
Yin Investment Co., Ltd.(10)
Affiliates of Greenwoods Asset Management Limited(11)
Shares Beneficially
Owned
Number
%
6,915,640
1,682,802
1,639,872
2,040,102
3,800,001
*
*
*
*
*
*
*
16,245,293
6,915,640
3,800,001
2,040,102
1,639,872
1,682,802
1,381,333
24.4
5.9
5.8
7.2
13.4
*
*
*
*
*
*
*
57.4
24.4
13.4
7.2
5.8
5.9
4.9
Notes:
Less than 1% of our total outstanding ordinary shares.
*
(1) Except for Messrs. Boquan He, Neil Nanpeng Shen, May Yihong Wu, Tze-Kaing Yang, Jinbo Yao and Zhiwu Chen, the business
address of our directors and executive officers is No. 1687 Changyang Road, Changyang Valley, Building 2, Shanghai 200090,
People’s Republic of China.
(2) Represents 6,915,640 ordinary shares and options to acquire ordinary shares owned by Jing Investors Co., Ltd., a British Virgin
Islands company wholly owned and controlled by Ms. Jingbo Wang.
(3) Represents 1,682,802 ordinary shares and options to acquire ordinary shares owned by Yin Investment Co., Ltd., a British Virgin
Islands company wholly owned and controlled by Mr. Zhe Yin.
(4) Represents 1,639,872 ordinary shares held by Quan Investment Co., Ltd., a British Virgin Islands company wholly owned and
controlled by Mr. Boquan He. The business address of Mr. Boquan He is Room 13-15, 32nd Floor, No. 183-187 Daduhui Plaza,
North Tianhe Road, Tianhe District, Guangzhou 510620, People’s Republic of China.
(5) Represents 2,040,102 ordinary shares and options to acquire ordinary shares owned by Jia Investment Co., Ltd., a British Virgin
Islands company wholly owned and controlled by Ms. Chia-Yue Chang
(6) Represents 3,800,001 ordinary shares in the form of restricted ADSs held by Sequoia Capital China I, L.P., Sequoia Capital China
Partners Fund I, L.P., Sequoia Capital China Principals Fund I, L.P. and other affiliates of Sequoia Capital China. The general
partner of each of the three Sequoia Capital China funds is Sequoia Capital China Management I, L.P., whose general partner is
SC China Holding Limited, a company incorporated in the Cayman Islands. SC China Holding Limited is wholly owned by SNP
China Enterprise Limited, a company wholly owned by Mr. Nanpeng Shen. Mr. Shen is a managing director of Sequoia Capital
China, an affiliate of the Sequoia Capital China funds. Mr. Shen disclaims beneficial ownership with respect to the shares held by
the affiliates of Sequoia Capital China, except to the extent of his pecuniary interest therein. The business address for Mr. Shen is
Room 4603, Plaza 66, Tower 2, 1366 Nanjing West Road, Shanghai 200040, People’s Republic of China.
Jing Investors Co., Ltd. is a British Virgin Islands company wholly owned and controlled by Ms. Jingbo Wang. The registered
address of Jing Investors Co., Ltd. is Drake Chambers, Tortola, British Virgin Islands.
(7)
105
(8)
Jia Investment Co., Ltd. is a British Virgin Islands company wholly owned and controlled by Ms. Chia-Yue Chang. The registered
address of Jia Investment Co., Ltd. is Drake Chambers, Tortola, British Virgin Islands.
(9) Quan Investment Co., Ltd. is a British Virgin Islands company wholly owned and controlled by Mr. Boquan He. The registered
address of Quan Investment Co., Ltd. is Drake Chambers, Tortola, British Virgin Islands.
(10) Yin Investment Co., Ltd. is a British Virgin Islands company wholly owned and controlled by Mr. Zhe Yin. The registered address
of Yin Investment Co., Ltd. is Drake Chambers, Tortola, British Virgin Islands.
(11) Represents 1,381,333 ordinary shares in the form of ADSs held by Greenwoods Asset Management Limited, Greenwoods Asset
Management Holdings Limited, Unique Element Corp and Jinzhi Jiang. Information presented herein is based on the Schedule
13G filed by such persons with the SEC on February 12, 2015. The business address of Greenwoods Asset Management Limited
is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY11111, the Cayman Islands. The business address of
Greenwoods Asset Management Holdings Limited and Unique Element Corp is Sea Meadow House, Blackburne Highway, Road
Town, Tortola, British Virgin Islands. The business address of Mr. Jiang is Suite 1001, Jingying Building B, 1518 Minsheng
Road, Shanghai, PR China 200135.
To our knowledge, as of April 13, 2017, 15,218,965 of our Class A ordinary shares were held by one record holder in the
United States, which is Citibank, N. A., the depositary of our ADS program; this number includes 41,132 Class A ordinary shares of
treasury stock. The number of beneficial owners of our ADSs in the United States is much larger than the number of record holders of
our Class A ordinary shares in the United States.
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—Share Ownership.”
B.
Related Party Transactions
Contractual Arrangements
As to our contractual arrangements with Noah Investment and its shareholders, please see Item 4. “Information on the
Company—C. Organizational Structure” for a description of these contractual arrangements.
Loan Agreements
In October 2007, each shareholder of Noah Investment entered into a loan agreement with Noah Group. The principal
amounts of the loans to these shareholders were RMB27.0 million (US$4.3 million) in aggregate. The loans were solely for their
respective investment in the equity interests in Noah Investment. These loans were subsequently restructured in June 2009 through
loans funded by Noah Group and then granted to such shareholders by an intermediary bank. In December 2013, these loans were
further restructured and each shareholder of Noah Investment re-entered into a new no-interest loan agreement with Noah Group. The
principal amounts of such no-interest loans to these shareholders were the same as that of the initial loans. The loan agreements will
expire in December 2023 and will automatically renew unless terminated in writing by either party.
Transactions with Shareholders and Affiliates
In 2013, we entered into one financial advisory service agreement with Sequoia Capital Investment Management (Tianjin)
Co., Ltd. Under the agreement, we will provide services for the formation and management of four funds sponsored by Sequoia Capital
Management (Tianjin) Co., Ltd. We charged 1.0% of the total fund subscription amount as one-time commission and half of the
recurring services fees charged by Sequoia Capital Investment Management (Tianjin) Co., Ltd. as our recurring service fee. In 2014,
2015 and 2016, we recorded one-time commission of RMB3.0 million, nil and nil, respectively, and recurring services fees of
RMB52.7 million, RMB47.9 million and RMB42.4 million, respectively. As of December 31, 2016, there was no amount due from
Sequoia Capital Investment Management (Tianjin) Co., Ltd. and such funds.
In July 2015, Sequoia Mingde entered into a share purchase agreement with us to purchase 9.8% of the equity shares of
Shanghai Noah Yijie Finance Technology Co., Ltd. for a consideration of RMB31.6 million (US$5.0 million).
106
In December 2016, Shanghai Qinjie Investment (Limited Partnership), a fund managed by Shanghai Gopher, acquired 9.88%
of the equity interests of Shanghai Noah Yijie Finance Technology Co., Ltd, at purchase price of RMB150 million through the issuance
of Series B shares. This acquisition diluted the shares of Shanghai Yafu to 7.5% and the shares of Beijing Sequoia Mingde Equity
Investment Center (Limited Partnership) to 8.6%.
In December 2016, Sequoia Mingde, acquired 8% of the equity interest of New Gopher, a newly established subsidiary of
the company, at a purchase price of RMB336 million, with a precondition that all unrestricted asset management business should be
transferred from Gopher Asset Management to New Gopher (the “business restructuring”). In addition, Sequoia provided a RMB
12 million no-interest bearing loan to Gopher Asset Management and has the right to convert the loan to no less than 8% of equity
interests of Old Gopher before finalization of the business restructuring. The total investment, including the loan, is redeemable by
Sequoia Mingde at a price equal to the initial investment plus a compound annual interest rate of 8% if the business restructuring fails.
In May 2010, we started our fund of funds business by forming fund of private equity funds under our management. In the
second half of 2012, we began raising and managing real estate fund products. We serve as the general partner for these funds. For all
the funds we serve as general partners, we are required by the limited partnership agreements to also hold equity interests in those
funds. We manage contractual funds as fund manager and earn management fee and/or carried interest from second half of 2014.
During the years ended December 31, 2014, 2015 and 2016, significant related party transactions related to these funds were as follows:
i)
ii)
iii)
iv)
v)
In 2014, we recorded one-time commissions of RMB31.4 million and recurring services fees of RMB97.3 million
from investee funds of Gopher Asset Management. In 2015, we recorded one-time commissions of RMB87.1 million
(US$13.4 million) and recurring services fees of RMB109.2 million (US$16.9 million) from investee funds of
Gopher Asset Management. In 2016, we recorded one-time commissions of RMB29.1 million (US$4.2 million),
recurring services fees of RMB128.6 million (US$18.5 million) and performance-based income of RMB6.0 million
(US$0.9 million) from investee funds of Gopher Asset Management. As of December 31, 2016, the amount due
from such investee funds was RMB76.7 million (US$11.1 million).
In 2014, we recorded one-time commissions of RMB2.6 million and recurring services fees of RMB25.2 million
from investee funds of Tianjin Gopher. In 2015, we recorded one-time commissions of nil and recurring services
fees of RMB25.0 million (US$3.9 million) from investee funds of Tianjin Gopher. In 2016, we recorded one-time
commissions of nil and recurring services fees of RMB34.9 million (US$5.0 million) from investee funds of Tianjin
Gopher. As of December 31, 2016, the amount due from such investee funds was RMB5.7 million (US$0.8 million).
In 2014, we recorded one-time commissions of RMB1.5 million and recurring services fees of RMB15.7 million
from investee funds of Kunshan Jingzhao. In 2015, we recorded one-time commissions of nil and recurring services
fees of RMB7.8 million (US$1.2 million) from investee funds of Kunshan Jingzhao. In 2016, we recorded one-time
commissions of nil , recurring services fees of RMB5.4 million (US$0.8 million) and performance-based income of
RMB0.6 million (US$93.6 thousand) from investee funds of Kunshan Jingzhao. As of December 31, 2016, the
amount due from such investee funds was RMB10.2 million (US$1.5 million).
In 2014, we recorded one-time commissions of RMB13.4 million and recurring services fees of RMB79.7 million
from investee funds of Wuhu Gopher. In 2015, we recorded one-time commissions of RMB20.6 million (US$3.2
million), recurring services fees of RMB51.8 million (US$8.0 million) and performance-based income of
RMB14.3 million (US$2.2 million) from investee funds of Wuhu Gopher. In 2016, we recorded one-time
commissions of RMB166.8 million (US$24.0 million), recurring services fees of RMB79.3 million
(US$11.4 million) and performance-based income of RMB16.1 million (US$2.3 million) from investee funds of
Wuhu Gopher. As of December 31, 2016, the amount due from such investee funds was RMB158.3 million
(US$22.8 million).
In 2014, we recorded one-time commissions of RMB6.8 million and recurring services fees of RMB20.3 million
from investee funds of Shanghai Gopher Languang. In 2015, we recorded one-time commissions of
RMB66.0 million (US$10.2 million), recurring services fees of RMB148.4 million (US$22.9 million) and
performance-based income of RMB5.7 million (US$0.9 million) from investee funds of Shanghai Gopher Languang.
In 2016, we recorded nil one-time commissions, recurring services fees and performance-based income from
investee funds of Shanghai Gopher Languang. As of December 31, 2016, there was no amount due from such
investee funds.
107
vi)
vii)
viii)
ix)
x)
xi)
xii)
xiii)
In 2014, we recorded nil one-time commissions and recurring services fees of RMB10.3 million from investee funds
of Chongqing Gopher Longxin. In 2015, we recorded nil one-time commissions, recurring services fees of
RMB2.7 million (US$0.4 million) and performance-based income of RMB10.7 million (US$1.7 million) from
investee funds of Chongqing Gopher Longxin. In 2016, we recorded nil one-time commissions, recurring services
fees of RMB5.6 million (US$0.8 million) from investee funds of Chongqing Gopher Longxin. As of December 31,
2016, there was no amount due from such investee funds.
In 2014, we recorded one-time commissions of RMB21.6 million and recurring services fees of RMB31.4 million
from investee funds of Gopher Capital. In 2015, we recorded one-time commissions of RMB163.1 million (US$25.2
million), recurring services fees of RMB116.2 million (US$17.9 million) and other service fee of RMB5.2 thousand
(US$0.8 thousand) from investee funds of Gopher Capital. In 2016, we recorded one-time commissions of
RMB42.8 million (US$6.2 million), recurring services fees of RMB164.5 million (US$23.7 million) and
performance-based income of RMB0.4 million (US$54.8 thousand) from investee funds of Gopher Capital. As of
December 31, 2016, the amount due from such investee funds was RMB50.5 million (US$7.2 million).
In 2014, we recorded one-time commissions of RMB2.6 million and recurring services fees of RMB37.3 million
from investee funds of Hangzhou Vanke. In 2015, we recorded nil one-time commissions and recurring services fees
of RMB3.8 million (US$0.6 million) from investee funds of Hangzhou Vanke. In 2016, we recorded nil one-time
commissions and recurring services fees of RMB2.6 million (US$0.4 million) from investee funds of Hangzhou
Vanke. As of December 31, 2016, the amount due from such investee funds was RMB0.4 million (US$54.0
thousand).
In 2014, we recorded nil one-time commissions and recurring services fees of RMB7.0 million from Wuhu Bona. In
2015, we recorded nil one-time commissions and recurring services fees of RMB8.8 million (US$1.4 million) from
Wuhu Bona. In 2016, we recorded nil one-time commissions and recurring services fees of RMB7.7 million (US$1.1
million) from Wuhu Bona. As of December 31, 2016, the amount due from such investee funds was RMB5.0 million
(US$0.7 million).
In 2014, we recorded one-time commissions of RMB13.7 million and recurring services fees of RMB94.5 million
from Wanjia Win-Win. In 2015, we recorded one-time commissions of RMB0.1 million (US$19.6 thousand) and
recurring services fees of RMB44.8 million (US$6.9 million) from Wanjia Win-Win. In 2016, we recorded one-time
commissions of nil and recurring services fees of RMB7.4 million (US$1.1 million) and performance-based income
of RMB6.9 million (US$1,0 million) from Wanjia Win-Win. As of December 31, 2016, the amount due from Wanjia
Win-Win was RMB9.7 million (US$1.4 million).
In 2014, we recorded one-time commissions of RMB57.2 million and recurring services fees of RMB71.2 million
from investee funds of Shanghai Gopher Asset Management Co., Ltd., or Shanghai Gopher, one of our affiliates. In
2015, we recorded one-time commissions of RMB1.6 million (US$0.2 million) and recurring services fees of
RMB17.4 million (US$2.7 million) from investee funds of Shanghai Gopher. In 2016, we recorded one-time
commissions of RMB66.0 million (US$9.5 million) , recurring services fees of RMB243.4 million (US$35.1
million) and performance-based income of RMB4.7 million (US$0.7 million) from investee funds of Shanghai
Gopher. As of December 31, 2016, the amount due from such investee funds was RMB75.6 million (US$10.9
million).
In 2014, we recorded one-time commissions of RMB3.6 million and recurring services fees of RMB4.9 million from
investee funds of Shanghai Gopher Zhengda Damuzhi Investment Management Co., Ltd., or Shanghai Gopher
Zhengda Damuzhi, one of our affiliates. In 2015, we recorded nil one-time commissions and recurring services fees
of RMB4.5 million (US$0.7 million) from investee funds of Shanghai Gopher Zhengda Damuzhi. As of
December 31, 2016, there was no amount due from such investee funds.
In 2014, we recorded one-time commissions of RMB16.9 million, recurring services fees of RMB1.1 million and
performance-based income of RMB0.1 million from fund managed by Gopher Nuobao (Shanghai) Asset
Management Co., Ltd., or Gopher Nuobao (Shanghai), one of our affiliates. In 2015, we recorded one-time
commissions of RMB90.2 million (US$13.9 million), recurring services fees of RMB38.3 million (US$5.9 million)
and performance-based income of RMB23.1 million (US$3.6 million) from fund managed by Gopher Nuobao
(Shanghai). In 2016, we recorded one-time commissions of RMB14.7 million (US$2.1 million), recurring services
fees of RMB44.4 million (US$6.4 million) and performance-based income of RMB4.7 million (US$0.7 million)
from fund managed by Gopher Nuobao (Shanghai).As of December 31, 2016, amount due from such fund was
RMB24.6 million (US$3.6 million).
108
In 2014, Shanghai Yafu Investment Consulting Co., Ltd., or Shanghai Yafu, an investment vehicle of Noah’s employees,
acquired 10% of the equity interests of Shanghai Noah Yijie Finance Technology Co., Ltd. upon formation of the entity. In July 2015,
Sequoia Mingde, acquired 9.8% of the equity interests of Shanghai Noah Yijie Finance Technology Co., Ltd., at a purchase price of
RMB31.6 million. The capital injection of Sequoia Mingde in 2015 into Shanghai Noah Yijie Finance Technology Co., Ltd. diluted the
ownership of shanghai Yafu from 10.00% to 8.55%.
Employment Agreements
See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Employment
Agreements.”
Share Incentives
See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plans.”
C.
Interests of Experts and Counsel
Not applicable.
ITEM 8
FINANCIAL INFORMATION
A.
Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report. See “Item 18. Financial Statements.”
Legal Proceedings
We are currently not a party to, and we are not aware of any threat of, any legal, arbitration or administrative proceedings
that, in the opinion of our management, are likely to have a material and adverse effect on our business, financial condition or results of
operations. We may from time to time become a party to various legal, arbitration or administrative proceedings arising in the ordinary
course of our business.
Dividend Policy
Our board of directors has complete discretion as to whether to distribute dividends, subject to our articles of association and
Cayman Islands law. In addition, our shareholders by ordinary resolution may 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 on its
shares out of either profit or share premium amount, 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, our ADS holders will be paid to the same extent as holders of our ordinary shares, subject to the terms of the deposit
agreement, including the fees and expenses payable thereunder. See “Item 12. Description of Securities Other than Equity
Securities—D. American Depository Shares.”
For undistributed profits earned from our China subsidiaries, we have both the intent and ability to permanently reinvest
these undistributed profits.
B.
Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our
audited consolidated financial statements included in this annual report.
ITEM 9
THE OFFER AND LISTING
A.
Offering and Listing Details
Our ADSs have been listed on the New York Stock Exchange since November 10, 2010 under the symbol “NOAH.” Two
ADSs represent one of our ordinary shares.
109
In 2016, the trading price of our ADSs on the New York Stock Exchange ranged from US$20.38 to US$28.85 per ADS.
The following table sets forth, for the periods indicated, the high and low trading prices on the New York Stock Exchange
for our ADSs.
2012
2013
2014
2015
First quarter
Second quarter
Third quarter
Fourth quarter
2016
First quarter
Second quarter
Third quarter
Fourth quarter
Monthly Highs and Lows
October 2016
November 2016
December 2016
January 2017
February 2017
March 2017
April 2017 (through April 9, 2017)
Trading Price (US$)
Low
High
8.87
25.51
25.60
37.96
23.47
37.96
30.06
33.55
28.85
28.43
26.97
28.85
27.21
27.43
25.46
24.72
23.80
26.30
28.79
26.65
4.10
5.64
12.35
16.90
16.90
23.37
18.66
22.11
20.38
20.38
22.26
23.98
21.74
23.41
22.20
21.33
21.64
23.01
25.38
25.34
B.
Plan of Distribution
Not applicable.
C.
Markets
Our ADSs, two of which represent one of our Class A ordinary shares, have been traded on the New York Stock Exchange
since November 10, 2010. Our ADSs trade under the symbol “NOAH.”
D.
Selling Shareholders
Not applicable.
Dilution
Not applicable.
Expenses of the Issue
Not applicable.
E.
F.
ITEM 10 ADDITIONAL INFORMATION
A.
Share Capital
Not applicable.
110
B.
Memorandum and Articles of Association
The following are summaries of material provisions of our memorandum and articles of association, as well as the
Companies Law (2016 Revision) of the Cayman Islands, or the Companies Law, insofar as they relate to the material terms of our
ordinary shares.
Registered Office and Objects
The Registered Office of our company is located at the offices of Maples Corporate Services Limited, P.O. Box 309, Ugland
House, Grand Cayman KY1-1104, Cayman Islands or at such other place as our board of directors may from time to time decide. The
objects for which our company is established are unrestricted and we have full power and authority to carry out any object not
prohibited by the Companies Law or any other law of the Cayman Islands.
Board of Directors
See “Item 6. Directors, Senior Management and Employees—C. Board practices—Board of Directors.”
Ordinary Shares
General. All of our outstanding Class A ordinary shares and Class B ordinary shares are fully paid. Our ordinary shares are
issued in registered form, and are issued when registered in our register of shareholders. Our shareholders who are non-residents of the
Cayman Islands may freely hold and vote their Class A ordinary shares and Class B ordinary shares.
Dividends. The holders of our Class A ordinary shares and Class B ordinary shares are entitled to such dividends as may be
declared by our board of directors, subject to Cayman Islands law and our articles of association. In addition, our shareholders may 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 on its shares out of either profit or share premium amount, 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.
Voting Rights. Each Class A ordinary share is entitled to one vote and each Class B ordinary share is entitled to four votes on
all matters upon which the ordinary shares are entitled to vote. Voting at any shareholders’ meeting is by show of hands unless a poll is
demanded. A poll may be demanded by any one or more shareholders present in person or by proxy entitled to vote and who together
hold not less than 10% of the paid up voting share capital of our company. Shareholders may attend any shareholders’ meeting in
person or by proxy, or if a corporation or other non-natural person, by its duly authorized representative or proxy; we currently do not
allow shareholders to vote electronically.
A quorum required for a meeting of shareholders consists of at least one shareholder present in person or by proxy or, if a
corporation or other non-natural person, by its duly authorized representative, who hold not less than an aggregate of one-third of our
voting share capital. Shareholders’ meetings may be held annually and may be convened by our board of directors. Advance notice of at
least seven calendar days is required for the convening of shareholders’ meetings, subject to exceptions in certain circumstances as set
out in our articles of association.
An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes cast by
the shareholders entitled to vote, in person or by proxy, in a general meeting, while a special resolution requires the affirmative vote of
no less than two-thirds of the votes cast by the shareholders entitled to vote, in person or by proxy, in a general meeting. A special
resolution is required for important matters such as a change of name or amendments to our memorandum or articles of association.
Holders of the ordinary shares may effect certain changes by ordinary resolution, including increasing the amount of our authorized
share capital, consolidating and dividing all or any of our share capital into shares of larger amounts than our existing shares, and
canceling any authorized but unissued shares.
Transfer of Shares. Subject to the restrictions set out in our memorandum and articles of association, our shareholders may
transfer all or any of their ordinary shares by an instrument of transfer in writing and executed by or on behalf of the transferor (and if
our board of directors require, the transferee).
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Our board of directors may decline to register any transfer of any ordinary share which is not fully paid up or on which we
have a lien. Our board may also decline to register any transfer of any ordinary share unless (a) the instrument of transfer is lodged with
us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board may reasonably
require to show the right of the transferor to make the transfer; and (b) a fee of such maximum sum as the NYSE may determine to be
payable, or such lesser sum as our board may from time to time require, is paid to us in respect thereof.
If our board of directors refuses to register a transfer it shall, within two months after the date on which the instrument of
transfer was lodged, send to each of the transferor and the transferee notice of such refusal. The registration of transfers may be
suspended on 14 days’ notice being given by advertisement in such one or more newspapers or by electronic means and the register
closed at such times and for such periods as our board may from time to time determine.
Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares),
assets available for distribution shall be distributed among the holders of the ordinary shares on a pro rata basis, and the liquidator may
with the sanction of an ordinary resolution of the shareholders divide amongst the shareholders in specie or in kind the whole or any
part of the assets of our company, and may for such purpose set such value as he deems fair upon any property to be divided as
aforesaid, and may determine how such division shall be carried out as between our shareholders or different classes of shareholder.
Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that are subject to redemption, at our
option or at the option of the holders, on such terms and in such manner as may, before the issue of such shares, be determined by our
board of directors. Our company may also repurchase any of our shares provided that our shareholders shall have approved the manner
of purchase by ordinary resolution or the manner of purchase is in accordance with the provisions of Articles 17 and 17A of our articles
of association. Under the Companies Law, the redemption or repurchase of any share may be paid out of our company’s profits or out
of the proceeds of a fresh issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share
premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall
due in the ordinary course of business. In addition, under the Companies Law no such share may be redeemed or repurchased (a) unless
it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding, or (c) if the company has
commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for
any amounts unpaid on their shares in a notice served to such shareholders at least 14 calendar days prior to the specified time of
payment. Shares that have been called upon and remain unpaid on the specified time are subject to forfeiture.
Variations of Rights of Shares. If at any time our share capital is divided into different classes or series of shares, all or any
of the special rights attached to any class or series of shares may be varied either with the written consent of the holders of a majority of
the issued shares of that class or series or with the sanction of a special resolution passed at a general meeting of the holders of the
shares of that class or series.
Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to
inspect or obtain copies of our list of shareholders or our corporate records, subject to certain limited exceptions. However, we will
provide our shareholders with annual audited financial statements. See “—H. Documents on Display.”
Anti-Takeover Provisions. Some provisions of our memorandum and articles of association have the potential to discourage,
delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions
that:
•
•
•
provide holders of our Class B ordinary shares four votes per share and holders of our Class A ordinary shares one
vote per share on all matters upon which the ordinary shares are entitled to vote;
authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights,
preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders;
and
limit the ability of shareholders to call general meetings of shareholders.
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our
memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our
company.
112
General Meetings of Shareholders. Shareholders’ meetings may be convened by our board of directors. Advance notice of at
least seven calendar days is required for the convening of our annual general shareholders’ meeting and any other general meeting of
our shareholders, subject to exceptions in certain circumstances as set out in our articles of association. A quorum for a meeting of
shareholders consists of members holding not less than an aggregate of one-third of all voting share capital of our company present in
person or by proxy.
C.
Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described
in “Item 4. Information on the Company” or elsewhere in this annual report on Form 20-F.
D.
E.
Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Foreign Exchange.”
Taxation
The following summary of certain material Cayman Islands, PRC and U.S. federal income tax consequences of an
investment in our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual
report, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in
our ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws.
Cayman Islands Taxation
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 and there are no other taxes likely to be material to us
levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or
brought within the jurisdiction of the Cayman Islands. Although it is unlikely that we will be subject to material taxes, there is no
assurance that the Cayman Islands government will not impose taxes in the future, which could be material to us. In addition, there may
be tax consequences if we are, for example, involved in any transfer or conveyance of immovable property in the Cayman Islands. The
Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by us and there are no exchange
control regulations or currency restrictions in the Cayman Islands.
People’s Republic of China Taxation
The PRC enterprise income tax is calculated based on the taxable income determined under the PRC laws and accounting
standards. Under the EIT Law and the Implementation Rules, all domestic and foreign-invested companies in China are subject to a
uniform enterprise income tax at the rate of 25% and dividends from a PRC subsidiary to its foreign parent company are subject to a
withholding tax at the rate of 10%, unless such foreign parent company’s jurisdiction of incorporation has a tax treaty with China that
provides for a reduced rate of withholding tax, or the tax is otherwise exempted or reduced pursuant to the PRC tax laws. Zhong Lun
Law Firm advises us that since there is currently no such tax treaty between China and the Cayman Islands, dividends we receive from
our PRC subsidiaries will be subject to a 10% withholding tax; in addition, we may be able to enjoy the 5% preferential withholding tax
treatment for the dividends we receive from our PRC subsidiaries through Noah HK, according to Tax Arrangement between mainland
China and Hong Kong, if they satisfy the conditions prescribed under relevant tax rules and regulations, and obtain the approvals as
required under those rules and regulations. See “Item 4. Information on the Company—B. Business
Overview—Regulations—Regulations on Tax.”
Under the EIT Law, enterprises organized under the laws of jurisdictions outside China with their “de facto management
bodies” located within China may be considered PRC resident enterprises and therefore subject to PRC enterprise income tax at the rate
of 25% on their worldwide income. The Implementation Rules define the term “de facto management body” as the management body
that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of
an enterprise. In addition, according to a circular issued by the State Administration of Taxation in April 2009, a foreign enterprise
controlled by a PRC company or a PRC company group will be classified as a “resident enterprise” with its “de facto management
bodies” located within China if the following requirements are satisfied: (i) the senior management and core management departments
in charge of its daily operations function mainly in the PRC; (ii) its financial and human resources decisions are subject to
determination or approval by persons or bodies in the PRC; (iii) its major assets, accounting books, company seals, and minutes and
files of its board and shareholders’ meetings are located or kept in the PRC; and (iv) more than half of the enterprise’s directors or
senior management with voting rights reside in the PRC. We have evaluated whether we are a PRC resident enterprise and we believe
that we are not a PRC resident enterprise for the year ended December 31, 2016.
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However, since the EIT Law and the Implementation Rules are relatively new and ambiguities exist with respect to the
interpretation of the provisions relating to resident enterprise issues. Zhong Lun Law Firm advises us that although our company is not
controlled by any PRC company or company group, we may be deemed to be a PRC resident enterprise under the EIT Law. Zhong Lun
Law Firm further advises us that if we are deemed to be a PRC resident enterprise, we will be subject to PRC enterprise income tax at
the rate of 25% on our global income. In that case, however, dividend income we receive from our PRC subsidiaries may be exempt
from PRC enterprise income tax because the EIT Law and the Implementation Rules generally provide that dividends received from a
PRC resident enterprise from its directly invested entity that is also a PRC resident enterprise is exempt from PRC enterprise income
tax. However, as there is still uncertainty as to how the EIT Law and the Implementation Rules will be interpreted and implemented, we
cannot assure investors in our ADSs or ordinary shares that we are eligible for such PRC enterprise income tax exemptions or
reductions for any subsequent taxable year.
Provided that our Cayman Islands holding company, Noah Holdings Limited, is not deemed to be a PRC resident enterprise,
holders of our ADSs and ordinary shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by
us or gains realized from the sale or other disposition of our shares or ADSs. SAT Circular 7 further clarifies that, if a non-resident
enterprise derives income by acquiring and selling shares in an offshore listed enterprise in the public market, such income will not be
subject to PRC tax. However, because there is uncertainty as to the application of SAT Circular 698 and SAT Circular 7, we and our
non-PRC resident investors may be at risk of being required to file a return and being taxed under SAT Circular 698 and SAT Circular 7
and we may be required to expend valuable resources to comply with SAT Circular 698 and SAT Circular 7 or to establish that we
should not be taxed under SAT Circular 698 and SAT Circular 7. See “Item 3. Key Information—D. Risk Factors—Risks Related to
Doing Business in China—We face uncertainties with respect to the application of the Circular on Strengthening the Administration of
Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises”.
U.S. Federal Income Tax Considerations
The following is a summary of the principal U.S. federal income tax consequences of the purchase, ownership and
disposition of our ADSs or ordinary shares by a U.S. Holder (described below) that holds our ADSs or ordinary shares as “capital
assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended, or the “Code.”
This summary is based upon the provisions of the Code, U.S. Treasury regulations promulgated thereunder, administrative
pronouncements of the U.S. Internal Revenue Service, or the IRS, and judicial decisions , all as in effect on the date hereof, and all of
which may be replaced, revoked, or modified, possibly with retroactive effect.
This summary does not discuss all aspects of U.S. federal income taxation that may be important to particular investors in
light of their individual investment circumstances, including investors subject to special tax rules (for example, financial institutions,
insurance companies, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships and their partners, pension
plans, regulated investment companies, real estate investment trusts, cooperatives, and tax-exempt organizations (including private
foundations)), holders who are not U.S. Holders, holders who own (directly, indirectly, or constructively) 10% or more of our voting
stock, investors that will hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale, or other
integrated transaction for U.S. federal income tax purposes, U.S. expatriates, persons liable for alternative minimum tax, or investors
that have a functional currency other than the U.S. dollar, all of whom may be subject to tax rules that differ significantly from those
summarized below. In addition, this summary does not discuss any state, local, or estate or gift tax considerations and, except for the
limited instances where PRC tax law and potential PRC taxes are discussed below, does not discuss any non-U.S. tax considerations.
Each U.S. Holder is urged to consult its tax advisor regarding the U.S. federal, state, local, and non-U.S. income and other tax
considerations of an investment in our ADSs or ordinary shares.
General
For purposes of this summary, a “U.S. Holder” is a beneficial owner of our ADSs or ordinary shares that is, for U.S. federal
income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a
corporation for U.S. federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the
District of Columbia, (iii) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of
its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more
U.S. persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as a
U.S. person under the Code.
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If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of
our ADSs or ordinary shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the
activities of the partnership. Partners in a partnership holding our ADSs or ordinary shares are urged to consult their tax advisors
regarding an investment in our ADSs or ordinary shares.
The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in
the deposit agreement and any related agreement have been and will be complied with in accordance with their terms.
For U.S. federal income tax purposes, a U.S. Holder of ADSs generally will be treated as the beneficial owner of the
underlying shares represented by such ADSs.
Passive Foreign Investment Company Considerations and Rules
A non-U.S. corporation, such as our company, will be a “passive foreign investment company”, or a PFIC, for U.S. federal income
tax purposes for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the
value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce
passive income or are held for the production of passive income. For this purpose, passive income generally includes dividends,
interest, certain types of rents and royalties, annuities, net gains from the sale or exchange of property producing such income, net gains
from commodity transactions, net foreign currency gains and net income from notional principal contracts. In addition, cash, cash
equivalents, securities held for investment purposes, and certain other similar assets are generally categorized as passive assets.
Although the application of these rules is unclear in many important respects, based on the price of our ADSs, the value of
our assets, and the composition of our income and assets for the taxable year ended December 31, 2016, we believe that we were not a
PFIC for that year. However, the IRS, does not issue rulings with respect to PFIC status, and there can be no assurance that the IRS, or a
court, will agree with our determination. For example, because there are uncertainties in the application of the relevant rules, it is
possible that the IRS may successfully challenge our classification of certain income and assets as non-passive, which may result in our
company being treated as a PFIC. If we are treated as a PFIC with respect to a U.S. Holder for any year during which such U.S. Holder
holds our ADSs or ordinary shares, such U.S. Holder will generally be subject to reporting requirements and may incur significantly
increased U.S. federal income tax on gain recognized on the sale or certain other dispositions of our ADSs or ordinary shares and on the
receipt of distributions on the ADSs or ordinary shares to the extent such distributions are treated as “excess distributions” under U.S.
federal income tax rules, as described below. Also, as described below, if we are treated as a PFIC with respect to a U.S. Holder for any
year, such U.S. Holder generally would not be able to benefit from any preferential tax rate (if any) with respect to any dividend
distributions that such U.S. Holder receives from us in that year or in following years. Certain elections may be available, however, as
described below, that would mitigate these adverse tax consequences to varying degrees.
We must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year.
Accordingly, we cannot assure U.S. Holders that we will not be a PFIC for our current taxable year ending December 31, 2017 or for
any future taxable year. Under circumstances where we determine not to deploy significant amounts of cash for active purposes or
where the market price of our ADSs or ordinary shares declines, our risk of becoming a PFIC may substantially increase. For example,
because we value our goodwill for this purpose based on the market value of our equity, a decrease in the price of our ADSs may result
in our becoming a PFIC. In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the
cash we raise in any financing activities. In the event that we determine that we are not a PFIC in 2017 or in a future taxable year, there
can be no assurance that the IRS or a court will agree with our determination.
Further, we will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of
any other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock. Although the law in this regard is
unclear, we treat our consolidated affiliated entities as being owned by us for U.S. federal income tax purposes, not only because we
control their management decisions but also because we are entitled to substantially all of the economic benefits associated with them,
and, as a result, we consolidate their operating results in our consolidated, GAAP financial statements. If it were determined, however,
that we are not the owner of such entities for U.S. federal income tax purposes, then we would likely be treated as a PFIC.
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If we are treated as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, unless the
U.S. Holder holds our ADSs and makes a mark-to-market election (as described below) with respect to its ADSs, the U.S. Holder will
generally be subject to special tax rules that have a penalizing effect, regardless of whether we remain a PFIC, on (i) any excess
distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is
greater than 125% of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding
period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certain
circumstances, a pledge, of ADSs or ordinary shares. Under the PFIC rules the:
•
•
•
excess distribution and/or gain will be allocated ratably over the U.S. Holder’s holding period for our ADSs or
ordinary shares;
amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first
taxable year in which we are treated as a PFIC, or a pre-PFIC year, will be taxable as ordinary income; and
amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in
effect applicable to the U.S. Holder for that year and will be increased by an additional tax equal to interest on the
resulting tax deemed deferred with respect to each such year.
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by
any net operating losses for such years, and gains (but not losses) realized on the sale of the ADSs or ordinary shares cannot be treated
as capital, even if the U.S. Holder held the ADSs or ordinary shares as capital assets.
If we are treated as a PFIC with respect to a U.S. Holder for any taxable year during which the U.S. Holder hold our ADSs or
ordinary shares and any of our subsidiaries or consolidated affiliated entities is also a PFIC, such U.S. Holder would generally be
treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and may be subject to the rules described
above on certain distributions by a lower-tier PFIC and a disposition of shares of a lower-tier PFIC even though such U.S. Holder
would not receive the proceeds of those distributions or dispositions. U.S. Holders should consult their tax advisors regarding the
application of the PFIC rules to any of our subsidiaries and consolidated affiliated entities.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election
as of the beginning of such U.S. Holder’s holding period with respect to our ADSs, but not our ordinary shares, provided that the ADSs
are, as they are currently, listed on the New York Stock Exchange and that the ADSs are regularly traded. In general, stock is regularly
traded if it is traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange or other
market, as defined in applicable U.S. Treasury regulations. We believe that our ADSs should qualify as being regularly traded, but no
assurances may be given in this regard. If a U.S. Holder makes a valid mark-to-market election, the U.S. Holder will generally
(i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the
end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax
basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but only to the extent of the net amount
previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be
adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a valid mark-to-market
election in respect of a corporation treated as a PFIC and such corporation ceases to be treated as a PFIC, the U.S. Holder will not be
required to take into account the mark-to-market gain or loss described above during any period that such corporation is not classified
as a PFIC. If a U.S. Holder makes a valid mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other
disposition of our ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss,
but only to the extent of the net amount previously included in income as a result of the mark-to-market election.
Because a mark-to-market election, as a technical matter, cannot be made for any lower-tier PFICs that we may own, a U.S.
Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us
that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
In the case of a U.S. Holder who has held ADSs during any taxable year in respect of which we are classified as a PFIC and
continues to hold such ADSs (or any portion thereof) and has not previously determined to make a mark-to-market election, and who
later considers making a mark-to-market election, special tax rules may apply relating to purging the PFIC taint of such ADSs.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections, which, if
available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described
above.
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Also, if we are a PFIC for any taxable year during which a U.S. Holders holds ADSs or ordinary shares, we generally (unless
such U.S. Holder makes a valid mark-to-market election with respect to their ADSs, as discussed above) will continue to be treated as a
PFIC with respect to such U.S. Holder for all succeeding years during which the U.S. Holder holds ADSs or ordinary shares, unless we
cease to be a PFIC and the U.S. Holder makes a “deemed sale” election with respect to the ADSs or ordinary shares, as applicable. If a
U.S. Holder makes such an election, they will be deemed to have sold the ADSs or ordinary shares they hold at their fair market value,
and any gain from such deemed sale would be taxed as an “excess distribution” as described above. Any loss from the deemed sale is
not recognized. After the deemed sale election, the U.S. Holder’s ADSs or ordinary shares with respect to which such election was
made will not be treated as shares in a PFIC unless we subsequently become a PFIC.
For any taxable year that we are treated as a PFIC with respect to a U.S. Holder, the holder will generally be required to file
Form 8621 with the IRS. Significant penalties are imposed for failure to file such form. Each U.S. Holder is urged to consult its tax
advisor concerning the U.S. federal income tax consequences of purchasing, holding, and disposing of our ADSs or ordinary shares,
including our possible status as a PFIC and the possibility of making a mark-to-market election, a deemed sale election, and the
unavailability of the qualified electing fund election.
The discussion below under “Dividends” and “Sale or Other Disposition of ADSs or Ordinary Shares” assumes that we will
not be classified as a PFIC, nor treated as such with respect to U.S. Holders, for U.S. federal income tax purposes.
Dividends
Subject to the PFIC rules discussed above, any cash distributions (including the amount of any PRC tax withheld) paid with
respect to our ADSs or ordinary shares out of our current or accumulated earnings and profits, as determined under U.S. federal income
tax principles, will be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received
by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our
earnings and profits on the basis of U.S. federal income tax principles, any distribution paid will generally be treated as a “dividend” for
U.S. federal income tax purposes. A non-corporate recipient of dividend income generally will be subject to tax on dividend income
from a “qualified foreign corporation” at a reduced U.S. federal tax rate rather than the marginal tax rates applicable to ordinary income,
provided that certain holding period requirements are met. Assuming that we are neither a PFIC nor treated as such with respect to U.S.
Holders (as discussed above) for our taxable year in which the dividend is paid or the preceding taxable year, we will be treated as a
qualified foreign corporation (i) with respect to any dividend we pay on our ADSs that are readily tradable on an established securities
market in the United States, or (ii) if we are eligible for the benefits of a comprehensive tax treaty with the United States that the
Secretary of Treasury of the United States determines is satisfactory for this purpose and includes an exchange of information program.
Our ADSs are currently listed on the New York Stock Exchange. We believe, though no assurances may be given in this regard, that
our ADSs are readily tradable on an established securities market in the United States and that, assuming that we are not a PFIC nor
treated as such with respect to U.S. Holders for the year in which the dividend is paid or the preceding taxable year, we are therefore a
qualified foreign corporation with respect to dividends paid on our ADSs, but not with respect to dividends paid on our ordinary shares.
In the event we are deemed to be a resident enterprise under the EIT Law, we may be eligible for the benefits under the U.S.-PRC
income tax treaty (which the U.S. Treasury Department has determined is satisfactory for this purpose), and that, again assuming that
we are not a PFIC nor treated as such with respect to U.S. Holders for the year in which the dividend is paid or the preceding taxable
year, we would be treated as a qualified foreign corporation with respect to dividends paid on both our ADSs or ordinary shares. U.S.
Holders should consult their tax advisors regarding the availability of the reduced tax rate on dividends in their particular circumstances.
Dividends received on our ADSs or ordinary shares will not be eligible for the dividends received deduction allowed to corporations.
Dividends generally will be treated as income from foreign sources for U.S. foreign tax credit purposes and generally will
constitute passive category income or, in the case of certain U.S. Holders, general category income. In the event that we are deemed to
be a PRC resident enterprise under the EIT Law, a U.S. Holder may be subject to PRC withholding taxes on dividends paid, if any, on
our ordinary shares. See “—People’s Republic of China Taxation” above and “Item 3. Key Information—D. Risk Factors—Risks
Related to Doing Business in China—The dividends we receive from our PRC subsidiaries may be subject to PRC tax under the PRC
Enterprise Income Tax Law, which would have a material adverse effect on our financial condition and results of operations. In
addition, 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.” Depending on the U.S. Holder’s particular facts and
circumstances, the U.S. Holder may be eligible to claim a foreign tax credit in respect of any foreign withholding taxes imposed on
dividends received on our ADSs or ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax
withheld is permitted instead to claim a deduction, for U.S. federal income tax purposes, in respect of such withholdings, but only for a
year in which such U.S. Holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are
complex and their outcome depends in large part on the U.S. Holder’s particular facts and circumstances. Accordingly, U.S. Holders are
urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
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Sale or Other Disposition of ADSs or Ordinary Shares
Subject to the PFIC rules discussed above, a U.S. Holder will recognize capital gain or loss upon the sale or other disposition
of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the U.S.
Holder’s adjusted tax basis in such ADSs or ordinary shares. Any capital gain or loss will be long-term if the ADSs or ordinary shares
have been held for more than one year and will generally be U.S.-source gain or loss for U.S. foreign tax credit purposes. In the event
that we are deemed to be a “resident enterprise” under the EIT Law and gain from the disposition of the ADSs or ordinary shares is
subject to tax in the PRC, such gain may be treated as PRC-source gain for foreign tax credit purposes under the U.S.-PRC income tax
treaty. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The dividends we receive from
our PRC subsidiaries may be subject to PRC tax under the PRC Enterprise Income Tax Law, which would have a material adverse
effect on our financial condition and results of operations. In addition, 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.” If
such gain is not treated as PRC-source gain, however, a U.S. Holder will not be able to obtain a U.S. foreign tax credit for any PRC tax
withheld or imposed unless such U.S. Holder has other foreign source income in the appropriate category for the applicable tax year.
Net long-term capital gains of non-corporate U.S. Holders currently are eligible for reduced rates of taxation. The deductibility of a
capital loss may be subject to limitations. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if PRC tax
is imposed on a disposition of our ADSs or ordinary shares (including pursuant to SAT Circular 698 and SAT Circular 7), including the
availability of the foreign tax credit under their particular circumstances.
Medicare Tax
A 3.8% Medicare tax is generally imposed on a portion or all of the net investment income of certain individuals with a
modified adjusted gross income of over US$200,000 (or US$250,000 in the case of joint filers or US$125,000 in the case of married
individuals filing separately) and on the undistributed net investment income of certain estates and trusts. For these purposes, “net
investment income” generally includes interest, dividends (including dividends paid with respect to our ADSs or ordinary shares),
annuities, royalties, rents, net gain attributable to the disposition of property not held in a trade or business (including net gain from the
sale, exchange or other taxable disposition of an ADS or ordinary share) and certain other income, reduced by any deductions properly
allocable to such income or net gain. Special rules may apply if we are treated as a PFIC with respect to a U.S. Holder. U.S. Holders are
urged to consult their tax advisors regarding the applicability of the Medicare tax to their income and gains in respect of their
investment in the ADSs or ordinary shares.
Information Reporting and Backup Withholding
Dividend payments with respect to our ADSs or ordinary shares and proceeds from the sale or other disposition of our ADSs
or ordinary shares may be subject to information reporting to the IRS and U.S. backup withholding at a rate of 28%. Backup
withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other
required certification, or who is otherwise exempt from backup withholding. U.S. Holders should consult their tax advisors regarding
the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S.
Holder’s U.S. federal income tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS in a timely manner and furnishing any required information.
Specified Foreign Financial Assets
Individual U.S. Holders and certain domestic entities may be required to submit certain information to the IRS with respect
to their beneficial ownership of our ADSs or ordinary shares, if such ADSs or ordinary shares are not held on his, her or its behalf by a
financial institution. This law also imposes penalties if a U.S. Holder is required to submit such information to the IRS and fails to do
so. U.S. Holders are urged to consult their tax advisors regarding the potential reporting requirements that may be imposed with respect
to ownership of ADSs or ordinary shares.
F.
Dividends and Paying Agents
See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy” for
information concerning our dividend policies and our payment of dividends. See “Item 10. Additional Information—B. Memorandum
and Articles of Association —Ordinary Shares” for a discussion of the process by which dividends are paid on our ordinary shares. The
paying agent for payment of our dividends on ADSs in the United States is Citibank, N.A.
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G.
Statement by Experts
Not applicable.
H.
Documents on Display
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act,
we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later
than four months after the close of each fiscal year, which is December 31. Copies of reports and other information, when so filed, may
be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at 100 F
Street, N.E., Room 1580, Washington, D.C. 20549, and at the regional office of the SEC located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. The public may obtain information regarding the Washington, D.C. Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information
statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
Our internet website is www.noahwm.com. We make available free of charge on our website our annual reports on
Form 20-F and any amendments to such reports as soon as reasonably practicable following the electronic filing of such report with the
SEC. In addition, we provide electronic or paper copies of our filings free of charge upon request. The information contained on our
website is not part of this or any other report filed with or furnished to the SEC.
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. Our financial statements have been prepared in accordance with
GAAP.
We will furnish our shareholders with annual reports, which will include a review of operations and annual audited
consolidated financial statements prepared in conformity with GAAP.
I.
Subsidiary Information
For a listing of our subsidiaries, see “Item 4. Information on the Company—C. Organizational Structure.”
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
Our financial statements are expressed in Renminbi, which is our reporting currency. We earn the majority of our revenues
and incur the majority of our expenses in Renminbi, and the majority of our sales contracts are denominated in Renminbi. We do not
believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to
hedge our exposure to such risk. Although in general, our exposure to foreign exchange risks should be limited, the value of your
investment in our ADSs will be affected by the exchange rate between the U.S. dollar and the Renminbi because the value of our
business is effectively denominated in Renminbi, while the ADSs will be traded in U.S. dollars.
The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and
economic conditions and by China’s foreign exchange policies, among other things. In July 2005, the PRC government changed its
decades-old policy of pegging the value of the Renminbi 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. After June 2010, the Renminbi began to appreciate against the U.S.
dollar again, although starting from June 2015, the trend of appreciation changed and the Renminbi started to depreciate against the
U.S. dollar gradually. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate
between the Renminbi and the U.S. dollar in the future. There still remains significant international pressure on the Chinese government
to adopt a substantial liberalization of its currency policy, which could result in further appreciation in the value of the Renminbi against
the U.S. dollar.
119
To the extent that we need to convert U.S. dollars we received from overseas 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 receive from the
conversion. As of December 31, 2016, we had an RMB or Hong Kong dollar or New Taiwan dollar denominated cash balance of
US$303.1 million and a U.S. dollar denominated cash balance of US$126.5 million. Assuming we had converted the U.S. dollar
denominated cash balance of US$126.5 million as of December 31, 2016 into RMB at the exchange rate of US$1.00 for RMB6.943 as
of December 31, 2016, this cash balance would have been RMB878.4 million. Conversely, if we decide to convert our RMB 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 RMB would have a negative effect on the U.S. dollar amount available to us. We have not used any
forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk.
Interest Risk
Our exposure to interest rate risk primarily relates to the interest income generated by expenses incurred by convertible notes
outstanding and interest income generated by excess cash, which is mostly held in interest bearing bank deposits.
As of December 31, 2016, the principal amounts of our convertible notes were approximately US$80 million (RMB555.4
million), which carry a degree of interest rate risk.
As of December 31, 2016, we had RMB433.7 million invested in fixed income products with a weighted average duration of
approximately 2 years.
We have not used derivative financial instruments in our investment portfolio. Interest earning instruments carry a degree of
interest rate risk. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest
rates. However, our future interest income may fall short of expectations due to changes in market interest rates.
ITEM 12
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A.
Debt Securities
Not applicable.
B.
C.
Warrants and Rights
Not applicable.
Other Securities
Not applicable.
D.
American Depositary Shares
Fees and Charges Our ADS holders May Have to Pay
ADS holders will be required to pay the following service fees to the depository:
Service
• Issuance of ADSs
• Cancellation of ADSs
Up to US$0.05 per ADS issued
Up to US$0.05 per ADS canceled
Fees
• Distribution of cash dividends or other cash distributions
Up to US$0.05 per ADS held
• Distribution of ADSs pursuant to stock dividends, free stock
Up to US$0.05 per ADS held
distributions or exercise of rights
• Distribution of securities other than ADSs or rights to purchase
Up to US$0.05 per ADS held
additional ADSs
• Depositary services
• Transfer of ADSs
Up to US$0.05 per ADS held on the applicable record date(s)
established by the depositary
US$1.50 per certificate presented for transfer
120
Citibank, N.A., the depositary of our ADS program, collects fees for delivery and surrender 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 deductions from cash distributions or by
directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally
refuse to provide fee-attracting services until its fees for those services are paid. Citibank’s principal executive office is located at 388
Greenwich Street, New York, New York, 10013. The depositary bank typically appoints a custodian to safekeep the securities on
deposit. In this case, the custodian is Citibank Hong Kong, located at 10/F, Harbour Front (II), 22, Tak Fung Street, Hung Hom,
Kowloon, Hong Kong. ADS holders will also be responsible to pay certain fees and expenses incurred by the depositary and certain
taxes and governmental charges such as:
•
•
•
•
•
fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary
shares in the Cayman Islands (i.e., upon deposit and withdrawal of ordinary shares);
expenses incurred for converting foreign currency into U.S. dollars;
expenses for cable, telex and fax transmissions and for delivery of securities;
taxes and duties upon the transfer of securities (i.e., when ordinary shares are deposited or withdrawn from deposit);
and
fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by the brokers (on
behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the
ADSs to the depositary for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection
with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of
record of ADSs as of the applicable ADS record date.
The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of
distributions other than cash (such as stock dividends and rights distributions), the depositary charges the applicable fee to the ADS
record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or
uncertificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held
in brokerage and custodian accounts (via DTC), the depositary generally collects its fees through the systems provided by DTC (whose
nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The
brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid
to the depositary.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the
requested service until payment is received or may offset the amount of the depositary fees from any distribution to be made to the ADS
holder.
The fees and charges that ADS holders may be required to pay may vary over time and may be changed by us and by the
depositary.
The depositary may reimburse us for certain expenses incurred by us in respect of the ADR program established pursuant to
the deposit agreement, by making available 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. As described in the deposit agreement, we or the
depositary may withhold or deduct from any distributions made in respect of ordinary shares and may sell for the account of a holder
any or all of the ordinary shares and apply such distributions and sale proceeds in payment of any taxes (including applicable interest
and penalties) or charges that are or may be payable by holders in respect of the ADSs.
Fees and Other Payments Made by the Depositary to Us
Our depositary has agreed to reimburse us for certain expenses we incur that are related to establishment and maintenance of
the ADS program, including investor relations expenses and exchange application and listing fees. There are limits on the amount of
expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not related to the amounts of
fees the depositary collects from investors. Reimbursement paid by the depositary was nil in 2016.
121
ITEM 13
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
PART II
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
On January 29, 2016, our shareholders voted in favor of a proposal to adopt a dual-class share structure, pursuant to which
our authorized share capital was reclassified and re-designated into Class A ordinary shares and Class B ordinary shares, with each
Class A ordinary share being entitled to one vote and each Class B ordinary share being entitled to four votes on all matters that are
subject to shareholder vote.
See “Item 10. Additional Information” for a description of the rights of securities holders.
ITEM 15
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this annual report, our management, with the participation of our chief executive
officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures within the
meaning of Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon this evaluation, our management has concluded that, as of
the end of the period covered by this annual report, our existing disclosure controls and procedures were effective to provide reasonable
assurance that material information required to be disclosed by us in the reports that we file with, or submit to, the SEC under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in by the SEC’s rules and regulations.
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 such
term is defined in Rule 13a-15(f) under the Exchange Act, for our company. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements in accordance with generally accepted accounting principles and 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 a company’s assets,
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements
in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in
accordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the
consolidated financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable
assurance with respect to consolidated financial statement preparation and presentation and 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.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and
Exchange Commission, management assessed the effectiveness of the our internal control over financial reporting as of December 31,
2016 using criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission in 2013.
Based on this assessment, management concluded that the our internal control over financial reporting was effective as of
December 31, 2016 based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013.
The effectiveness of internal control over financial reporting as of December 31, 2016 has been audited by Deloitte Touche
Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm, who has also audited our consolidated
financial statements for the year ended December 31, 2016.
122
Attestation Report of the Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Noah Holdings Limited
We have audited the internal control over financial reporting of Noah Holdings Limited and its subsidiaries (the “Company”)
as of December 31, 2016, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of
directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated 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 consolidated 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 consolidated financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject
to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated financial statements and the related financial statement schedule included in Schedule I as of and for the year ended
December 31, 2016 of the Company and our report dated April 21, 2017 expressed an unqualified opinion on those consolidated
financial statements and financial statement schedule.
/s/ DELOITTE TOUCHE TOHMATSU CERTIFIED PUBLIC ACCOUNTANTS LLP
Shanghai, China
April 21, 2017
Changes in Internal Controls over Financial Reporting
As required by Rule 13a-15(d), under the Exchange Act, our management, including our chief executive officer and our
chief financial officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes
occurred during the period covered by this report have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. Based on that evaluation, it has been determined that there were no changes in our internal control over
financial reporting that occurred during the year ended December 31, 2016 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
123
ITEM 16
RESERVED
ITEM 16A
AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. Tze-Kaing Yang, Mr. Zhiwu Chen and Ms. May Yihong Wu, independent
directors (under the standards set forth in Section 303A of the Corporate Governance Rules of the NYSE and Rule 10A-3 under the
Exchange Act) and members of our audit committee, are audit committee financial experts.
ITEM 16B
CODE OF ETHICS
Our board of directors has adopted a code of ethics that applies to our directors, officers, employees and agents, including
certain provisions that specifically apply to our chief executive officer, chief financial officer, chief operating officer, chief technology
officer, vice presidents and any other persons who perform similar functions for us. We have filed our code of business conduct and
ethics as an exhibit to our registration statement on Form F-1 (No. 333-170055).
ITEM 16C
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional
services rendered by Deloitte Touche Tohmatsu Certified Public Accountants LLP, our principal external auditors, for the periods
indicated. We did not pay any other fees to our auditors during the periods indicated below.
Audit fees(1)
Audit-related fees(2)
Note:
For the Year Ended
December 31,
2015
2016
(RMB)
5,214,283
552,946
6,388,827
500,000
(1)
(2)
“Audit fees” means the aggregate fees billed for professional services rendered by our principal auditors for the audit of our
annual financial statements and the review of our comparative interim financial statements.
“Audit-related fees” represents aggregate fees billed for professional services rendered for assurance and related services that are
not reported under audit fees.
The policy of our audit committee is to pre-approve all audit and non-audit services provided by Deloitte Touche Tohmatsu
Certified Public Accountants LLP, including audit services, audit-related services, tax services and other 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.
ITEM 16D
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
On May 22, 2012, our board of directors approved a share repurchase program, which authorized us to repurchase up to
US$30 million worth of our issued and outstanding ADSs over the course of one year. The share repurchase may be made on the open
market at prevailing market prices pursuant to Rule 10b5-1 and/or Rule 10b-18, in privately negotiated transactions, in block trades or
otherwise from time to time, depending on market conditions and in accordance with applicable rules and regulations. Our board of
directors will review the share repurchase program periodically, and may authorize adjustment of its terms and size.
We did not make any share repurchases during the year ended December 31, 2014.
On July 8, 2015, our board of directors approved a share repurchase program, which authorized us to repurchase up to
US$50 million worth of our issued and outstanding ADSs over the course of one year. The share repurchases may be made on the open
market at prevailing market prices pursuant to Rule 10b5-1 and/or Rule 10b-18, or in block trades and subject to restrictions relating to
volume, price and timing.
124
On July 8, 2016, our board of directors approved a share repurchase program, which extended the previous share repurchase
program that was effective for one year from July 8, 2015 and authorized us to repurchase up to US$50 million worth of our issued and
outstanding ADSs over the course of one year. The share repurchase may be made on the open market at prevailing market prices
pursuant to Rule 10b5-1 and/or Rule 10b-18, or in block trades and subject to restrictions relating to volume, price and timing. On
December 20, 2016, our board of directors approved a written trading plan for the purpose of repurchasing up to $20 million of our
issued and outstanding ADSs in accordance with Rule 10b5-1 pursuant to, and as part of, the share repurchase program approved by our
board of directors on July 8, 2016. The December 20, 2016 10b5-1 plan was subsequently rolled over on March 29, 2017 and its term
extended to May 19, 2017. Effective on April 13, 2017, 2,492,146 of our ADSs held as treasury shares were cancelled.
As of December 31, 2016, we had purchased 2,574,410 ADSs for approximately US$20.5 million, inclusive of transaction
charges, under the share repurchase plans.
ITEM 16F
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G
CORPORATE GOVERNANCE
Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from the New
York Stock Exchange corporate governance listing standards. For example, neither the Companies Law of the Cayman Islands nor our
memorandum and articles of association requires a majority of our directors to be independent and we could include non-independent
directors as members of our compensation committee, and our independent directors would not necessarily hold regularly scheduled
meetings at which only independent directors are present. As a result, our shareholders may be afforded less protection than they
otherwise would under the New York Stock Exchange corporate governance listing standards applicable to U.S. domestic issuers.
Currently, we do not plan to rely on home country practice with respect to our corporate governance. However, if we choose to follow
home country practice in the future, our shareholders may be afforded less protection than they otherwise would under the New York
Stock Exchange corporate governance listing standards applicable to domestic issuers.
ITEM 16H MINE SAFETY DISCLOSURE
Not applicable.
ITEM 17
FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
PART III
ITEM 18
FINANCIAL STATEMENTS
The consolidated financial statements of Noah Holdings Limited and its subsidiaries and consolidated entities are included at
the end of this annual report.
125
ITEM 19
EXHIBITS
Exhibit
Number
1.1
2.1
2.2
2.3
2.4
2.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Description of Document
Fifth Amended and Restated Memorandum and Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 99.2 from our current report on Form 6-K (File No. 001-34936), as amended, initially filed with the Commission
on January 29, 2016)
Specimen American Depositary Receipt of the Registrant (incorporated by reference to Exhibit 4.3 from our S-8
registration statement (File No. 333-171541), as amended, filed with the Commission on January 5, 2011)
Specimen Certificate for Ordinary Shares of the Registrant (incorporated by reference to Exhibit 4.2 from our F-1/A
registration statement (File No. 333-170055), as amended, initially filed with the Commission on October 27, 2010)
Deposit Agreement among the Registrant, the depositary and holders and beneficial holders of the American Depositary
Shares (incorporated by reference to Exhibit 4.3 from our S-8 registration statement (File No. 333-171541), as amended,
filed with the Commission on January 5, 2011)
Amended and Restated Shareholders Agreement between the Registrant and other parties therein dated June 30, 2010
(incorporated by reference to Exhibit 4.4 from our F-1 registration statement (File No. 333-170055), as amended, initially
filed with the Commission on October 20, 2010)
Amendment No. 1 to Deposit Agreement among the Registrant, the depositary and holders and beneficial holders of the
American Depositary Shares (incorporated by reference to Exhibit (a)(1) from our S-8 registration statement (File No. 333-
170167), as amended, filed with the Commission on March 15, 2016)
2008 Share Incentive Plan (incorporated by reference to Exhibit 10.1 from our F-1 registration statement (File
No. 333-170055), as amended, initially filed with the Commission on October 20, 2010)
2010 Share Incentive Plan (incorporated by reference to Exhibit 10.2 from our F-1/A registration statement (File
No. 333-170055), as amended, initially filed with the Commission on October 27, 2010)
Form of Indemnification Agreement between the Registrant and its Directors and Officers (incorporated by reference to
Exhibit 10.3 from our F-1 registration statement (File No. 333-170055), as amended, initially filed with the Commission on
October 20, 2010)
Form of Employment Agreement between the Registrant and an Executive Officer of the Registrant (incorporated by
reference to Exhibit 10.4 from our F-1 registration statement (File No. 333-170055), as amended, initially filed with the
Commission on October 20, 2010)
English translation of the Exclusive Option Agreement between Shanghai Noah Investment (Group) Co., Ltd. (formerly
known as Shanghai Fuzhou Investment Consulting Co., Ltd. and subsequently as Shanghai Noah Rongyao Investment
Consulting Co., Ltd.) and shareholders of Noah Investment Management Co., Ltd., dated September 3, 2007 (incorporated
by reference to Exhibit 10.5 from our F-1 registration statement (File No. 333-170055), as amended, initially filed with the
Commission on October 20, 2010)
English translation of the Exclusive Support Service Contract between Shanghai Noah Investment Management Co., Ltd.
and Shanghai Noah Investment (Group) Co., Ltd. (formerly known as Shanghai Fuzhou Investment Consulting Co., Ltd.
and subsequently as Shanghai Noah Rongyao Investment Consulting Co., Ltd.), dated September 3, 2007 (incorporated by
reference to Exhibit 10.6 from our F-1 registration statement (File No. 333-170055), as amended, initially filed with the
Commission on October 20, 2010)
English translation of the form of Power of Attorney issued by shareholders of Shanghai Noah Investment Management
Co., Ltd. (incorporated by reference to Exhibit 10.7 from our F-1 registration statement (File No. 333-170055), as
amended, initially filed with the Commission on October 20, 2010)
English translation of the Share Pledge Agreement between Shanghai Noah Investment (Group) Co., Ltd. (formerly known
as Shanghai Fuzhou Investment Consulting Co., Ltd. and subsequently as Shanghai Noah Rongyao Investment Consulting
Co., Ltd.) and shareholders of Noah Investment Management Co., Ltd., dated September 3, 2007 (incorporated by
reference to Exhibit 10.8 from our F-1 registration statement (File No. 333-170055), as amended, initially filed with the
Commission on October 20, 2010)
126
Exhibit
Number
4.9
4.10
8.1*
11.1
12.1*
12.2*
13.1**
13.2**
15.1*
15.2*
15.3*
Description of Document
English translation of Loan Agreement between Jingbo Wang, Zhe Yin, Xinjun Zhang, Yan Wei, Boquan He, Qianghua
Yan and Shanghai Noah Investment (Group) Co., Ltd.( formerly known as Shanghai Noah Rongyao Investment
Consulting Co., Ltd.), dated December 26, 2013 (incorporated by reference to Exhibit 4.9 from our annual report on
Form 20-F (File No. 001-34936), as amended, initially filed with the Commission on March 24, 2014).
Convertible Note Purchase Agreement by and among the Registrant and Keywise Greater China Master Fund, dated
January 27, 2015 (with schedule of material differences among different convertible note purchase agreements attached)
(incorporated by reference to Exhibit 4.10 from our annual report on Form 20-F (File No. 001-34936), as amended,
initially filed with the Commission on April 24, 2015)
List of Significant Consolidated Entities
Code of Business Conduct and Ethics of Registrant (incorporated by reference to Exhibit 99.1 from our F-1 registration
statement (File No. 333-170055), as amended, initially filed with the Commission on October 20, 2010)
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP, an Independent Registered Public Accounting
Firm
Consent of Zhong Lun Law Firm
Consent of Maples and Calder (Hong Kong) LLP
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
*
**
Filed with this Annual Report on Form 20-F.
Furnished with this Annual Report on Form 20-F.
127
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
NOAH HOLDINGS LIMITED
/s/ Jingbo Wang
By:
Name: Jingbo Wang
Title: Chairman and Chief Executive Officer
Date: April 21, 2017
Noah Holdings Limited
Index to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2015 and 2016
Report of Independent Registered Public Accounting Firm
Attestation Report of the Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2016
Consolidated Statements of Operations for the Years Ended December 31, 2014, 2015 and 2016
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2015 and 2016
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2014, 2015, and 2016
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2015 and 2016
Notes to Consolidated Financial Statements
Additional Information – Financial Statement Schedule I
F-1
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-10
F-49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Noah Holdings Limited
We have audited the accompanying consolidated balance sheets of Noah Holdings Limited and subsidiaries (the “Company”) as of
December 31, 2015 and 2016, and the related consolidated statements of operations, comprehensive income, changes in equity, and
cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the related financial statement
schedule included in Schedule I. These financial statements and financial statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Noah Holdings
Limited and subsidiaries as of December 31, 2015 and 2016, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth herein.
Our audits also comprehended the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such
translation has been made in conformity with the basis stated in Note 2(u). Such United States dollar amounts are presented solely for
the convenience of readers in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Company’s internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control
—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated April 21, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Shanghai China
April 21, 2017
F-2
ATTESTATION REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Noah Holdings Limited
We have audited the internal control over financial reporting of Noah Holdings Limited and its subsidiaries (the “Company”) as of
December 31, 2016, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of
directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated 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 consolidated 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 consolidated financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk
that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements and the related financial statement schedule included in Schedule I as of and for the year ended
December 31, 2016 of the Company and our report dated April 21, 2017 expressed an unqualified opinion on those consolidated
financial statements and financial statement schedule.
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Shanghai, China
April 21, 2017
F-3
Noah Holdings Limited
Consolidated Balance Sheets
2015
RMB
As of December 31
2016
RMB
2016
US$
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Short-term investments (including short-term investments measured at fair value of RMB496,565,847 and
2,132,923,674
1,000,000
2,982,509,565
1,000,000
429,570,728
144,030
RMB154,594,435, as of December 31, 2015 and 2016, respectively)
560,073,899
299,174,435
43,090,081
Accounts receivable, net of allowance for doubtful accounts of nil as of December 31, 2015 and December 31,
2016
Amounts due from related parties
Loans receivable, net of allowance for loan losses of RMB1,334,502 and RMB1,150,707 as of December 31,
2015 and December 31, 2016, respectively
Factoring receivables
Deferred tax assets
Other current assets
Total current assets
Long-term investments (including long-term investments measured at fair value of RMB10,069,729 and nil, as of
December 31, 2015 and 2016, respectively)
Investment in affiliates
Property and equipment, net
Other non-current assets
Non-current deferred tax assets
Total Assets
Liabilities, Mezzanine Equity and Equity
Current liabilities:
Accrued payroll and welfare expenses (including accrued payroll and welfare expense of the consolidated VIEs
without recourse to Noah Holdings Ltd. of RMB181,685,160 and RMB72,212,423 as of December 31, 2015
and December 31, 2016, respectively)
Income tax payable (including income tax payable of the consolidated VIEs without recourse to Noah Holdings
Ltd. of RMB55,966,327 and RMB-5,036,501 as of December 31, 2015 and December 31, 2016, respectively)
Deferred revenues (including deferred revenue of the consolidated VIEs without recourse to Noah Holdings Ltd.
of RMB29,021,820 and RMB29,834,124 as of December 31, 2015 and December 31, 2016, respectively)
Payable to individual investors of factoring receivables
Other current liabilities (including other current liabilities of the consolidated VIEs without recourse to Noah
Holdings Ltd. of RMB76,026,370 and RMB31,079,003 as of December 31, 2015 and December 31, 2016,
respectively)
Deferred tax liabilities
Total current liabilities
Non-current uncertain tax position liabilities (including uncertain tax position liabilities of the consolidated VIEs
without recourse to Noah Holdings Ltd. of RMB67,248 an nil as of December 31, 2015 and December 31, 2016,
respectively)
Deferred tax liabilities
Other non-current liabilities (including other non-current liabilities of the consolidated VIEs without recourse to Noah
Holdings Ltd. of RMB39,635,057 and nil as of December 31, 2015 and December 31, 2016, respectively)
Convertible notes
Total Liabilities
Mezzanine Equity
Redeemable Non-controlling Interest of a Subsidiary
Total Mezzanine Equity
Shareholders’ equity:
Class A ordinary shares (US$0.0005 par value): 91,394,900 shares authorized, 20,802,611 shares issued and
19,556,538 shares outstanding as of December 31, 2015 and 21,003,533 shares issued and 19,716,328 shares
outstanding as of December 31, 2016
Class B ordinary shares (US$0.0005 par value): 8,605,100 shares authorized, 8,515,000 shares issued and
outstanding as of December 31, 2015 and 2016
Treasury stock (1,246,073 ordinary shares as of December 31, 2015 and 1,287,205 ordinary shares as of
December 31, 2016)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total Noah Holdings Limited shareholders’ equity
Non-controlling interests
Total Shareholders’ Equity
Total Liabilities, Mezzanine Equity and Equity
122,346,687
238,236,268
204,131,815
438,839,542
29,401,097
63,206,041
132,109,897
—
—
75,141,655
3,261,832,080
251,781,945
326,155,843
196,475,249
16,885,730
43,863,568
4,096,994,415
113,919,956
604,176,000
—
88,778,883
4,732,530,196
346,920,327
539,176,511
243,489,512
38,646,355
55,726,799
5,956,489,700
16,407,887
87,019,444
—
12,786,819
681,626,127
49,966,920
77,657,570
35,069,784
5,566,233
8,026,329
857,912,963
494,688,785
555,228,116
79,969,482
61,650,980
23,161,986
3,336,020
68,425,735
—
93,252,362
569,374,828
13,431,134
82,007,033
340,905,107
1,159,774
966,830,381
334,694,476
—
1,575,711,768
48,206,031
—
226,949,700
67,248
—
—
4,456,335
—
641,846
77,876,237
518,224,000
1,562,997,866
98,945,858
555,440,000
2,234,553,961
14,251,168
80,000,000
321,842,714
—
—
330,664,322
330,664,322
47,625,568
47,625,568
69,086
29,047
69,758
29,047
10,047
4,184
(117,836,564)
990,515,956
1,597,865,303
(21,757,099)
2,448,885,729
85,110,820
2,533,996,549
4,096,994,415
(130,438,720)
1,226,215,683
2,241,693,736
(18,787,083)
176,611,794
322,871,055
(5,433,263)
(782,553)
3,332,136,241
59,135,176
3,391,271,417
5,956,489,700
479,927,444
8,517,237
488,444,681
857,912,963
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Noah Holdings Limited
Consolidated Statements of Operations
Revenues:
Third-party revenues
One-time commissions
Recurring service fees
Performance-based income
Other service fees
Total third-party revenues
Related party revenues
One-time commissions
Recurring service fees
Performance-based income
Other service fees
Total related party revenues
Total revenues
Less: business taxes and related surcharges
Net revenues
Operating cost and expenses:
Compensation and benefits
Relationship manager compensation
Performance fee compensation
Other compensations
Total compensation and benefits
Selling expenses
General and administrative expenses
Other operating expenses
Government subsidies
Total operating cost and expenses
Income from operations
Other income (expenses):
Interest income
Interest expenses
Investment income
Other (expense) income
Total other income
Income before taxes and income from equity in affiliates
Income tax expense
Income from equity in affiliates
Net income
Less: net income (loss) attributable to non-controlling interests
Less: Loss attributable to redeemable non-controlling interest of
a subsidiary
Net income attributable to Noah Holdings Limited shareholders
Net income per share:
Basic
Diluted
Weighted average number of shares used in computation:
Basic
Diluted
2014
RMB
Years Ended December 31,
2016
2015
RMB
RMB
2016
US$
423,218,934
319,933,077
24,632,724
29,979,126
797,763,861
391,188,385
401,292,465
193,939,030
128,290,261
1,114,710,141
180,943,785
560,071,763
76,342,053
2,036,800
819,394,401
1,617,158,262
(88,673,371)
1,528,484,891
428,687,491
634,913,375
53,825,293
559,806
1,117,985,965
2,232,696,106
(112,768,265)
2,119,927,841
810,645,359
475,000,278
19,740,213
117,793,855
1,423,179,705
321,441,733
775,726,326
39,500,382
1,787,923
1,138,456,364
2,561,636,069
116,757,217
68,414,270
2,843,182
16,965,844
204,980,513
46,297,239
111,727,830
5,689,238
257,514
163,971,821
368,952,334
(48,063,299)
(6,922,555)
2,513,572,770
362,029,779
(322,052,574)
(22,034,438)
(393,373,326)
(737,460,338)
(147,265,810)
(151,626,278)
(29,961,830)
90,931,462
(975,382,794)
553,102,097
38,901,980
—
23,552,297
(13,961,307)
48,492,970
601,595,067
(151,293,021)
13,583,865
463,885,911
17,333,060
(524,629,723)
(24,786,763)
(615,075,893)
(1,164,492,379)
(263,815,409)
(170,929,513)
(94,624,304)
132,709,712
(1,561,151,893)
558,775,948
(563,619,789)
(8,145,016)
(728,639,155)
(1,300,403,960)
(322,667,518)
(234,488,066)
(151,087,419)
162,364,268
(1,846,282,695)
667,290,075
(81,178,135)
(1,173,126)
(104,945,867)
(187,297,128)
(46,473,789)
(33,773,306)
(21,761,115)
23,385,319
(265,920,019)
96,109,760
39,698,790
(16,050,359)
51,954,918
455,030
76,058,379
634,834,327
(129,885,747)
21,352,767
526,301,347
(9,522,737)
39,537,775
(19,288,813)
48,537,737
(2,531,621)
66,255,078
733,545,153
(157,996,588)
22,342,896
597,891,461
(40,601,294)
5,694,624
(2,778,167)
6,990,888
(364,629)
9,542,716
105,652,476
(22,756,242)
3,218,046
86,114,280
(5,847,803)
—
446,552,851
—
535,824,084
(5,335,678)
643,828,433
(768,498)
92,730,581
16.02
15.82
19.08
18.31
22.87
22.08
3.29
3.18
27,873,501
28,227,823
28,085,521
30,145,976
28,150,139
30,036,763
28,150,139
30,036,763
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Noah Holdings Limited
Consolidated Statements of Comprehensive Income
Net income
Other comprehensive income, net of tax
Change in foreign currency translation adjustment
Fair value fluctuation of available-for-sale investment (Note 4)
Fair value fluctuation of available-for-sale investment held by
affiliates
Other comprehensive income
Comprehensive income
Less: comprehensive income attributable to non-controlling interest
Less: Loss attributable to redeemable non-controlling interest of a
subsidiary
Comprehensive income attributable to Noah Holdings Limited
shareholders
Years Ended December 31,
2014
RMB
2015
RMB
463,885,911 526,301,347
2016
RMB
597,891,461
2016
US$
86,114,280
6,426,044
2,620,351
4,884,837
718,414
19,242,060
(4,710,140)
2,771,433
(678,401)
—
9,046,395
—
5,603,251
472,932,306 531,904,598
17,331,172
(9,520,184)
1,709,411
16,241,331
614,132,792
(40,683,799)
246,206
2,339,238
88,453,518
(5,859,686)
—
—
(5,335,678)
(768,498)
455,601,134 541,424,782
660,152,269
95,081,702
The accompanying notes are an integral part of these consolidated financial statements.
F-6
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5
Noah Holdings Limited
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Loss from disposal of property and equipment
Depreciation and amortization
Share-based compensation
Income from equity in affiliates
Provision for loan losses
Income from amortization of discount on held-to-maturity
investments
Changes in operating assets and liabilities:
Accounts receivable
Amounts due from related parties
Other current assets
Other non-current assets
Accrued payroll and welfare expenses
Income taxes payable
Deferred revenues
Other current liabilities
Other non-current liabilities
Amounts due to related parties
Uncertain tax position liabilities
Deferred tax assets and liabilities
Acquisitions and sales of financial products through internet
financial service business
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchase of held-to-maturity investments
Proceeds from redemption of held-to-maturity investments
Purchases of trading securities investments
Proceeds on trading securities investments
Purchases of available-for-sale investments
Proceeds from sale or redemption of available-for-sale
investments
Purchase of long-term investments
Proceeds from sale of long-term investments
Loans to related parties
Principal collection of loans to related parties
Loans disbursement to third parties
Principal collection of loans originated from third parties
Increase in investment in affiliates
Capital return from investment in affiliates
Purchase of factoring receivables
Proceeds on factoring receivables
Net cash used in investing activities
2014
RMB
Years Ended December 31,
2016
RMB
2015
RMB
2016
US$
463,885,911
526,301,347
597,891,461
86,114,280
169,166
22,398,968
32,691,687
(13,583,865)
227,300
211,270
34,417,668
67,672,488
(21,352,767)
167,702
4,746,406
61,320,332
79,171,317
(22,342,896)
(183,795)
683,625
8,831,965
11,403,042
(3,218,046)
(26,472)
(877,825)
—
118,058
17,004
(16,782,248)
(93,845,185)
(30,082,367)
(5,072,761)
141,907,574
39,951,591
3,690,121
79,151,660
9,278,672
—
1,136,675
(22,095,408)
(54,277,414)
(86,362,877)
(16,631,435)
(3,411,463)
174,226,234
6,204,254
(29,284,206)
167,615,661
46,826,675
—
(11,060,449)
(7,770,022)
(81,785,128)
(94,108,258)
(13,637,228)
(12,263,319)
82,700,331
(38,488,994)
24,826,627
(25,235,138)
(1,091,381)
12,271,940
(67,246)
(12,565,739)
(11,779,508)
(13,554,408)
(1,964,169)
(1,766,285)
11,911,325
(5,543,568)
3,575,778
(3,634,616)
(157,192)
1,767,527
(9,685)
(1,809,843)
(22,511,765)
589,637,901
(118,360,318)
675,132,348
124,970,281
686,247,631
17,999,464
98,840,218
(59,462,184)
(39,000,003)
121,999,998
(218,287,169)
306,142,599
(111,876,970)
(136,290,010)
(25,240,000)
46,400,000
(95,000,000)
95,000,000
(3,670,107,653)
(101,369,405)
(574,180,000)
454,840,000
—
—
(678,817,482)
(14,600,231)
(82,699,121)
65,510,586
—
—
(97,770,054)
45,487,686
(53,805,229)
29,915,000
(45,000,000)
—
(1,117,206,667)
1,166,976,667
(121,486,049)
2,083,982
—
—
(93,518,339)
3,346,540,000
(222,368,846)
32,440,000
(4,000,000)
45,000,000
(960,113,463)
870,849,064
(94,422,851)
11,851,553
—
—
(759,462,206)
908,627,753
(91,178,400)
130,869,617
(13,132,421)
—
—
(106,495,016)
(15,338,473)
—
—
(1,698,250,250)
1,706,623,986
(192,387,183)
(244,598,913)
245,804,982
(27,709,518)
—
—
(4,633,209,259)
4,122,000,357
(883,794,899)
(667,320,936)
593,691,539
(127,292,943)
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Noah Holdings Limited
Consolidated Statements of Cash Flows
Cash flows from financing activities:
Proceeds from issuance of ordinary shares upon exercise of stock
options
Contribution from non-controlling shareholders of subsidiaries
Increase in Mezzanine Equity – Redeemable non-controlling
Interest of a Subsidiary
Return of non-controlling interests of subsidiaries
Transfer of factoring receivables recorded as secured borrowing
Repayment of transferred factoring receivables recorded as
secured borrowing
Dividend distribution
Payment for repurchase of ordinary shares
Proceeds from short-term bank loan
Repayment of short-term bank loan
Proceeds from convertible notes
Net cash (used in) provided by financing activities
Effect of exchange rate changes
Net increases in cash and cash equivalents
Cash and cash equivalents—beginning of the period
Cash and cash equivalents—end of the period
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Cash paid for interest expenses
Supplemental disclosure of non-cash investing and financing
activities:
2014
RMB
Years Ended December 31,
2016
2015
RMB
RMB
2016
US$
4,062,622
8,000,000
4,351,330
38,782,356
4,539,237
166,698,000
653,786
24,009,506
—
—
—
—
(1,614,489)
—
50,000,000
—
—
60,448,133
6,426,044
562,993,739
1,187,211,176
1,750,204,915
—
(4,000,000)
—
—
—
336,000,000
—
4,304,209,715
48,394,066
—
619,935,145
(3,804,209,715)
(547,920,166)
—
—
(44,586,036)
(12,602,156)
(1,815,088)
—
(50,000,000)
518,224,000
462,771,650
4,276,967
382,718,759
1,750,204,915
2,132,923,674
—
—
—
994,635,081
52,498,078
849,585,891
2,132,923,674
2,982,509,565
—
—
—
143,257,249
7,561,296
122,365,820
307,204,908
429,570,728
133,436,838
2,875,000
130,494,511
9,068,920
205,052,252
18,380,107
27,962,327
2,647,286
Purchase of property and equipment in accounts payable
3,531,311
13,391,314
11,208,902
1,614,418
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Noah Holdings Limited
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2014, 2015 and 2016
(In Renminbi, except for share and per share data, or otherwise stated)
1. Organization and Principal Activities
Noah Holdings Limited (“Company”) was incorporated on June 29, 2007 in the Cayman Islands by six individuals (the
“Founders”). The Company, through its subsidiaries and consolidated variable interest entities (“VIEs”) (collectively, the “Group”), is a
leading wealth management service provider with a focus on global wealth investment and asset allocation services for the high net
worth population in the People’s Republic of China (“PRC”). The Group began offering services in 2005 through Shanghai Noah
Investment Management Co., Ltd. (“Noah Investment”), a consolidated variable interest entity, founded in the PRC in August 2005.
The Company’s significant subsidiaries as of December 31, 2016 include the following:
Shanghai Noah Rongyao Investment Consulting Co., Ltd.
Noah Upright (Shanghai) Fund Investment Consulting
Co., Ltd.
Shanghai Noah Financial Services Co., Ltd.
Kunshan Noah Xingguang Investment Management Co.,
Ltd.
Noah Holdings (Hong Kong) Limited
Shanghai Rongyao Information Technology Co., Ltd.
Zigong Noah Financial Service Co., Ltd.
Noah Financial Express (Wuhu) Microfinance Co., Ltd.
Shanghai Noah Chuangying Enterprise Management Co.,
Ltd.
Shanghai Noah Yijie Finance Technology Co., Ltd
Noah Commercial Factoring Co., Ltd.
Noah (Shanghai) Financial Leasing Co., Ltd
Noah Holdings International Limited
Kunshan Noah Rongyao Investment Management Co.,
Ltd.
Noah Insurance (Hong Kong) Limited
Gopher Holdings (Hong Kong) Limited
Gopher International Investment Management (Shanghai)
Date of Incorporation
August 24, 2007
Place of
Incorporation
PRC
September 29, 2007
April 18, 2008
PRC
PRC
August 12, 2011
September 1, 2011
March 2, 2012
October 22, 2012
August 13, 2013
December 14, 2015
March 17, 2014
April 1, 2014
December 20, 2014
January 7, 2015
December 2, 2015
January 3, 2011
April 5, 2016
PRC
Hong Kong
PRC
PRC
PRC
PRC
PRC
PRC
PRC
Hong Kong
PRC
Hong Kong
Hong Kong
Limited
November 14, 2016
PRC
Noah Investment’s significant subsidiaries as of December 31, 2016 include the following:
Percentage
of
Ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
54.93%
95%
100%
100%
100%
100%
100%
92%
Shanghai Noah Investment Management Co., Ltd.
Shanghai Noah Rongyao Insurance Broker Co.,
Ltd.
Gopher Asset Management Co., Ltd.
Wuhu Gopher Asset Management Co., Ltd.
Gopher Nuobao (Shanghai) Asset Management
Co., Ltd.
Date of Incorporation
August 26, 2005
September 24, 2008
February 9, 2012
October 10, 2012
April 10, 2013
Place of
Incorporation
PRC
PRC
PRC
PRC
PRC
Percentage
of
Ownership
100%
100%
100%
100%
100%
In March 2016, Shanghai Noah Financial Service Co., Ltd. (“Noah Financial Services”) acquired 100% equity interest of Noah Upright
(Shanghai) Fund Investment Consulting Co., Ltd. (“Noah Upright”) from Noah Investment at a premium. The premium was recorded as
investment income of Noah Investment and eliminated in the Group’s consolidated financial statement. The transaction was recorded as
equity transaction between entities under common control with no impact on the consolidated financial statements, other than the tax
incurred on the premium recorded in income tax expense.
F-10
2. Summary of Principal Accounting Policies
(a) Basis of Presentation
The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”).
(b) Principles of Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and consolidated
VIEs. All inter-company transactions and balances have been eliminated upon consolidation.
A consolidated subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting
power or has the power to: appoint or remove the majority of the members of the board of directors; cast a majority of votes at the
meeting of the board of directors; or govern the financial and operating policies of the investee under a statute or agreement among the
shareholders or equity holders.
U.S. GAAP provides guidance on the identification and financial reporting for entities over which control is achieved
through means other than voting interests. The Group evaluates each of its interests in private companies to determine whether or not
the investee is a VIE and, if so, whether the Group is the primary beneficiary of such VIE. In determining whether the Group is the
primary beneficiary, the Group considers if the Group (1) has power to direct the activities that most significantly affects the economic
performance of the VIE, and (2) receives the economic benefits of the VIE that could be significant to the VIE. If deemed the primary
beneficiary, the Group consolidates the VIE.
The Company had been engaged in the fund distribution business and distribution of asset management plans sponsored by
mutual fund management companies as part of its business through contractual arrangements among its PRC subsidiary, Shanghai Noah
Rongyao Investment Consulting Co., Ltd. (“Noah Rongyao”), its PRC variable interest entity, Noah Investment, and Noah Investment’s
shareholders because it was difficult for foreign investor entities and subsidiaries of foreign investor entities to apply for a fund
distribution license. Noah Upright, a subsidiary of Noah Investment before March 2016, holds the licenses and permits necessary to
conduct fund distribution and distribution of asset management plans sponsored by mutual fund management companies in China.
However, as the license and permit approval authorities relaxed their requirements for foreign investor entities to apply for fund
distribution license, Noah Upright was restructured to be a subsidiary of Shanghai Noah Financial Services Corp., or Noah Financial
Services, through equity transfer in March 2016.
In addition, as foreign-invested companies engaged in insurance brokerage business are subject to stringent requirements
compared with Chinese domestic enterprises under the current PRC laws and regulations, Noah Rongyao and its subsidiaries, as
foreign-invested companies, do not meet all such requirements and therefore none of them are permitted to engage in the insurance
brokerage business in China. Therefore, the Company conducts the insurance brokerage business in China through Noah Investment
and its subsidiaries which are PRC domestic companies beneficially owned by the Founders.
Since the Company does not have any equity interests in Noah Investment, in order to exercise effective control over its
operations, the Company, through its wholly owned subsidiary Noah Rongyao, entered into a series of contractual arrangements with
Noah Investment and its shareholders, pursuant to which the Company is entitled to receive effectively all economic benefits generated
from Noah Investment shareholders’ equity interests in it. These contractual arrangements include: (i) a Power of Attorney Agreement
under which each shareholder of Noah Investment has executed a power of attorney to grant Noah Rongyao or its designee the power of
attorney to act on his or her behalf on all matters pertaining to Noah Investment and to exercise all of his or her rights as a shareholder
of the Company, (ii) an Exclusive Option Agreement under which the shareholders granted Noah Investment or its third-party designee
an irrevocable and exclusive option to purchase their equity interests in Noah Investment when and to the extent permitted by PRC law,
(iii) an Exclusive Support Service Agreement under which Noah Investment engages Noah Rongyao as its exclusive technical and
operational consultant and under which Noah Rongyao agrees to assist in arranging the financial support necessary to conduct Noah
Investment’s operational activities, (iv) a Share Pledge Agreement under which the shareholders pledged all of their equity interests in
Noah Investment to Noah Rongyao as collateral to secure their obligations under the agreement, and (v) a Free-Interest Loan
Agreement under which each shareholder of Noah Investment entered into a loan agreement with Noah Rongyao for their respective
investment in the equity interests in Noah Investment. The total amount of interest-free loans extended to the Founders is
RMB27 million (approximately US$3.6 million) which has been injected into Noah Investment. The Founders of Noah Investment
effectively acted as a conduit to fund the required capital contributions from the Company into Noah Rongyao, are non-substantive
shareholders and received no consideration for entering into such transactions. Under the above agreements, the shareholders of Noah
Investment irrevocably granted Noah Rongyao the power to exercise all voting rights to which they were entitled. In December 2013,
these loans were further restructured and each shareholder of Noah Investment re-entered into a new no-interest loan agreement with
Noah Rongyao. The principal amounts of such no-interest loans to these shareholders were the same as that of the initial loans. The loan
agreements will expire in December 2023. In addition, Noah Rongyao has the option to acquire all of the equity interests in Noah
Investment, to the extent permitted by the then-effective PRC laws and regulations, for nominal consideration. Finally, Noah Rongyao
is entitled to receive service fees for certain services to be provided to Noah Investment.
F-11
The Exclusive Option Agreement and Power of Attorney Agreements provide the Company effective control over the VIE
and its subsidiaries, while the equity pledge agreements secure the equity owners’ obligations under the relevant agreements. Because
the Company, through Noah Rongyao, has (i) the power to direct the activities of Noah Investment that most significantly affect the
entity’s economic performance and (ii) the right to receive substantially all of the benefits from Noah Investment, the Company is
deemed the primary beneficiary of Noah Investment. Accordingly, the Group has consolidated the financial statements of Noah
Investment since its inception. The aforementioned contractual agreements are effective agreements between a parent and a
consolidated subsidiary, neither of which is accounted for in the consolidated financial statements (i.e. a call option on subsidiary shares
under the Exclusive Option Agreement or a guarantee of subsidiary performance under the Share Pledge Agreement) or are ultimately
eliminated upon consolidation (i.e. service fees under the Exclusive Support Service Agreement or loans payable/receivable under the
Loan Agreement).
The Company believes that these contractual arrangements are in compliance with PRC laws and regulations and are legally
enforceable. The restructure of fund distribution business from Noah Investment to Noah Financial Service in 2016 and the transfer of
Tianjin Gopher Asset Management Co., Ltd and Gopher Asset Management Co., Ltd from Noah Rongyao to Noah Investment in 2012
do not impact the legal effectiveness of these contractual arrangements and do not impact the conclusion that the Company is the
primary beneficiary of Noah Investment and its subsidiaries.
However, the aforementioned contractual arrangements with Noah Investment and its shareholders are subject to risks and
uncertainties, including:
•
•
•
•
•
Noah Investment and its shareholders may have or develop interests that conflict with the Group’s interests, which
may lead them to pursue opportunities in violation of the aforementioned contractual arrangements.
Noah Investment and its shareholders could fail to obtain the proper operating licenses or fail to comply with other
regulatory requirements. As a result, the PRC government could impose fines, new requirements or other penalties on
the VIE or the Group, mandate a change in ownership structure or operations for the VIE or the Group, restrict the
VIE or the Group’s use of financing sources or otherwise restrict the VIE or the Group’s ability to conduct business.
The aforementioned contractual agreements may be unenforceable or difficult to enforce. The equity interests under
the Share Pledge Agreement have been registered by the shareholders of Noah Investment with the relevant office of
the administration of industry and commerce, however, the VIE or the Group may fail to meet other requirements.
Even if the agreements are enforceable, they may be difficult to enforce given the uncertainties in the PRC legal
system.
The PRC government may declare the aforementioned contractual arrangements invalid. They may modify the
relevant regulations, have a different interpretation of such regulations, or otherwise determine that the Group or the
VIE have failed to comply with the legal obligations required to effectuate such contractual arrangements.
It may be difficult to finance Noah Investment by means of loans or capital contributions. Loans from the offshore
parent company to the VIE must be approved by the relevant PRC government body and such approval may be
difficult or impossible to obtain.
F-12
The following amounts of Noah Investment and its subsidiaries were included in the Group’s consolidated financial
statements:
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, net of allowance for doubtful accounts
Amounts due from related parties
Deferred tax assets
Other current assets
Long-term investments
Investment in affiliates
Property and equipment, net
Other non-current assets
Total assets
Accrued payroll and welfare expenses
Income tax payable
Amount due to related parties
Amounts due to the Group’s subsidiaries
Deferred revenue
Other current liabilities
Non-current uncertain tax position liabilities
Other non-current liabilities
Total liabilities
2015
RMB
585,191,507
1,000,000
167,583,165
52,715,369
135,302,942
26,071,201
23,410,853
113,390,404
298,229,612
40,161,068
5,611,229
1,448,667,350
181,685,160
55,966,327
—
161,666,257
29,021,820
76,026,370
67,248
39,635,057
544,068,239
As of December 31
2016
RMB
312,278,112
1,000,000
—
14,828,126
209,034,051
11,158,149
33,452,455
81,168,283
488,263,302
28,804,397
13,775,274
1,193,762,149
72,212,423
(5,036,501)
12,000,000
125,713,660
29,834,124
31,079,003
—
—
265,802,709
2016
US$
44,977,403
144,030
—
2,135,694
30,107,166
1,607,108
4,818,156
11,690,664
70,324,542
4,148,696
1,984,052
171,937,511
10,400,753
(725,407)
1,728,360
18,106,533
4,297,008
4,476,307
—
—
38,283,554
Revenue:
Third-party revenues
One-time commissions
Recurring service fees
Performance-based income
Other service fees
Total third-party revenues
Related party revenues
One-time commissions
Recurring service fees
Performance-based income
Other service fees
Total related party revenues
Total revenues
Less: business taxes and related surcharges
Net revenues
Operating cost and expenses
Other income
Net income
Net income attributable to Noah Holding Limited
shareholders
Cash flows provided by (used in) operating activities*
Cash flows (used in) provided by investing activities
Cash flows provided by financing activities
2014
RMB
Years Ended December 31,
2016
RMB
2015
RMB
2016
US$
80,516,730
111,927,921
22,994,446
1,346,667
216,785,764
21,471,381
285,753,554
75,204,704
1,217,894
383,647,533
600,433,297
(33,672,899)
566,760,398
(183,003,728)
11,888,078
310,817,616
145,325,240
181,288,609
165,971,926
9,616,062
502,201,837
1,184,222
56,997,896
8,596,435
38,881,405
105,659,958
170,563
8,209,405
1,238,144
5,600,087
15,218,199
122,949,788
348,870,146
53,825,292
2,102,882
527,748,108
1,029,949,945
(57,713,861)
972,236,084
(624,541,431)
39,115,317
327,597,694
2,887,327
278,460,025
38,413,825
19,856,658
339,617,835
445,277,793
(10,206,252)
435,071,541
(452,182,413)
67,038,384
24,381,722
415,862
40,106,586
5,532,742
2,859,954
48,915,144
64,133,343
(1,470,006)
62,663,337
(65,127,814)
9,665,536
3,511,698
292,244,283
250,372,200
(53,726,568)
1,365,117
326,209,370
402,492,302
(293,697,015)
3,282,000
22,123,106
(316,764,831)
28,995,441
14,855,995
3,186,390
(45,623,625)
4,176,212
2,139,708
* Cash flows provided by operating activities in 2014, 2015 and 2016 include amounts due to the Group’s subsidiaries of
RMB169,322,299, RMB161,666,257 and RMB125,713,660 (US$18,106,533).
F-13
The VIEs contributed an aggregate of 37.1%, 45.9% and 17.3% of the consolidated net revenues for the years ended
December 31, 2014, 2015 and 2016, respectively and an aggregate of 67.0%, 62.2% and 4.1% of the consolidated net income for the
years ended December 31, 2014, 2015 and 2016, respectively. As of December 31, 2015 and 2016, the VIEs accounted for an aggregate
of 35.4% and 20.1%, respectively, of the consolidated total assets.
There are no consolidated assets of the VIEs and their subsidiaries that are collateral for the obligations of the VIEs and their
subsidiaries and can only be used to settle the obligations of the VIEs and their subsidiaries. There are no terms in any arrangements,
considering both explicit arrangements and implicit variable interests that require the Company or its subsidiaries to provide financial
support to the VIEs. However, if the VIEs ever need financial support, the Company or its subsidiaries may, at its option and subject to
statutory limits and restrictions, provide financial support to its VIEs through loans to the shareholder of the VIEs or entrustment loans
to the VIEs.
Relevant PRC laws and regulations restrict the VIEs from transferring a portion of their net assets, equivalent to the balance
of its statutory reserve and its share capital, to the Company in the form of loans and advances or cash dividends. Please refer to Note
16 for disclosure of restricted net assets.
F-14
(c) Consolidation policy Upon Adoption of ASU No. 2015-02 and 2016-17
In February 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-02, “Amendments to the Consolidation
Analysis”. The guidance amends the current consolidation guidance and ends the deferral granted to investment companies from
applying the VIE guidance. The revised consolidation guidance, among other things, (i) modifies the evaluation of whether limited
partnerships and similar legal entities are VIEs, (ii) eliminated the presumption that a general partner should consolidate a limited
partnership, and (iii) modifies the consolidation analysis of reporting entities that are involved with VIEs through fee arrangements and
related party relationships.
The Group early adopted ASU 2015-02 in 2015. In adopting the guidance, the Group re-evaluated the existing consolidated
VIEs and assessed that the adoption neither changes the conclusion of the consolidated VIEs and nor bring about new VIEs to be
consolidated.
Under ASU 2015-02, the service fees the Group earns, including carried interest earned in the capacity of general partner or
fund manager, are commensurate with the level of effort required to provide such services and are at arm’s length and therefore are not
deemed as variable interests.
In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties under
Common Control (“ASU 2016-17”). The Group has adopted this new guidance and has applied the guidance retrospectively beginning
with the annual period in which the amendments in ASU 2015-02 were adopted in 2015. This guidance in ASU 2016-17 states that
reporting entities deciding whether they are primary beneficiaries no longer have to consider indirect interests held through related
parties that are under common control to be the equivalent of direct interests in their entirety. Reporting entities would include those
indirect interests on a proportionate basis.
In evaluating whether the investment funds in the legal form of limited partnership the Group managed as general partner are
VIEs or not, the Group firstly assessed whether a simple majority or lower threshold of limited partnership interests, excluding interests
held by the general partner, parties under common control of the general partner, or parties acting on behalf of the general partner, have
substantive kick-out rights or participating rights. If such rights exist, the limited partnership is not deemed as a VIE and no further
analysis will be performed. If it’s assessed to be a VIE, the Group further assesses whether there is any interest it has constitutes a
variable interest. Before 2015, all limited partnerships the Group managed as general partner have substantive kick-out rights
exercisable by a simple-majority of non-related limited partners and therefore are not deemed as VIEs. Since 2015, not all the newly
formed limited partnerships the Group manages as general partners have substantive kick-out rights exercisable by a simple-majority of
non-related limited partners and therefore constitute VIEs. As a result, such limited partnerships are deemed as VIEs not consolidated
by the Group due to the fact that the general partner interest to absorb losses or receive benefits is not potentially significant to the
VIEs.
The Group started to manage the contractual funds which it manages as fund manager and earns management fee and/or
carried interest from second half of 2014. The contractual funds are VIEs as the fund investors do not have substantive kick-out rights
or participating rights. The Group from time to time invested in the contractual funds it manages for investment income. Such
investments constitute variable interests to the contractual funds which are believed to be VIEs. The Group performed a qualitative
analysis to determine if its interest could absorb losses or receive benefits that could potentially be significant to the VIEs and
concluded it’s not the primary beneficiary.
As of December 31, 2015 and 2016, the Group had variable interests in various investment funds and contractual funds that
are VIEs but determined that it was not the primary beneficiary and, therefore, was not consolidating the VIEs. The maximum potential
financial statement loss the Group could incur if the investment funds and contractual funds were to default on all of their obligations is
(i) the loss of value of the interests in such investments that the Group holds, including equity investments recorded in investment in
affiliates as well as debt securities investments recorded in short-term investments and long-term investments in the consolidated
balance sheet, and (ii) any management fee and/or carried interest receivables recorded in accounts receivable. The following table
summarizes the Group’s maximum exposure to loss associated with identified nonconsolidated VIEs in which it holds variable interests
as of December 31, 2016 and 2015, respectively.
Accounts receivable
Investments
Maximum exposure to loss in non-consolidated VIEs
F-15
2015
RMB
14,007,287
383,778,327
397,785,614
As of December 31,
2016
RMB
32,492,199
508,010,848
540,503,047
2016
US$
505,621
73,168,781
73,674,402
The Group has not provided financial support to these nonconsolidated VIEs during the years ended December 31, 2015 and
2016, and had no liabilities, contingent liabilities, or guarantees (implicit or explicit) related to these nonconsolidated VIEs as of
December 31, 2015 and 2016.
(d) Use of Estimates
The preparation of 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 the disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ
materially from such estimates. Significant accounting estimates reflected in the Group’s consolidated financial statements include
assumptions used to determine valuation allowance for deferred tax assets, allowance for accounts receivable, allowance for loan losses,
fair value measurement of underlying investment portfolios of the funds that the Group invests, assumptions related to the consolidation
of entities in which the Group holds variable interests, assumptions related to the valuation of share-based compensation, including
estimation of related forfeiture rates and assumption related to valuation of investments.
(e) Concentration of Credit Risk
The Group is subject to potential significant concentrations of credit risk consisting principally of cash and cash equivalents,
accounts receivable, amounts due from related parties, loan receivables and investments. All of the Group’s cash and cash equivalents
and a majority of investments are held with financial institutions that Group management believes to be high credit quality. In addition,
the Group’s investment policy limits its exposure to concentrations of credit risk.
Substantially all revenues were generated within China.
There were no product providers or underlying corporate borrowers which accounted for 10% or more of total revenues for
the years ended December 31, 2014, 2015, and 2016.
Credit of small loan business is controlled by the application of credit approvals, limits and monitoring procedures. To
minimize credit risk, the Group requires collateral in form of right to securities. The Group identifies credit risk on a customer by
customer basis. The information is monitored regularly by management.
(f) Investments in Affiliates
Affiliated companies are entities over which the Group has significant influence, but which it does not control. The Group
generally considers an ownership interest of 20% or higher to represent significant influence. Investments in affiliates are accounted for
by the equity method of accounting. Under this method, the Group’s share of the post-acquisition profits or losses of affiliated
companies is recognized in the statements of operations and its shares of post-acquisition movements in other comprehensive income
are recognized in other comprehensive income. Unrealized gains on transactions between the Group and its affiliated companies are
eliminated to the extent of the Group’s interest in the affiliated companies; unrealized losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an affiliated company equals or
exceeds its interest in the affiliated company, the Group does not recognize further losses, unless the Group has incurred obligations or
made payments on behalf of the affiliated company. An impairment loss is recorded when there has been a loss in value of the
investment that is other than temporary. The Group has not recorded any impairment losses in any of the periods reported.
The Group also considers it has significant influence over the funds that it serves as general partner or fund manager. For
funds that the Group is not deemed the primary beneficiary of these funds. The equity method of accounting is accordingly used for
investments by the Group in these funds. In addition, the investee funds meet the definition of an Investment Company and are required
to report their investment assets at fair value. The Group records its equity pick-up based on its percentage ownership of the investee
funds’ operating result.
F-16
(g) Fair Value of Financial Instruments
The Group records certain of its financial assets and liabilities at fair value on a recurring basis. Fair value reflects the price
that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair
value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions that market
participants would use when pricing the asset or liability.
The Group applies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based
upon the lowest level of input that is significant to the fair value measurement. The hierarchy is as follows:
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical
asset or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in
which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to asset or liabilities for which there are unobservable inputs to the valuation methodology that are significant
to the measurement of the fair value of the assets or liabilities.
(h) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and demand deposits, which are unrestricted as to withdrawal and use, and
which have original maturities of three months or less when purchased.
(i) Restricted Cash
The Group’s restricted cash primarily represents cash deposits required by China Insurance Regulatory Commission for
entities engaging in insurance agency or brokering activities in China. Such cash cannot be withdrawn without the written approval of
the China Insurance Regulatory Commission. Funds that are raised on behalf of investors, prior to the establishment of certain third
party investment vehicles, are legally segregated from the Group and will be transferred to such investment vehicles upon formation.
F-17
(j) Investments
The Group invests in debt securities and equity securities and accounts for the investments based on the nature of the
products invested, and the Group’s intent and ability to hold the investments to maturity.
The Group’s investments in debt securities include marketable bond fund securities, trust products, asset management plans,
contractual funds and real estate funds those have a stated maturity and normally pay a prospective fixed rate of return and secondary
market equity fund products, the underlying assets of which are portfolios of equity investments in listed enterprises. The Group
classifies the investments in debt securities as held-to-maturity when it has both the positive intent and ability to hold them until
maturity. Held-to-maturity investments are recorded at amortized cost and are classified as long-term or short-term according to their
contractual maturity. Long-term investments are reclassified as short-term when their contractual maturity date is less than one year.
Investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and
are reported at fair value with changes in fair value recognized in earnings. Investments that do not meet the criteria of held-to-maturity
or trading securities are classified as available-for-sale, and are reported at fair value with changes in fair value deferred in other
comprehensive income.
The Group records investments in private equity funds and secondary market equity fund products under the cost method
when they do not qualify for the equity method. Gains or losses are realized when such investments are sold.
The Group reviews its investments except for those classified as trading securities for other-than-temporary impairment
based on the specific identification method and considers available quantitative and qualitative evidence in evaluating potential
impairment. If the cost of an investment exceeds the investment’s fair value, the Group considers, among other factors, general market
conditions, government economic plans, the duration and the extent to which the fair value of the investment is less than cost and the
Group’s intent and ability to hold the investment to determine whether an other-than-temporary impairment has occurred.
The Group recognizes other-than-temporary impairment in earnings if it has the intent to sell the debt security or if it is
more-likely-than-not that it will be required to sell the debt security before recovery of its amortized cost basis. Additionally, the Group
evaluates expected cash flows to be received and determines if credit-related losses on debt securities exist, which are considered to be
other-than-temporary, should be recognized in earnings.
If the investment’s fair value is less than the cost of an investment and the Group determines the impairment to be other-
than-temporary, the Group recognizes an impairment loss based on the fair value of the investment. To date, the Group has not recorded
an other-than-temporary impairment.
(k) Non-controlling interests
A non-controlling interest in a subsidiary of the Group represents the portion of the equity (net assets) in the subsidiary not
directly or indirectly attributable to the Group. Non-controlling interests are presented as a separate component of equity in the
consolidated balance sheet and earnings and other comprehensive income are attributed to controlling and non-controlling interests. The
non-controlling interest was RMB85,110,820 and RMB59,135,176, respectively as of December 31, 2015 and 2016. The net income
attributable to non-controlling interest was RMB17,333,060 for years ended December 2014, and the net loss attributable to
non-controlling interest was RMB9,522,737 and RMB40,601,294, respectively for the year ended December 31, 2015 and 2016.
The following schedule shows the effects of changes in the Company’s ownership interest in less than wholly owned
subsidiaries on equity attributable to Noah Holdings Limited shareholders:
Net income attributable to Noah Holdings Limited
shareholders
Transfers from (to) the non-controlling interest:
Increase in Noah’s equity by partial disposal of
subsidiaries
Net transfers from (to) non-controlling interest
Change from net income (loss) attributable to Noah and
Years Ended December 31,
2014
RMB
2015
RMB
2016
RMB
2016
US$
446,552,851
535,824,084
643,828,433
92,730,581
—
—
29,076,110
29,076,110
151,989,845
151,989,845
21,891,091
21,891,091
transfers (to) from non-controlling interest
446,552,851
564,900,194
795,818,278
114,621,672
F-18
(l) Property and Equipment, net
Property and equipment is stated at cost less accumulated depreciation, and is depreciated using the straight-line method over
the following estimated useful lives:
Leasehold improvements
Furniture, fixtures, and equipment
Motor Vehicles
Software
Estimated Useful Lives in Years
Shorter of the lease term or expected useful life
3—5 years
5 years
2—5 years
Gains and losses from the disposal of property and equipment are included in income from operations.
(m) Revenue Recognition
The Group derives revenue primarily from one-time commissions and recurring service fees paid by product providers or
underlying corporate borrowers.
The Group recognizes revenues when there is persuasive evidence of an arrangement, service has been rendered, the sales
price is fixed or determinable and collectability is reasonably assured. Prior to a client’s purchase of a wealth management product, the
Group provides the client with a wide spectrum of consultation services, including product selection, review, risk profile assessment
and evaluation and recommendation for the client. Revenues are recorded, net of sales related taxes and surcharges.
One-time Commissions
The Group enters into one-time commission agreements with product providers or underlying corporate borrowers, which
specifies the key terms and conditions of the arrangement. Such agreements do not include rights of return, credits or discounts, rebates,
price protection or other similar privileges. Upon establishment of a wealth management product, the Group earns a one-time
commission from product providers or underlying corporate borrowers, calculated as a percentage of the wealth management products
purchased by its clients. The Group defines the “establishment of a wealth management product” for its revenue recognition purpose as
the time when both of the following two criteria are met: (1) the Group’s client has entered into a purchase or subscription contract with
the relevant product provider and, if required, the client has transferred a deposit to an escrow account designated by the product
provider and (2) the product provider has issued a formal notice to confirm the establishment of a wealth management product. Revenue
is recorded upon the establishment of the wealth management product, when the provision of service concludes and the fee becomes
fixed and determinable, assuming all other revenue recognition criteria have been met, and there are no future obligations or
contingencies. Certain contracts require a portion of the payment be deferred until the end of the wealth management products’ life or
other specified contingency. In such instances, the Group defers the contingent amount until the contingency has been resolved. A small
portion of the Group’s one-time commission arrangements require the provision of certain services after sales activities, which
primarily relate to disseminating information to clients related to investment performance. The Group accrues the estimated cost of
providing these services, which are inconsequential, when the one-time commission is earned as the services to be provided are
substantially complete. The Group has historically completed the services in a timely manner and can reliably estimate the remaining
costs.
The Group also earns one-time commissions from insurance brokerage business, and recognizes revenues when the
underlying insurance contracts become effective. To realign the Company’s services provided under different business segments,
starting from the first quarter of 2016, revenue from insurance brokerage business was reclassified from “other service fees” to “one-
time commissions” in 2016.
Recurring Service Fees
Recurring service fees depend on the types of wealth management products the Company distributes and/or manages and are
calculated as either (i) a percentage of the total capital commitments of investments made by the investors or (ii) as a percentage of the
fair value of the total investment in the wealth management product, calculated daily. As the Group provides these services throughout
the contract term, for either method of calculation, revenue is recognized on a daily basis over the contract term, assuming all other
revenue recognition criteria have been met. Recurring service agreements do not include rights of return, credits or discounts, rebates,
price protection or other similar privileges.
F-19
Multiple Element Arrangements
The Group enters into multiple element arrangements when a product provider or underlying corporate borrower engages it
to provide both wealth management product distribution and recurring services. The Group also provides both wealth management
product distribution and recurring services to funds that it serves as general partner, or fund manager.
The Group allocates arrangement consideration in multiple-deliverable revenue arrangements at the inception of an
arrangement to all deliverables based on the relative selling price in accordance with the selling price hierarchy, which includes:
(i) vendor-specific objective evidence (“VSOE”) if available; (ii) third-party evidence (“TPE”) if VSOE is not available; and (iii) best
estimate of selling price (“BESP”) if neither VSOE nor TPE is available.
VSOE. The Group determines VSOE based on its historical pricing and discounting practices for the specific service when
sold separately. In determining VSOE, the Group requires that a substantial majority of the selling prices for these services fall within a
reasonably narrow pricing range. The Group historically had provided wealth management product distribution services on a stand-
alone basis but the volume of such services has been significantly decreased in recent years. Therefore VSOE is no longer available for
its wealth management product distribution services. The Group has not sold its recurring services on a stand-alone basis, no VSOE
exists for recurring services.
TPE. When VSOE cannot be established for deliverables in multiple element arrangements, the Group applies judgment with
respect to whether it can establish a selling price based on TPE. TPE is determined based on competitor prices for similar deliverables
when sold separately. Generally, the Group’s products and services contain certain level of differentiation such that the comparable
pricing of services with similar functionality cannot be obtained. Furthermore, the Group is unable to reliably determine what similar
competitor services’ selling prices are on a stand-alone basis. As a result, the Group has not been able to establish selling price based on
TPE.
BESP. When it is unable to establish selling price using VSOE or TPE, the Group uses BESP in its allocation of arrangement
consideration. The objective of BESP is to determine the price at which the Group would transact a sale if the service were sold on a
stand-alone basis. The Group determines BESP for deliverables by considering multiple factors including, but not limited to, prices it
charged for similar offerings, market conditions, specification of the services rendered, product lifecycles, and pricing strategies and
practices. The Group has used BESP to allocate the selling price of wealth management product distribution service and recurring
services under these multiple element arrangements. Revenue for the respective units of accounting is also recognized in the same
manner as described above.
Performance-based Income
In a typical arrangement in which the Group serves as fund manager, and in some cases in which the Company serves as
distributor, except for secondary market funds of funds, the Group is entitled to a performance-based fee based on the extent by which
the fund’s investment performance exceeds a certain threshold at the end of the contract term. Such performance-based fee is typically
calculated and distributed at the end of the contract term when the cumulative return of the fund can be determined, and is not subject to
clawback provisions. The Group does not record any performance-based income until the end of the contract term.
Beginning in 2015, for certain secondary market products for which the Group provides recurring services, including both
the funds for which the Group serves as the distribution channel and the funds of funds for which the Group acts as the fund manager,
the performance-based income may also include a variable performance fee contingent upon the performance of the underlying
investment in the measurement period, typically calculated at the end of the measurement period and settled subsequently. Such
performance-based fee is not subject to clawback provisions and is recognized when the contingent criteria are met at the end of the
measurement period.
Other Service Fees
The Group also derived revenues from 1) interest payment from small short-term loan, 2) internet financial service business
and 3) payment related service, which were recorded as other service fees and represented 1%, 0.4% and 0.6% of the Group’s total net
revenue for the year ended December 31, 2016.
F-20
From November 2013, the Group started offering small short-term loan services. Revenue is recognized when there are
probable economic benefits to the Group and when the revenue can be measured reliably. Interest on loan receivables is accrued
monthly in accordance with their contractual terms and recorded in accrued interest receivable. Interest income is recorded as part of
other service fees in the consolidated statement of operations. The Group does not charge prepayment penalties from its customers.
In 2014, the Group started internet financial service business to provide financial products and services to high net worth
individuals and enterprise and institutional clients as well as mass affluent individuals in China through its proprietary internet financial
platforms. Revenues derived from internet financial service business is recorded in other service fees.
(n) Business Tax and Related Surcharges
The Group is subject to business tax, education surtax, and urban maintenance and construction tax, on the services provided in
the PRC. Business tax and related surcharges are primarily levied based on revenues concurrent with a specific revenue-producing
transaction at combined rates ranging from 5.35% to 5.65%. They can be presented either on a gross basis (included in revenues and
costs) or on a net basis (excluded from revenue) at the Company’s accounting policy decision under U.S. GAAP. The Company has
elected to report such business tax and related surcharges on a net basis as a reduction of revenues. On March 23, 2016, the Ministry of
Finance and the State Administration of Taxation jointly issued the Circular on the Pilot Program for Overall Implementation of the
Collection of Value Added Tax Instead of Business Tax, or Circular 36, which took effect on May 1, 2016. Pursuant to Circular 36, all
companies operating in construction industry, real estate industry, finance industry, modern service industry or other industries which
were required to pay business tax are required to pay VAT, in lieu of business tax. With the rollout of the Value-added Tax (“VAT”)
reform on May 1, 2016, business tax is no longer applicable to the Group, and the applicable VAT rate for the Group is 3%, 6% and
17%.
(o) Compensation and benefits
Compensation and benefits mainly include salaries and commissions for relationship managers, share-based compensation
expenses, bonus related to performance based income, and salaries and bonuses for middle office and back office employees.
(p) Income Taxes
Current income taxes are provided for in accordance with the relevant statutory tax laws and regulations.
The Group accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this
method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis
of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Group recognizes net deferred tax assets to the extent that it believes these assets are more likely than not to be realized.
In making such a determination, it considers all available positive and negative evidence, including future reversals of existing taxable
temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Group
determines that its deferred tax assets are realizable in the future in excess of their net recorded amount, the Group would make an
adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Group records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) the
Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the
position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Group recognizes the largest
amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The
liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax
audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they
are identified. The effective tax rate for the Group includes the net impact of changes in the liability for unrecognized tax benefits and
subsequent adjustments as considered appropriate by management. The Group recognizes interest and penalties related to unrecognized
tax benefits within the income tax expense line in the accompanying Consolidated Statement of Operations. Accrued interest and
penalties are included within the related tax liability line in the Consolidated Balance Sheet.
F-21
(q) Share-Based Compensation
The Group recognizes share-based compensation based on the fair value of equity awards on the date of the grant, with
compensation expense recognized using a straight-line vesting method over the requisite service periods of the awards, which is
generally the vesting period. The Group estimates the fair value of share options granted using the Black-Scholes option pricing model.
The expected term represents the period that share-based awards are expected to be outstanding, giving consideration to the contractual
terms of the share-based awards, vesting schedules and expectations of future employee exercise behavior. The computation of
expected volatility is based on the fluctuation of the historical share price. Management estimates expected forfeitures and recognizes
compensation costs only for those share-based awards expected to vest. Amortization of share-based compensation is presented in the
same line item in the consolidated statements of operations as the cash compensation of those employees receiving the award.
The Group treated a modification of the terms or conditions of an equity award as an exchange of the original award for a
new award. The incremental compensation cost as an effect of a modification is measured as the excess, if any, of the fair value of the
modified award over the fair value of the original award immediately before its terms are modified, measured based on the share price
and other pertinent factors at that date. Total recognized compensation cost for an equity award shall at least equal the fair value of the
award at the grant date unless at the date of the modification the performance or service conditions of the original award are not
expected to be satisfied. Thus, the total compensation cost measured at the date of a modification shall be the sum of the portion of the
grant-date fair value of the original award for which the requisite service is expected to be rendered (or has already been rendered) at
that date, and the incremental cost resulting from the modification. The Group records the incremental fair value of the modified award,
as compensation cost on the date of modification for vested awards, or over the remaining service period for unvested awards.
(r) Government Grants
Government subsidies include cash subsidies received by the Group’s entities in the PRC from local governments as
incentives for investing in certain local districts, and are typically granted based on the amount of investment made by the Group in
form of registered capital or taxable income generated by the Group in these local districts. Such subsidies allow the Group full
discretion in utilizing the funds and are used by the Group for general corporate purposes. The local governments have final discretion
as to whether the Group has met all criteria to be entitled to the subsidies. The Group does not in all instances receive written
confirmation from local governments indicating the approval of the cash subsidy before cash is received. Cash subsidies are
RMB90,931,462, RMB132,709,712 and RMB162,364,268 for the years ended December 31, 2014, 2015, and 2016, respectively. Cash
subsidies are recognized when received and when all the conditions for their receipt have been satisfied.
(s) Net Income per Share
Basic net income per share is computed by dividing net income attributable to ordinary shareholders by the weighted average
number of common shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if
securities or other contracts to issue ordinary shares were exercised into ordinary shares. Common share equivalents are excluded from
the computation of the diluted net income per share in years when their effect would be anti-dilutive.
Diluted net income per share is computed by giving effect to all potential dilutive shares, including non-vested restricted
shares and share options.
(t) Operating Leases
Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted
for as operating leases. Certain of the Group’s facility leases provide for a free rent period. Payments made under operating leases are
charged to the consolidated statements of operations on a straight-line basis over the lease period.
(u) Foreign Currency Translation and change in reporting currency
The Company’s reporting currency is Renminbi (“RMB”). The Company’s functional currency is the United States dollar
(“U.S. dollar or US$”). The Company’s operations are principally conducted through the subsidiaries and VIEs located in the PRC
where the local currency is the functional currency. For those subsidiaries and VIEs which are not located in the PRC and have the
functional currency other than RMB, the financial statements are translated from their respective functional currencies into RMB.
F-22
Assets and liabilities of the Group’s overseas entities denominated in currencies other than the RMB are translated into RMB
at the rates of exchange ruling at the balance sheet date. Equity accounts are translated at historical exchange rates and revenues,
expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported as foreign currency
translation adjustment and are shown as a separate component of other comprehensive income in the consolidated statements of
comprehensive income.
Translations of amounts from RMB into US$ are solely for the convenience of the reader and were calculated at the rate of
US$1.00 = RMB6.943 on December 31, 2016, representing the certificated exchange rate published by the Federal Reserve Board. No
representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that
rate on December 31, 2016, or at any other rate.
(v) Comprehensive Income
Comprehensive income includes all changes in equity except those resulting from investments by owners and distributions to
owners. For the years presented, total comprehensive income included net income, change in fair value of available-for-sale investments
and foreign currency translation adjustments.
(w) Loans receivable, net
Loans receivable represent loans offered to the clients in the small loan business. Loans receivable are initially recognized at
fair value which is the cash disbursed to originate loans, measured subsequently at amortized cost using the effective interest method,
net of allowance that reflects the Company’s best estimate of the amounts that will not be collected.
(x) Allowance for loan losses
The allowance for loan losses is maintained at a level believed to be reasonable by management to absorb probable losses
inherent in the portfolio as of each balance sheet date. Net changes in the allowance for loan losses are recorded as part of other
operating expenses in the consolidated statement of operations. The allowance is based on factors such as the size and current risk
characteristics of the individual loans and actual loss, delinquency, and/or risk rating experience of the loans. Generally the period of
the loans last for no more than 1 year, and are considered to be a homogenous population of similar credit quality. In addition, the
Group also considers the loan allowance benchmarks periodically published by regulators for financial institutions in the PRC for loans
with similar risks as a proxy for macroeconomic conditions that could have an impact on the performance of loans prospectively.
Specific reserves are provided when and to the extent a credit event occurs with respect to an individual loan. The allowance for loan
losses is increased by charges to income and decreased by charge-offs (net of recoveries). Loans are charged off when they are
delinquent for more than 120 days. The Group evaluates its allowances for loan losses on a quarterly basis or more often as deemed
necessary. The Group has followed the same methodology for estimating the loan losses since inception. The provision rate for loans
outstanding as of December 31, 2015 and 2016 were both 1%.
The Group performed a “back test” of the allowance for loan losses estimate by comparing the actual loan losses in 2016 to
the estimated loan losses as of December 31, 2015. No significant difference was identified. In case significant variance is identified
through the back test, the estimate methodology will be modified to reflect expected loan losses.
(y) Factoring
The Company started to offer factoring products in 2016 through one of its subsidiaries, whereas the Company acquires
accounts receivable from unrelated third parties at a discount to the face amount on a recourse basis, and immediately transfers the right
to the receivables (“factoring receivables”) on its internet financial service platform in smaller tranches to individual investors. The
Company accounts for the transfer of factoring receivables in accordance with ASC 860, “Transfers and Servicing” (“ASC 860”). For a
transfer to be considered a sale, cash receipts and cash payments resulting from the acquisitions and sales are classified as operating
cash flows.
Transfers that do not qualify sale accounting in accordance with ASC 860 are accounted for as secured borrowings with the
proceeds received from the individual investors as “factoring payables” on the consolidated balance sheets, and the advancements to the
original holders of the accounts receivables as factoring receivables on the consolidated balance sheets. The cash flows related to
purchases and collections of the pledged factoring receivables are included within the cash flows from investing activities category, and
the proceeds and payments related to the transfer of the right to the receivables are included within the cash flows from financing
activities in the consolidated statement of cash flows.
F-23
(z) Recently issued accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued, ASU 2014-09, “Revenue from Contracts with
Customers (Topic 606)”, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle
of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The accounting
guidance also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain
or fulfill a contract. ASU 2014-09 can be adopted using one of two retrospective application methods. In August 2015, the FASB issued
ASU 2015-14, “Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date”, which defers the effective date of
ASU 2014-09 by one year, to fiscal years beginning after December 15, 2017, and interim periods therein. The Group currently expects
to adopt ASU 2014-09 and related topics in its first quarter of 2018, and is evaluating which transition approach to use.
Additionally, the FASB issued the following various updates affecting the guidance in ASU 2014-09. The effective dates and
transition requirements are the same as those in ASC Topic 606 above. In March 2016, FASB issued an amendment to the standard,
ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” Under the amendment,
an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is
a principal) or to arrange for that good or service to be provided by the other party (as an agent). In April 2016, FASB issued ASU
2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, to clarify
identifying performance obligations and the licensing implementation guidance, which retaining the related principles for those areas. In
May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Practical Expedients”. This update addresses narrow-scope improvements to the guidance on collectability, noncash consideration and
completed contracts at transition. The update provides a practical expedient for contract modifications at transition and an accounting
policy election related to the presentation of sales taxes and other similar taxes collected from customers. Then, in December 2016, the
FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. The
updates in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes, which requires deferred income tax liabilities and assets to be classified as noncurrent on the balance sheet rather than being
separated into current and noncurrent. The guidance is effective for public entities for annual periods beginning after December 15,
2016, and interim periods within those annual periods with early adoption being permitted. The ASU will only have impact on the
Group’s consolidated balance sheets classification upon adoption.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires that equity investments, except for those
accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent
changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily
determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly
transactions for the identical or a similar investment of the same issuer. ASU 2016-01 also impacts the presentation and disclosure
requirements for financial instruments. ASU 2016-01 is effective for public business entities for annual periods, and interim periods
within those annual periods, beginning after December 15, 2017. Early adoption is permitted only for certain provisions. The Group is
in the process of evaluating the impact of adoption of this guidance on the Group’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases
on the balance sheet. This ASU requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than
12 months. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of
twelve months or less. The ASU does not significantly change the lessees’ recognition, measurement and presentation of expenses and
cash flows from the previous accounting standard. Lessors’ accounting under the ASC is largely unchanged from the previous
accounting standard. In addition, the ASU expands the disclosure requirements of lease arrangements. Lessees and lessors will use a
modified retrospective transition approach, which includes a number of practical expedients. The provisions of this guidance are
effective for annual periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted.
The Group is in the process of evaluating the impact of adoption of this guidance on the Group’s consolidated financial statements.
F-24
In March 2016, the FASB issued ASU No. 2016-06, “Contingent Put and Call Options in Debt Instruments” clarifying the
assessment of whether contingent call or put options that can accelerate the payment of principal on debt instruments are clearly and
closely related to the economic characteristics and risks of their debt hosts, a criteria in assessing whether to bifurcate an embedded
derivative. The new pronouncement clarifies the exercise contingency and the event triggering the contingency does not need to be
evaluated in the clearly and closely analysis relative to interest rates or credit risks. Rather, the call or put would be evaluated as a
derivative regardless of the exercise contingency. Further, if an entity is no longer required to bifurcate a put or call option per the new
guidance, the entity has a one-time option to irrevocably elect to measure that debt instrument in its entirety at fair value with changes
in fair value recognized in earnings. ASU No. 2016-06 is effective for annual periods beginning after December 15, 2016 and early
adoption is permitted. The ASU should be applied using the modified retrospective basis to existing instruments as of the beginning of
the annual period of adoption. The Group early adopted ASU No. 2016-06 as of December 31, 2016. The adoption of this
pronouncement did not have a material impact on the Company’s consolidated financial statements of the prior reporting period.
In March 2016, the FASB issued ASU 2016-07, which eliminates the requirement to retroactively adopt the equity method of
accounting. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to
the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment
becomes qualified for equity method accounting. The amendments in this Update are effective for all entities for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon
their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method.
Earlier application is permitted. The ASU will not impact on the Group’s consolidated balance sheets upon adoption.
In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based
payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax
withholding requirements, as well as classification in the statement of cash flows. For public entities, the ASU is effective for annual
reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Early adoption
will be permitted in any interim or annual period for which financial statements have not yet been issued or have not been made
available for issuance. The Group is in the process of evaluating the impact of adoption of this guidance on the consolidated financial
statements.
F-25
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The update is intended to improve
financial reporting in regards to how certain transactions are classified in the statement of cash flows. This update requires that debt
extinguishment costs be classified as cash outflows for financing activities and provides additional classification guidance for the
statement of cash flows. The update also requires that the classification of cash receipts and payments that have aspects of more than
one class of cash flows to be determined by applying specific guidance under generally accepted accounting principles. The update also
requires that each separately identifiable source or use within the cash receipts and payments be classified on the basis of their nature in
financing, investing or operating activities. The update is effective for public companies for fiscal years beginning after December 15,
2017, including interim periods within those fiscal years. The Group is in the process of evaluating the impact of adoption of this
guidance on the consolidated financial statements.
In October 2016, FASB issued ASU 2016-16, Income Taxes (Topic 740). Current GAAP prohibits the recognition of current
and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new standard, an
entity is to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer
occurs. The new standard does not include new disclosure requirements; however, existing disclosure requirements might be applicable
when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The new standard
is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual periods. The
ASU will not impact on the Group’s consolidated balance sheets upon adoption.
In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties under
Common Control (“ASU 2016-17”). This guidance in ASU 2016-17 states that reporting entities deciding whether they are primary
beneficiaries no longer have to consider indirect interests held through related parties that are under common control to be the
equivalent of direct interests in their entirety. Reporting entities would include those indirect interests on a proportionate basis. The
Group has adopted this new guidance and has applied the guidance retrospectively beginning with the annual period in which the
amendments in ASU 2015-02 were adopted in 2015.
In October 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. The update applies
to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. The update
addresses diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash
flows, and requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and
amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash
and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows. The update is effective for public companies for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The updates should be
applied using a retrospective transition method to each period presented. The Group is in the process of evaluating the impact of
adoption of this guidance on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business. The update affects all companies and other reporting organizations that must determine whether they have acquired or sold a
business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.
The update is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. The update provides a more robust framework to use in determining when a set of assets and
activities is a business, and also provides more consistency in applying the guidance, reduce the costs of application, and make the
definition of a business more operable. For public companies, the update is effective for annual periods beginning after December 15,
2017, including interim periods within those periods. The Group is in the process of evaluating the impact of adoption of this guidance
on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment. The update simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill
impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its
carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s
fair value. The update also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a
qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option
to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The update
should be applied on a prospective basis. The nature of and reason for the change in accounting principle should be disclosed upon
transition. For public companies, the update is effective for any annual or interim goodwill impairment tests in fiscal years beginning
after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Group is in the process of evaluating the impact of adoption of this guidance on the consolidated financial
statements.
F-26
3. Net Income per Share
The following table sets forth the computation of basic and diluted net income per share attributable to ordinary
shareholders:
Net income attributable to Class
A and Class B ordinary
shareholders—basic
Plus: interest expense for
convertible notes
Net income attributable to Class
A and Class B ordinary
shareholders—diluted
Weighted average number of
Class A and Class B ordinary
shares outstanding—basic
Plus: share options
Plus: non-vested restricted
shares
Plus: shares outstanding for
convertible notes
Weighted average number of
Class A and Class B ordinary
shares outstanding—diluted
Basic net income per share
Diluted net income per share
2014
Class A and Class B
RMB
2015
Class A and Class B
RMB
2016
Class A and Class B
RMB
2016
Class A and Class B
US$
Years Ended December 31,
446,552,851
535,824,084
643,828,433
92,730,581
—
16,050,359
19,288,813
2,778,167
446,552,851
551,874,443
663,117,246
95,508,748
27,873,501
178,203
28,085,521
207,354
28,150,139
133,295
28,150,139
133,295
176,119
278,027
16,465
16,465
—
1,575,074
1,736,864
1,736,864
28,227,823
16.02
15.82
30,145,976
19.08
18.31
30,036,763
22.87
22.08
30,036,763
3.29
3.18
In January, 2016, the Company’s shareholders voted in favor of a proposal to adopt a dual-class share structure, pursuant to
which authorized share capital was reclassified and re-designated into Class A ordinary shares and Class B ordinary shares, with each
Class A ordinary share being entitled to one vote and each Class B ordinary share being entitled to four votes on all matters that are
subject to shareholder vote. As economic rights and obligations are applied equally to both Class A and Class B ordinary shares,
earnings are allocated between the two classes of ordinary shares evenly with the same allocation on a per share basis.
Diluted net income per share does not include the following instruments as their inclusion would be antidilutive:
Share options
Non-vested restricted shares
Total
F-27
Years Ended December 31,
2015
343,750
—
343,750
2014
304,045
—
304,045
2016
316,510
—
316,510
4. Investments
The following table summarizes the Group’s investment balances:
Short-term investments
- Held-to-maturity investments
- Fixed income products
Total held-to-maturity investments
- Available-for-sale investments
- Fixed income products
Total available-for-sale investments
- Other short-term investments
Total short-term investments
Long-term investments
- Held-to-maturity investments
- Fixed income products
Total held-to-maturity investments
- Available-for-sale investments
- Other long-term investments
- Private equity funds products
- Other investments
Total other long-term investments
Total long-term investments
Total investments
2015
RMB
As of December 31,
2016
RMB
2016
US$
25,240,000
25,240,000
144,580,000
144,580,000
20,823,851
20,823,851
496,565,847
496,565,847
38,268,052
560,073,899
154,594,435
154,594,435
—
299,174,435
22,266,230
22,266,230
—
43,090,081
56,180,000
56,180,000
10,069,729
134,500,000
134,500,000
—
19,372,029
19,372,029
—
78,390,404
107,141,812
185,532,216
251,781,945
811,855,844
95,568,533
116,851,794
212,420,327
346,920,327
646,094,762
13,764,732
16,830,159
30,594,891
49,966,920
93,057,001
F-28
Held-to-maturity investments consist of investments in fixed income products that have stated maturity and normally pay a
prospective fixed rate of return, carried at amortized cost. The Group recorded investment income on these products of
RMB12,496,501, RMB4,856,760 and RMB21,393,276 for the years ended December 31, 2014, 2015 and 2016, respectively. As of
December 2015, the gross unrecognized holding loss was RMB2,375,351. As of December 2016, the gross unrecognized holding gain
was RMB1,360,819. Of the long-term held-to-maturity investments, RMB133,500,000 and RMB1,000,000 will mature in 2019 and
2021, respectively. Held-to-maturity investments also include investments in debt securities managed by the Group of RMB 46,180,000
and RMB 124,500,000 as of December 31, 2015 and 2016, respectively.
Available-for-sale investments consist of investments in fixed income products and other products that have stated maturity
and normally pay a prospective fixed rate of return, carried at fair value. Changes in fair value of the available-for-sale investments, net
of tax, for the year ended December 31, 2015 and 2016 was RMB44,166,013 and RMB22,982,796, recorded in the other
comprehensive income, of which RMB43,447,599 and RMB27,692,936 was realized and reclassified from other comprehensive
income to “investment income” in the consolidated statements of operations during the year. As of December 31, 2015 and 2016, the
net unrealized gain, net of tax, remained in other comprehensive income was RMB3,393,019 and RMB392,290, respectively. The
amortized cost of the available-for-sale investments as of December 31, 2015 and 2016 was RMB495,847,433 and RMB152,950,000,
respectively. There’s no investment with realized or unrealized losses during the periods presented.
Other short-term investments consist of investments in secondary market equity funds of funds that are not publicly traded.
The Group accounted for these secondary market equity funds of funds using the cost method of accounting due to the fact that the
Group does not have significant influence over the funds and the investment is not more than minor.
Other long-term investments consist of investments in three private equity funds as a limited partner with less than 3% equity
interest, equity investment of common shares of three companies with less than 15% interest and equity investments of series B
preferred share in PPDAI Group Inc. In 2014, the Company invested RMB14,413,099 in PPDAI Group Inc., by subscribing and
purchasing Series B Preferred Shares, representing 2.62% of the investee’s issued share capital. PPDAI Group Inc. is a private entity
primarily engaged in the P2P internet lending business. The equity interests in PPDAI Group Inc., held by the Company was diluted to
1.96% as of December 31, 2016. The Group accounted for these private equity funds investments and equity investment in private
entity using the cost method of accounting due to the fact that the Group has no significant influence on the investees.
5. Fair Value Measurement
As of December 31, 2015 and December 31, 2016, information about inputs into the fair value measurements of the
Company’s assets and liabilities that are measured at fair value on a recurring basis in periods subsequent to their initial recognition is
as follows:
Description
Short-term investment
Available-for-sale investments
Long-term investment
Available-for-sale investments
Description
Short-term investment
Available-for-sale investments
Long-term investment
Available-for-sale investments
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
RMB
Significant
Other
Observable
Inputs
(Level 2)
RMB
—
—
496,565,847
10,069,729
Significant
Unobservable
Inputs
(Level 3)
RMB
—
—
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
RMB
Significant
Other
Observable
Inputs
(Level 2)
RMB
—
—
154,594,435
—
Significant
Unobservable
Inputs
(Level 3)
RMB
—
—
As of
December 31,
2015
RMB
496,565,847
10,069,729
As of
December 31,
2016
RMB
154,594,435
—
F-29
Available-for-sale investments consist of investments in trust products, asset management plans, contractual funds and real
estate funds that have stated maturity and normally pay a prospective fixed rate of return. These investments are recorded at fair value
on a recurring basis. The fair value is measured using discounted cash flow model based on contractual cash flow and a discount rate of
prevailing market yield for products with similar terms as of the measurement date, as such, it is classified within Level 2 measurement.
The Company does not have assets or liabilities reported at fair value on a non-recurring basis during the periods presented.
The Company also has financial instruments that are not reported at fair value on the consolidated balance sheet but whose
fair values are practicable to estimate. The Group believes the fair value of its financial instruments: principally cash and cash
equivalents, restricted cash, accounts receivable, amount due from related parties, factoring receivables, short-term held-to-maturity
investments, other short-term investments, loans receivable, short-term bank loan, payable to individual investors of factoring
receivables and other payables approximate their recorded values due to the short-term nature of the instruments.
The Group’s long-term investments consist of investment in private equity funds, held-to-maturity long-term fixed income
products, and equity investments. As of December 31, 2015 and 2016, information about inputs into the fair value measurements of the
Company’s long-term financial instruments that are not reported at fair value on balance sheet is as following:
As of December 31, 2015
Fair Value Measurements at Reporting Date Using
Description
Long-term investment – cost method investment:
Investment in private equity funds products
Investment in other investments
Long-term investment – held-to-maturity:
Investment in fixed income products
Carrying Value
RMB
Fair Value
RMB
78,390,404
107,141,812
78,235,701
111,841,541
56,180,000
53,804,649
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
RMB
Significant
Other
Observable
Inputs
(Level 2)
RMB
Significant
Unobservable
Inputs
(Level 3)
RMB
—
—
—
—
—
78,235,701
111,841,541
53,804,649
—
Description
Long-term investment – cost method investment:
Investment in private equity funds products
Investment in other investments
Long-term investment – held-to-maturity:
Investment in fixed income products
As of December 31, 2016
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
RMB
Significant
Other
Observable
Inputs
(Level 2)
RMB
Significant
Unobservable
Inputs
(Level 3)
RMB
Carrying Value
RMB
Fair Value
RMB
95,568,533
116,851,794
95,419,830
238,803,980
—
—
—
—
95,419,830
238,803,980
134,500,000
135,860,819
—
135,860,819
—
For the long-term investment in private equity funds the fair value was determined based on the Group’s equity holding
percentage multiplied by the fair value of the underlying funds available from the financial information of the funds. The fair value of
the underlying investments in these funds was estimated via a discounted cash flow model, using unobservable inputs mainly including
assumptions about expected future cash flows based on information supplied by investees, degree of liquidity in the current credit
markets and discount rate, and is thus classified as a Level 3 fair value measurement. The fair value of the equity investment in the
private entity is also estimated using discounted cash flow model and is classified as a level 3 fair value measurement.
The fair value of long-term investment in fixed income products was estimated using a discounted cash flow model based on
contractual cash flows and a discount rate at the prevailing market yield on the measurement date for similar products, and is classified
as a Level 2 fair value measurement.
F-30
6. Investment in Affiliates
The following table summarizes the Group’s balances of investment in affiliates:
Kunshan Jingzhao
Kunshan Vantone
Wanjia Win-Win
Wuhu Bona
Beijing Shengyi
Shanghai Weiying
Wuhu Hongxing
Hainan Alibaba
Shanghai Nuoya
Funds that the Company serves as general partner
-Gopher Transform Private Fund
-Real estate funds and real estate funds of funds
-Private equity funds of funds
-Other fixed income funds of funds
Total investment in affiliates
2015
RMB
11,068,436
5,424,558
51,077,862
885,264
1,954,914
—
—
—
—
255,744,809
—
46,924,414
208,778,546
41,849
326,155,843
As of December 31,
2016
RMB
11,541,091
5,225,900
60,130,744
807,385
1,623,110
1,058,886
9,800,000
4,000,000
2,000,000
442,989,395
150,000,000
50,373,389
242,573,595
42,411
539,176,511
2016
US$
1,662,262
752,686
8,660,629
116,288
233,776
152,511
1,411,494
576,120
288,060
63,803,744
21,604,494
7,255,277
34,937,865
6,108
77,657,570
In May 2011, Tianjin Gopher injected RMB4.0 million into Kunshan Jingzhao Equity Investment Management Co., Ltd
(“Kunshan Jingzhao”), a newly setup joint venture, for 40% of the equity interest. Kunshan Jingzhao principally engages in real estate
fund management business.
In November 2012, Gopher Asset Management injected RMB3.8 million into Kunshan Vantone Zhengyuan Private Equity
Fund Management Co., Ltd (“Kunshan Vantone”), a newly established joint venture, for 15% of the equity interest. Kunshan Vantone
principally engages in private equity fund management businesses. The Group considers it has significant influence over Kunshan
Vantone due to the level of its participation on the board of directors.
In February 2013, Gopher Asset Management injected RMB21.0 million into Wanjia Win-Win Assets Management Co., Ltd
(“Wanjia Win-Win”), a newly setup joint venture, for 35% of the equity interest. Wanjia Win-Win principally engages in wealth
management plan management business.
In July 2013, Gopher Asset Management injected RMB0.8 million into Wuhu Bona Film Investment Management Co., Ltd.
(“Wuhu Bona”), a newly established joint venture, for 15% of the equity interest. Wuhu Bona principally engages in film private equity
fund management businesses. The Group considers it has significant influences over Wuhu Bona due to the level of its participation on
the board of directors.
In July 2015, Shanghai Noah Rongyao Investment Consulting Co., Ltd. injected RMB2.7 million into Beijing Shengyi
Technology and Art Co., Ltd. (“Beijing Shengyi”), a newly established joint venture, for 25% of the equity interest. Beijing Shengyi
principally engages in culture and art business.
In January 2016, Shanghai Gopher Asset Management injected RMB1.2 million into Shanghai Weiying Gopher Investment
Management Co., Ltd (“Shanghai Weiying”), a newly setup joint venture, for 30% of equity interest. Shanghai Weiying principally
engages in film industry investment.
In April 2016, Shanghai Gopher Asset Management injected RMB9.8 million into Wuhu Hongxing Meikailong Equity
Investment Management Co., Ltd (“Wuhu Hongxing”), a newly setup joint venture, for 50% of equity interest. Wuhu Hongixng
principally engages in equity investment, asset management and investment consulting related to commercial properties.
In August 2016, Gopher Asset Management injected RMB4 million into Hainan Alibaba Picture Investment Management
Co., Ltd (“Hainan Alibaba), a newly setup joint venture, for 40% of equity interest. Hainan Alibaba principally engages in PE fund
management and film industry investment, etc.
F-31
In October 2016, Wuhu Gopher Asset Management injected RMB2 million into Shanghai Nuoya Commercial Operation
Management Co., Ltd (“Shanghai Nuoya”), a newly setup joint venture, for 30% of equity interest. Shanghai Nuoya principally engages
in enterprise management and consulting.
Gopher Asset Management and its subsidiaries invested in private equity funds of funds, real estate funds and real estate
funds of funds, and other fixed income funds of funds that the Group serves as general partner or fund manager. Gopher Asset
Management held no more than 1.7% equity interests in these real estate funds and no more than 5.0% equity interest in these real estate
funds of funds and private equity funds of funds as a general partner.
In the fourth quarter of 2016, Gopher Asset Management injected RMB150 million into Gopher Transformation Private
Fund, accounted for 48% of total actual distribution volume. The fund principally invested in a limited partnership to invest one real-
estate company. Although managed by Gopher Asset Management, the fund are not consolidated by the Group based on the facts that
substantive kick-out rights exist which are exercisable by a simple-majority of non-related limited partners of the fund to dissolve
(liquidate) the fund or remove the company as the general partner of the fund without cause.
The Group accounts for these investments using the equity method of accounting due to the fact that the Company can
exercise significant influence on these investees in the capacity of general partner or fund manager.
The Group recorded income from equity in affiliates of RMB13,583,865, RMB21,352,767 and RMB22,342,896 for the years
ended December 31, 2014, 2015 and 2016, respectively.
F-32
7. Property and Equipment, Net
Property and equipment, net consists of the following:
Leasehold improvements
Furniture, fixtures and equipment
Motor vehicles
Software
Accumulated depreciation
Construction in progress
Property and equipment, net
2015
RMB
109,826,051
63,763,654
23,019,817
39,034,783
235,644,305
(79,150,194)
156,494,111
39,981,138
196,475,249
As of December 31,
2016
RMB
138,813,271
85,469,351
49,940,181
64,016,790
338,239,593
(129,855,593)
208,384,000
35,105,512
243,489,512
2016
US$
19,993,270
12,310,147
7,192,882
9,220,336
48,716,635
(18,703,096)
30,013,539
5,056,245
35,069,784
Depreciation expense was RMB22,398,968, RMB34,417,668 and RMB61,320,332 for the years ended December 31, 2014,
2015 and 2016, respectively.
8. Other Current Liabilities
Components of other current liabilities are as follows:
Accrued expenses
Advance from customers
Interest payable for convertible notes
Other payables
Payable to individual investors of internet financial service
business
Payable for purchases of property and equipment
Other tax payable
Amount due to related party
Total
2015
RMB
82,870,781
19,587,242
7,461,952
32,661,326
As of December 31,
2016
RMB
126,698,212
20,227,161
8,370,658
78,341,632
143,234,477
13,391,314
41,698,015
—
340,905,107
29,031,169
11,208,902
48,816,742
12,000,000
334,694,476
2016
US$
18,248,338
2,913,317
1,205,625
11,283,542
4,181,358
1,614,418
7,031,073
1,728,360
48,206,031
Accrued expenses mainly consist of payables for marketing expenses and professional service fees.
Payable to individual investors of internet financial service business consists of interests and principals payable to individual
investors who purchased internet financial products distributed by the Group.
Amount due to related party is the loan due to Beijing Sequoia Mingde Equity Investment Center (Limited Partnership). See
Note 12 for details.
9. Income Taxes
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains. In addition,
the Cayman Islands do not impose withholding tax on dividend payments.
Hong Kong
Under the current Hong Kong Inland Revenue Ordinance, the Company’s subsidiaries established in Hong Kong are subject
to 16.5% income tax on their taxable income generated from operations in Hong Kong. Under the Hong Kong tax laws, it is exempted
from the Hong Kong income tax on its foreign-derived income. In addition, payments of dividends from Hong Kong subsidiaries to us
are not subject to any Hong Kong withholding tax.
F-33
PRC
Under the Law of the People’s Republic of China on Enterprise Income Tax (“EIT Law”), domestically-owned enterprises
and foreign-invested enterprises are subject to a uniform tax rate of 25%.
The tax expense (benefit) comprises:
Current Tax
Deferred Tax
Total
2014
RMB
173,388,429
(22,095,408)
151,293,021
Years Ended December 31,
2016
RMB
166,563,258
2015
RMB
136,698,765
(6,813,018)
(8,566,670)
129,885,747
157,996,588
2016
US$
23,990,099
(1,233,857)
22,756,242
Reconciliation between the statutory tax rate to income before income taxes and the actual provision for income taxes is as
follows:
PRC income tax rate
Expenses not deductible for tax purposes
Effect of tax-free investment income
Effect of uncertain tax positions
Effect of different tax rate of subsidiary operation in other jurisdiction
Effect of deferred tax asset allowance
Effect of tax holidays
Effect of intra-group share transfer
Effect of others
Years Ended December 31,
2015
25.00%
0.00%
(2.97%)
(1.75%)
(0.70%)
2.00%
(1.28%)
—
0.16%
20.46%
2014
25.00%
0.38%
(0.62%)
0.17%
(0.07%)
—
(0.67%)
—
0.96%
25.15%
2016
25.00%
0.17%
(4.44%)
(0.01%)
(3.96%)
4.70%
(1.82%)
1.96%
(0.06%)
21.54%
The aggregate amount and per share effect of the Tax Holiday (including effect of timing difference reversed in the year with
different rate) are as follows:
Aggregate
Per share effect-basic
Per share effect-diluted
Years Ended December 31,
2014
RMB
4,007,311
0.14
0.14
2015
RMB
8,103,295
0.29
0.27
2016
RMB
13,363,068
0.47
0.44
2016
US$
1,924,682
0.07
0.06
The principal components of the deferred income tax asset and liabilities are as follows:
Deferred tax assets:
Accrued expenses
Tax loss carry forward
Unrealized other income
Others
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Analysis as:
Current
Non-current
Deferred tax liabilities:
Unrealized investment income
Net deferred tax liabilities (after offsetting)
Analysis as:
Current
Non-current
F-34
2015
RMB
As of December 31,
2016
RMB
2016
US$
18,992,967
36,546,645
3,734,748
358,881
59,633,241
(12,665,420)
46,967,821
24,107,150
63,023,249
3,105,198
83
90,235,680
(34,508,881)
55,726,799
3,472,152
9,077,236
447,241
12
12,996,641
(4,970,312)
8,026,329
3,104,253
43,863,568
—
55,726,799
—
8,026,329
4,264,027
1,159,774
1,159,774
—
4,456,335
4,456,335
—
4,456,335
641,846
641,846
—
641,846
Deferred tax assets and liabilities have been offset where the Company has a legally enforceable right to do so, and intends to
settle on a net basis.
The Group considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will
be more likely than not realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses,
forecasts of future profitability, the duration of statutory carry forward periods, the Group’s experience with tax attributes expiring
unused and tax planning alternatives. These assumptions require significant judgment and the forecasts of future taxable income are
consistent with the plans and estimates the Group is using to manage the underlying businesses. Valuation allowances are established
for deferred tax assets based on a more likely than not threshold. The Group’s ability to realize deferred tax assets depends on its ability
to generate sufficient taxable income within the carry forward periods provided for in the tax law. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry-forward period
are reduced. As of December 31, 2016, operating loss carry forward amounted to RMB247 million for the PRC and Hong Kong income
tax purpose, the tax loss carryforward of RMB572,253 will begin to expire in 2017. During the year ended December 31, 2015 and
2016, the Group recorded an allowance of RMB12,665,420 and RMB34,508,881 for deferred tax assets which are not more likely than
not to be realized. 76.1% of the deferred tax asset allowance as of December 31, 2016 was related to the net operating loss from internet
financial service business.
In accordance with the EIT Law, dividends, which arise from profits of foreign-invested corporations earned after January 1,
2008, are subject to a 5% to 10% withholding income tax. A deferred tax liability should be recognized for the undistributed profits of
PRC companies unless the Company has sufficient evidence to demonstrate that the undistributed dividends will be reinvested and the
remittance of the dividends will be postponed indefinitely. The accumulated undistributed earnings of the Group’s PRC subsidiaries
were RMB1.9 billion as of December 31, 2016. The Group intends to indefinitely reinvest the remaining undistributed earnings of the
Group’s PRC subsidiaries, and therefore, no additional provision for PRC dividend withholding tax was accrued.
The Group did not record any uncertain tax positions during the years ended December 31, 2014, 2015 and 2016. The Group
classifies interest and/or penalties related to income tax matters in income tax expense. The Group accrued interest of RMB1,038,963,
nil and nil related to the uncertain tax positions in 2014, 2015 and 2016, respectively. Accrued interest was RMB29,033 and nil as of
December 31, 2015 and 2016, respectively. The uncertain tax positions of RMB67,248 was released in 2016 due to the lapse of statute
of limitations. The Group does not anticipate any significant increases or decreases to its liability for unrecognized tax benefits within
the next 12 months.
According to PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of
taxes is due to computational errors made by the taxpayer or withholding agent. The statute of limitations will be extended five years
under special circumstances, which are not clearly defined (but an underpayment of tax liability exceeding RMB0.1 million is
specifically listed as a special circumstance). In the case of a related party transaction, the statute of limitations is 10 years. There is no
statute of limitations in the case of tax evasion. .
The movement of the Group’s uncertain tax positions is summarized as follows:
Unrecognized tax benefit—December 31, 2013
Gross increases—accrued interest in current period
Settlements
Reverse due to lapse of statute of limitations
Exchange rate translation
Unrecognized tax benefit—December 31, 2014
Gross increases—accrued interest in current period
Settlements
Reverse due to lapse of statute of limitations
Exchange rate translation
Unrecognized tax benefit—December 31, 2015
Gross increases—accrued interest in current period
Settlements
Reverse due to lapse of statute of limitations
Exchange rate translation
Unrecognized tax benefit—December 31, 2016
F-35
RMB
9,991,022
1,038,963
—
—
97,712
11,127,697
—
—
US$
1,542,348
160,388
—
—
15,084
1,717,820
—
—
(11,202,168)
(1,729,317)
141,719
67,248
—
—
21,878
10,381
—
—
(67,248)
(10,381)
—
—
—
—
10. Loans Receivable, Net
Loans receivable as of December 31, 2015 and 2016 consist of the following:
Loans receivable:
-Within credit term
-Past due
Total loans receivable
Allowance for loan losses
Loans receivable, net
2015
RMB
2016
RMB
2016
US$
133,444,399
—
133,444,399
115,070,663
—
115,070,663
16,573,623
—
16,573,623
(1,334,502)
(1,150,707)
(165,736)
132,109,897
113,919,956
16,407,887
The loan interest rate ranging between 4%-14.4% for the years ended December 31, 2016. All loans are short-term loans, and
RMB93,170,665 of the balance is secured by collateral.
The following table presents the activity in the allowance for loan losses as of and for the years ended December 31, 2015
and 2016.
Loans receivable—December 31, 2014
Provisions
Reversal of allowance provided
Charge-offs
Loans receivable—December 31, 2015
Provisions
Reversal of allowance provided
Charge-offs
Loans receivable—December 31, 2016
RMB
1,166,800
1,225,597
(1,057,895)
—
1,334,502
1,150,707
(1,334,502)
US$
180,123
189,200
(163,311)
—
206,012
165,736
(206,012)
1,150,707
165,736
11. Convertible notes
On February 3, 2015, the Company issued an aggregate principal amount of US$80 million (RMB555 million as of
December 31, 2016) of convertible notes (“Notes”) through private placement to Greenwoods Asset Management, Hillhouse Capital
Management and Keywise Capital Management. The Notes bear interest at a rate of 3.5% per annum from the issuance date through
maturity in February 3, 2020 (the “maturity date”), and is payable semiannually in arrears on February 3 and August 3 of each year,
beginning on August 3, 2015. The Notes will be convertible, at the holders’ option, into the Company’s ADSs, two of which represent
one ordinary share of the Company, at a conversion price of US$23.03 (RMB159.90 as of December 31, 2016) per ADS, representing
an initial conversion rate of 43.4216 ADSs per US$1,000 principal amount of the Notes, subject to customary adjustments. The
conversion feature requires physical settlement, and can only be exercised when the portion to be converted is at least US$10 million or
a lesser amount then held by the holder. The holders will have the right, at the holders’ option, to require the Company to repurchase for
cash on February 3, 2018 or on the maturity date, or upon a fundamental change or default, all of the Notes at a repurchase price that is
equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase
date. Events of default include failure to pay principal or interest, breach of conversion obligation, suspension from trading or failure of
ADSs to be listed, bankruptcy, etc. Debt issuance costs of nil is recorded as a direct deduction from the face amount of convertible
notes.
The Company recorded the Notes as a liability in their entirety, and neither conversion feature nor any other feature is
required to be bifurcated and accounted for separately. In addition, as the effective conversion price is greater than the fair value of
underlying ADS, there was no beneficial conversion feature to be recognized. As of December 31, 2016, none of the Notes have been
converted.
F-36
12. Redeemable Non-controlling Interest of a Subsidiary
In December 2016, Beijing Sequoia Mingde Equity Investment Center (Limited Partnership), or Sequoia Mingde, an affiliate
of Sequoia Capital China, acquired 8% of the equity interest of Gopher International Limited (“New Gopher”), a newly established
subsidiary of the Company, at purchase price of RMB336 million, with a precondition that all unrestricted asset management business
should be transferred from Gopher Asset Management Co., (“Old Gopher”) to the New Gopher (the “business restructure”). In addition,
Sequoia Mingde provided RMB 12 million no-interest bearing loan to Gopher Asset Management, and has the right to convert the loan
to no less than 8% of equity interests of Old Gopher before finalization of the business restructure. The total investment, including the
loan, is redeemable by Sequoia Mingde at a price equal to the initial investment plus a compound annual interest rate of 8% if the
business restructure fails. Given the existence of such redemption right, the equity investment was recorded as redeemable
non-controlling interest classified as mezzanine equity outside of stockholders’ equity in the consolidated balance sheets. No accretion
to the redemption value is provided as of December 31, 2016 as the Company considers the redemption is not probable based on the
current status of the business restructure. The loan is recorded within other current liabilities in the consolidated balance sheets. No
embedded feature is required to be bifurcated, nor is there any beneficial conversion feature to be recognized for the equity investment
or the loan.
Beginning of the year
Issuance of redeemable non-controlling interest of a subsidiary
Loss attributable to redeemable non-controlling interest of a subsidiary
Redeemable non-controlling interest - end of the year
2015
RMB
—
—
—
—
2016
RMB
2016
US$
—
336,000,000
—
48,394,066
(5,335,678)
(768,498)
330,664,322
47,625,568
13. Share Repurchase
Treasury stock represents shares repurchased by the Company that are no longer outstanding and are held by the Company.
Treasury stock is accounted for under the cost method. In 2016, the Company used US$1.8 million (RMB12,602,156) to repurchase
ADSs. As of December 31, 2016, under the repurchase plan, the Company had repurchased an aggregate of 1,287,205 ordinary shares
on the open market for total cash consideration of US$20.5 million (RMB130,438,720). The repurchased shares were presented as
“treasury stock” in shareholders’ equity on the Group’s consolidated balance sheets.
F-37
14. Share-Based Compensation
The following table presents the Company’s share-based compensation expense by type of award:
Share options
Non-vested restricted shares
Total share-based compensation
Share Options:
2014
RMB
9,043,829
23,647,858
32,691,687
Years Ended December 31,
2015
RMB
33,912,040
33,760,448
67,672,488
2016
RMB
39,008,208
40,163,109
79,171,317
2016
US$
5,618,351
5,784,691
11,403,042
During the year ended December 31, 2008, the Company adopted the Noah Holdings Limited Share Incentive Plan (the
“2008 Plan”), which allows the Company to offer a variety of share-based incentive awards to the Group’s employees, officers,
directors and individual consultants who render services to the Group. Under the 2008 Plan, the maximum number of shares that may
be issued shall not exceed 8% of the shares in issue on the date the offer of the grant of an option is made. During the year ended
December 31, 2010, the Company adopted its 2010 share incentive plan (the “2010 Plan”). Under the 2010 plan, the maximum number
of shares in respect of which options, restricted shares, or restricted share units may be granted will be 10% of the Company’s current
outstanding share capital, or 2,315,000 shares. Options have a ten-year life and generally vest 25% on the first anniversary of the grant
date with the remaining 75% vesting ratably over the following 36 months.
The weighted-average grant-date fair value of options granted during the years ended December 31, 2014, 2015 and 2016
was RMB RMB172.92 (US$27.87), RMB294.76 (US$45.50) and RMB319.16 (US$47.96) per share, respectively. There were 128,457,
49,887 and 62,430 options exercised during the years ended December 31, 2014, 2015 and 2016 respectively.
The Group uses the Black-Scholes pricing model and the following assumptions to estimate the fair value of the options
granted or modified:
Average risk-free rate of return
Weighted average expected option life
Estimated volatility
Average dividend yield
2014
1.89%
2015
1.73%
2016
1.14%
6.0 years
6.1 years
6.1 years
82.2%
Nil
54.1%
Nil
55.8%
Nil
F-38
The following table summarizes option activity during the year ended December 31, 2016:
Outstanding as of January 1, 2016
Granted
Exercised
Forfeited
Converted to restricted shares
Outstanding as of December 31, 2016
Vested and expected to vest as of December 31, 2016
Exercisable as of December 31, 2016
Number
of options
762,890
186,425
(62,430)
(53,172)
(11,495)
822,218
702,914
167,812
Weighted
Average
Exercise
Price
RMB
202.91
268.83
90.69
263.00
392.06
233.37
233.37
177.01
Weighted
Average
Remaining
Contractual
Term
8.3
7.8
7.8
7.5
Aggregate
Intrinsic
Value of
Options
RMB
133,866,535
76,643,947
63,813,110
20,634,707
As of December 31, 2016, there was RMB117,690,049 of unrecognized compensation expense related to unvested share
options, which is expected to be recognized over a weighted average period of 2.66 years.
Non-vested Restricted Shares:
A summary of non-vested restricted share activity during the year ended December 31, 2016 is presented below:
Non-vested restricted shares
Non-vested as of January 1, 2016
Granted
Conversion from option
Vested
Forfeited
Non-vested as of December 31, 2016
Number of
non-vested
restricted
shares
249,026
122,719
5,748
(138,492)
(23,813)
215,188
Weighted-average
grant-date fair
value
RMB
237.14
329.22
368.40
225.45
442.23
297.69
The total fair value of non-vested restricted shares vested in 2014, 2015 and 2016 was RMB22,954,162, RMB24,959,520
and RMB31,223,067, respectively. The fair value of non-vested restricted shares was computed based on the fair value of the Group’s
ordinary shares on the grant date (or date of modification, as applicable). As of December 31, 2016, there was RMB59,313,954 in total
unrecognized compensation expense related to such non-vested restricted shares, which is expected to be recognized over a weighted-
average period of 2.38 years.
On August 6, 2014, the Group granted 19,375 restricted shares to independent directors to replace options previously granted
and modify the purchase price of the unvested restricted shares from RMB229.76 (US$37.03) per share to zero, but other conditions
remaining unchanged. The Company compared the fair value of the modified restricted shares against the original awards as of the
modification date and concluded that there is RMB1.9 million (US$0.3 million) incremental compensation cost to be recognized in the
next 2 years.
The company issued 5,748 non-vested restricted shares to replace 11,495 options that were granted under the Company’s
2015 share incentive plans but unvested as of September 13, 2016, and modified the purchase price for the restricted shares to zero with
other vesting conditions remaining unchanged. The Company compared the fair value of the modified awards against the original
awards as of the modification date and concluded that there is $150,494 incremental compensation cost related to restricted shares not
yet vested to be recognized over the remaining vesting period. The weighted average exercise price before and after the modification
are $56.25 and nil per ordinary share, respectively.
F-39
15. Employee Benefit Plans
Full time employees of the Group in the PRC participate in a government-mandated multi-employer defined contribution
plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare
benefits are provided to employees. PRC labor regulations require the Group to accrue for these benefits based on a certain percentage
of the employees’ salaries. The total contribution for such employee benefits were RMB71,135,997, RMB115,004,962 and
RMB140,992,601 for the years ended December 31, 2014, 2015 and 2016, respectively. The Group has no ongoing obligation to its
employees subsequent to its contributions to the PRC plan.
16. Restricted Assets
Pursuant to the relevant laws and regulations in the PRC applicable to foreign-investment corporations and the Articles of
Association of the Group’s PRC subsidiaries and VIEs, the Group is required to maintain a statutory reserve (“PRC statutory reserve”):
a general reserve fund, which is non-distributable. The Group’s PRC subsidiaries and VIEs are required to transfer 10% of their profit
after taxation, as reported in their PRC statutory financial statements, to the general reserve fund until the balance reaches 50% of their
registered capital. At their discretion, the PRC subsidiaries and VIEs may allocate a portion of its after-tax profits based on PRC
accounting standards to staff welfare and bonus funds. The general reserve fund may be used to make up prior year losses incurred and,
with approval from the relevant government authority, to increase capital. PRC regulations currently permit payment of dividends only
out of the Group’s PRC subsidiaries and VIEs’ accumulated profits as determined in accordance with PRC accounting standards and
regulations. The general reserve fund amounted to RMB168,697,072 and RMB208,825,136 as of December 31, 2015 and 2016,
respectively. The Group has not allocated any of its after-tax profits to the staff welfare and bonus funds for any period presented.
In addition, the share capital of the Company’s PRC subsidiaries and VIEs of RMB1,065,321,750 and RMB1,116,574,950 as
of December 31, 2015 and 2016, respectively, was considered restricted due to restrictions on the distribution of share capital.
As a result of these PRC laws and regulations, the Company’s PRC subsidiaries and VIEs are restricted in their ability to
transfer a portion of their net assets, including general reserve and registered capital, either in the form of dividends, loans or advances.
Such restricted portion amounted to RMB1,234,018,822 and RMB1,325,400,086 as of December 31, 2015 and 2016, respectively. The
restricted assets of the Company’s VIEs amounted to RMB438,896,279 and RMB344,383,556 as of December 31, 2015 and 2016,
respectively.
17. Segment Information
The Group uses the management approach to determine operating segments. The management approach considers the
internal organization and reporting used by the Group’s chief operating decision maker (“CODM”) for making decisions, allocating
resources and assessing performance. The Group’s CODM has been identified as the chief executive officer, who reviews consolidated
results when making decisions about allocating resources and assessing performance of the Group.
During the past three years, the Group has gradually transitioned from a wealth management consulting services provider to
an integrated financial services group with capabilities in wealth management, asset management and internet financial service. In order
to better reflect such transition, the Group has adjusted its internal organizational and corporate structures in the fourth quarter of 2014.
The segment information has been adjusted accordingly to present the operating results by three reportable segments: wealth
management, asset management and internet financial service. The Group’s CODM does not review balance sheet information of the
segments.
F-40
Segment information of the Group’s business is as follow:
Years Ended December 31, 2014
Wealth Management
Business
RMB
Assets Management
Business
RMB
Internet Financial
Service
Business
RMB
Revenues:
One-time commissions
Recurring service fees
Performance-based income
Other service fees
Total third-party revenues
One-time commissions
Recurring service fees
Performance-based income
Other service fees
Total related party revenues
Total revenues
Less: business taxes and related surcharges
Net revenues
Operating cost and expenses:
Compensation and benefits
Relationship Manager Compensation
Performance Fee Compensation
Other Compensation
Total compensation and benefits
Selling expenses
General and administrative expenses
Other operating expenses
Government subsidies
Total operating cost and expenses
Income (loss) from operations
423,218,934
243,619,600
7,952,243
13,246,685
688,037,462
180,943,785
342,603,359
2,444,365
75,050
526,066,559
1,214,104,021
(68,598,144)
1,145,505,877
(319,572,173)
—
(214,841,520)
(534,413,693)
(135,282,336)
(74,673,516)
(23,641,595)
67,303,362
(700,707,778)
444,798,099
—
76,313,477
16,680,481
—
92,993,958
—
217,438,078
73,897,688
1,105,055
292,440,821
385,434,779
(19,319,443)
366,115,336
(235,762)
(22,034,438)
(124,968,021)
(147,238,221)
(9,756,483)
(60,090,462)
(1,674,417)
23,601,038
(195,158,545)
170,956,791
Years Ended December 31, 2015
Wealth Management
Business
RMB
Assets Management
Business
RMB
Internet Financial
Service
Business
RMB
Revenues:
One-time commissions
Recurring service fees
Performance-based income
Other service fees
Total third-party revenues
One-time commissions
Recurring service fees
Performance –based income
Other service fees
Total related party revenues
Total revenues
Less: business taxes and related surcharges
Net revenues
Operating cost and expenses:
Compensation and benefits
Relationship Manager Compensation
Performance Fee Compensation
Other Compensation
Total compensation and benefits
Selling expenses
General and administrative expenses
Other operating expenses
Government subsidies
Total operating cost and expenses
Income (loss) from operations
390,668,384
334,983,117
141,773,493
69,447,545
936,872,539
424,354,473
324,182,643
—
393,683
748,930,799
1,685,803,338
(88,285,200)
1,597,518,138
(507,400,087)
—
(348,504,061)
(855,904,148)
(219,286,283)
(78,850,681)
(53,374,913)
75,960,496
(1,131,455,529)
466,062,609
F-41
520,001
66,309,348
52,165,537
512,475
119,507,361
4,333,018
310,730,732
53,825,293
—
368,889,043
488,396,404
(23,408,513)
464,987,891
(8,044,612)
(24,786,763)
(150,661,189)
(183,492,564)
(17,278,343)
(53,554,038)
(19,411,331)
56,304,348
(217,431,928)
247,555,963
Total
RMB
423,218,934
319,933,077
24,632,724
29,979,126
797,763,861
180,943,785
560,071,763
76,342,053
2,036,800
819,394,401
1,617,158,262
—
—
—
16,732,441
16,732,441
—
30,326
856,695
887,021
17,619,462
(755,784)
(88,673,371)
16,863,678
1,528,484,891
(2,244,639)
—
(53,563,785)
(55,808,424)
(2,226,991)
(16,862,300)
(4,645,818)
27,062
(79,516,471)
(62,652,793)
(322,052,574)
(22,034,438)
(393,373,326)
(737,460,338)
(147,265,810)
(151,626,278)
(29,961,830)
90,931,462
(975,382,794)
553,102,097
Total
RMB
391,188,385
401,292,465
193,939,030
128,290,261
1,114,710,141
428,687,491
634,913,375
53,825,293
559,806
1,117,985,965
2,232,696,106
(112,768,265)
2,119,927,841
—
—
—
58,330,241
58,330,241
—
—
—
166,123
166,123
58,496,364
(1,074,552)
57,421,812
(9,185,024)
—
(115,910,643)
(125,095,667)
(27,250,783)
(38,524,794)
(21,838,060)
444,868
(212,264,436)
(154,842,624)
(524,629,723)
(24,786,763)
(615,075,893)
(1,164,492,379)
(263,815,409)
(170,929,513)
(94,624,304)
132,709,712
(1,561,151,893)
558,775,948
Revenues:
One-time commissions
Recurring service fees
Performance-based income
Other service fees
Total third-party revenues
One-time commissions
Recurring service fees
Performance –based income
Other service fees
Total related party revenues
Total revenues
Less: business taxes and
related surcharges
Net revenues
Operating cost and expenses:
Compensation and benefits
Relationship Manager
Compensation
Performance Fee Compensation
Other Compensation
Total compensation and
benefits
Selling expenses
General and administrative
expenses
Other operating expenses
Government subsidies
Total operating cost and expenses
Income (loss) from operations
Years Ended December 31, 2016
Wealth Management
Business
RMB
Assets Management
Business
RMB
Internet Financial
Service
Business
RMB
809,461,138
413,085,113
11,143,779
67,435,787
1,301,125,817
318,554,406
347,818,641
706,390
722,009
667,801,446
1,968,927,263
1,184,221
61,915,165
8,596,434
—
71,695,820
2,887,327
427,907,685
38,793,992
—
469,589,004
541,284,824
—
—
—
50,358,068
50,358,068
—
—
—
1,065,914
1,065,914
51,423,982
Total
RMB
810,645,359
475,000,278
19,740,213
117,793,855
1,423,179,705
321,441,733
775,726,326
39,500,382
1,787,923
1,138,456,364
2,561,636,069
(37,274,715)
1,931,652,548
(9,474,316)
531,810,508
(1,314,268)
50,109,714
(48,063,299)
2,513,572,770
(556,553,499)
(443,704,242)
(1,452,611)
(8,145,016)
(155,567,371)
(5,613,679)
—
(129,367,542)
(563,619,789)
(8,145,016)
(728,639,155)
(1,000,257,741)
(280,993,783)
(165,164,998)
(16,171,723)
(134,981,221)
(25,502,012)
(1,300,403,960)
(322,667,518)
(120,763,794)
(82,058,856)
78,444,752
(1,405,629,422)
526,023,126
(77,200,486)
(35,922,504)
83,919,516
(210,540,195)
321,270,313
(36,523,786)
(33,106,059)
—
(230,113,078)
(180,003,364)
(234,488,066)
(151,087,419)
162,364,268
(1,846,282,695)
667,290,075
Substantially all of the Group’s revenues are derived from, and its assets are located in the PRC and Hong Kong.
F-42
18. Related Party Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise
significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they
are subject to common control or common significant influence. Related parties may be individuals or corporate entities.
The table below sets forth major related parties and their relationships with the Group:
Company Name
Sequoia Capital Investment Management (Tianjin) Co., Ltd.
Affiliate of shareholder of the Group
Relationship with the Group
Hangzhou Sequoia Heyuan Capital Investment Fund (Limited
Affiliate of shareholder of the Group
Partnership)
Beijing Sequoia Heyuan Capital Investment Fund (Limited
Affiliate of shareholder of the Group
Partnership)
Shaoxing Sequoia Huiyuan Capital Investment Fund (Limited
Affiliate of shareholder of the Croup
Partnership)
Wanjia Win-Win
Wuhu Bona
Yiwu Xinguang Equity Investment Fund Management Co., Ltd.
Gopher RE Credit Fund SP
Gopher investment Fund SPC
Investee of Gopher Asset Management Co., Ltd.
Investee of Gopher Asset Management Co., Ltd.
Investees of Shanghai Gopher Weiqin Equity Investment
Center (Limited Partnership), fund invested and managed by
Shanghai Gopher Asset Management Co., Ltd.
Fund managed by Gopher Capital GP Ltd., a subsidiary
Fund managed by Gopher Capital GP Ltd., a subsidiary
Investees of Shanghai Gopher Fangduoduo Investment Management
Investees of Gopher Asset Management Co., Ltd.
Co., Ltd., a consolidated VIE of the Company
Investees of Shanghai Gopher Nuotie Investment Management Co.,
Investees of Gopher Asset Management Co., Ltd.
Ltd., a consolidated VIE of the Company
Investees of Shanghai Gopher Yuanhao Investment Management
Investees of Gopher Asset Management Co., Ltd.
Co., Ltd., a consolidated VIE of the Company
Investee funds of Chongqing Gopher Longxin Equity Investment
Investees of Gopher Asset Management Co., Ltd.
Management Co., Ltd.
Investees of Gopher Captial GP Ltd.
Investees of Gopher Asset Management Co., Ltd.
Investee funds of Shanghai Gefei Languang Investment Management
Investees of Gopher Asset Management Co., Ltd.
Co., Ltd.
Investee funds of Wuhu Gefeiyintai Investment Management Co.,
Investees of Gopher Asset Management Co., Ltd.
Ltd.
Investee funds of Wuhu Gopher Investment Management Co., Ltd.
Investees of Gopher Asset Management Co., Ltd.
Investee of Tianjin Gopher Asset Management Co., Ltd, a
Investees of Gopher Asset Management Co., Ltd.
consolidated VIE of the Company
Investees of Shanghai Gopher Asset Management Co., Ltd, a
Investees of Gopher Asset Management Co., Ltd.
consolidated VIE of the Company
Investee funds of Hangzhou Wanke Investment Management Co.,
Investees of Gopher Asset Management Co., Ltd.
Ltd.
Investees of Gopher Asset Management Co., Ltd., a consolidated
Investees of Gopher Asset Management Co., Ltd.
VIE of the Company
F-43
During the years ended December 31, 2015 and 2016, related party transactions were as follows:
One-time commissions
Investees of Shanghai Gopher Asset Management Co., Ltd., a consolidated
VIE of the Company
Investees of Gopher Asset Management Co., Ltd.
Investees of Gopher Capital GP Ltd.
Fund Managed by Gopher Nuobao (Shanghai) Asset Management Co.,
Ltd., a consolidated VIE of the Company
Wanjia Win-Win
Investee funds of Wuhu Gopher Asset Management Co., Ltd., a
Years Ended December 31
2014
RMB
2015
RMB
2016
RMB
2016
US$
57,167,835
31,431,057
21,610,352
1,601,930
87,103,829
163,062,723
65,975,239
29,143,028
42,830,956
9,502,410
4,197,469
6,168,941
16,899,267
13,728,697
90,178,715
126,706
14,709,830
—
2,118,656
—
consolidated VIE of the Company
13,383,558
20,569,000
166,757,151
24,018,026
Investees of Shanghai Gopher Fangduoduo Investment Management Co.,
Ltd., a consolidated VIE of the Company
Investee funds of Shanghai Gopher Languang Investment Management
—
—
1,129,717
162,713
Co., Ltd., a consolidated VIE of the Company
6,828,836
65,958,819
Investee funds of Shanghai Gopher Zhengda Damuzhi Investment
Management Co., Ltd., a consolidated VIE of the Company
Hangzhou Sequoia Heyuan Capital Investment Fund (Limited Partnership)
Sequoia Capital Investment Management (Tianjin) Co., Ltd.
Investee funds of Hangzhou Vanke Investment Management Co., Ltd., a
consolidated VIE of the Company
One-time commissions earned from funds subscribed by shareholders
Investee funds of Tianjin Gopher Asset Management Co., Ltd.
Investee funds of Kunshan Jingzhao Equity Investment Management Co.,
3,594,621
3,169,064
2,971,000
2,637,579
2,639,607
2,487,443
—
—
—
—
85,769
—
—
—
—
—
—
—
—
—
—
895,812
—
—
129,024
—
Ltd.
Gopher RE Credit Fund SP
Shaoxing Sequoia Huiyuan Capital Investment Fund (Limited Partnership)
Total one-time commissions
1,531,599
764,235
99,035
180,943,785
—
—
—
428,687,491
—
—
—
321,441,733
—
—
—
46,297,239
Recurring services fee
Investees of Shanghai Gopher Asset Management Co., Ltd., a consolidated
VIE of the Company
Investee funds of Gopher Asset Management Co., Ltd.
Wanjia Win-Win
Investee funds of Wuhu Gopher Asset Management Co., Ltd.
Investees of Shanghai Gopher Investment Management Co., Ltd., a
consolidated VIE of the Company
Sequoia Capital Investment Management (Tianjin) Co., Ltd.
Investee funds of Hangzhou Vanke Investment Management Co., Ltd., a
consolidated VIE of the Company
Investees of Gopher Capital GP Ltd.
Investee funds of Tianjin Gopher Asset Management Co., Ltd.
Investee funds of Shanghai Gopher Languang Investment Management
71,238,249
97,310,324
94,493,711
79,651,065
17,368,889
109,191,795
44,791,972
51,807,324
226,486,527
128,636,314
7,440,558
79,315,287
32,620,845
18,527,483
1,071,663
11,423,777
—
52,667,224
—
47,850,038
16,870,674
42,404,469
2,429,882
6,107,514
37,336,074
31,373,962
25,155,045
3,774,933
116,225,782
25,043,197
2,598,464
164,488,522
34,939,104
374,257
23,691,275
5,032,278
Co., Ltd., a consolidated VIE of the Company
20,343,486
148,421,108
—
—
Investee funds of Kunshan Jingzhao Equity Investment Management Co.,
Ltd.
Investee funds of Chongqing Gopher Longxin Equity Investment
Management Co., Ltd., a consolidated VIE of the Company
Wuhu Bona
Hangzhou Sequoia Heyuan Capital Investment Fund (Limited Partnership)
15,728,463
7,824,920
5,448,537
784,753
10,327,189
7,040,886
5,587,347
2,682,159
8,842,927
—
5,567,900
7,728,080
—
801,944
1,113,075
—
F-44
Beijing Sequoia Heyuan Capital Investment Fund (Limited
Partnership)
Investee funds of Shanghai Gopher Zhengda Damuzhi Investment
Management Co., Ltd., a consolidated VIE of the Company
Fund Managed by Gopher Nuobao (Shanghai) Asset Management
Co., Ltd.
Recurring services fee earned from funds subscribed by shareholders
Investee funds of Noah Holdings (Hong Kong) Limited
Investee funds of Kunming Gopher Asset Management Co., Ltd., a
consolidated VIE of the Company
Investees of Shanghai Gopher Fangduoduo Investment Management
Co., Ltd., a consolidated VIE of the Company
Investees of Shanghai Gopher NuoTie Investment Management Co.,
Ltd., a consolidated VIE of the Company
Investees of Shanghai Gopher Yuanhao Investment Management Co.,
Ltd., a consolidated VIE of the Company
Total recurring services fee
Performance-based income
Fund Managed by Gopher Nuobao (Shanghai) Asset Management
Co., Ltd., a consolidated VIE of the Company
Investee funds of Gopher Capital GP Ltd., a subsidiary
Investee funds of Chongqing Gopher Longxin Equity Investment
Management Co., Ltd., a consolidated VIE of the Company
Investee funds of Gopher Asset Management Co., Ltd.
Investee funds of Shanghai Gopher Languang Investment
Management Co., Ltd., a consolidated VIE of the Company
Investee funds of Wuhu Gopher Asset Management Co., Ltd., a
consolidated VIE of the Company
Wanjia Win-Win
Investee funds of Kunshan Jingzhao Equity Investment Management
Limited
Investee of Shanghai Gopher Asset Management Co., Ltd., a
consolidated VIE of the Company
Total performance-based income
Other service fee
Investee funds of Gopher Asset Management Co., Ltd.
Investee funds of Shanghai Gopher Languang Investment
Management Co., Ltd., a consolidated VIE of the Company
Wanjia Win-Win
Investee funds of Shanghai Gopher Asset Management Co., Ltd., a
consolidated VIE of the Company
Fund Managed by Gopher Nuobao (Shanghai) Asset Management
Co., Ltd., a consolidated VIE of the Company
Investee funds of Hangzhou Vanke Investment Management Co.,
Ltd., a consolidated VIE of the Company
Other services subscribed by shareholders
Yiwu Xinguang Equity Investment Fund Management Co., Ltd.
Kunshan Jingzhao
Investee funds of Gopher Capital GP Ltd., a subsidiary
Total other service fee
Total
F-45
Years Ended December 31
2014
RMB
2015
RMB
2016
RMB
2016
US$
5,238,138
—
4,920,036
4,498,656
—
—
—
—
1,136,429
368,473
155,662
38,343,622
7,812,281
—
44,415,932
1,553,624
—
6,397,225
223,768
—
—
—
433,772
1,109,537
159,807
—
3,703,044
533,349
560,071,763
634,913,375
2,309,209
332,595
710,544
775,726,326
102,340
111,727,830
57,659
—
23,085,688
—
—
65,100,808
10,700,504
—
4,711,247
380,167
—
6,039,336
678,559
54,756
—
869,845
7,044,583
5,690,366
—
—
—
4,139,003
14,348,735
—
16,110,757
6,913,756
2,320,432
995,788
—
—
649,764
93,586
—
76,342,053
—
53,825,293
4,695,355
39,500,382
676,272
5,689,238
961,173
89,443
573,540
303,005
12,678
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
63,679
15,825
9,367
8,090
—
2,036,800
819,394,401
—
554,596
—
—
5,210
559,806
1,117,985,965
—
1,706,065
—
—
81,858
1,787,923
1,138,456,364
—
245,724
—
—
11,790
257,514
163,971,821
As of December 31, 2015 and 2016, amounts due from related parties associated with the above transactions were comprised
of the following:
Wanjia Win-Win
Investee funds of Wuhu Gopher Asset Management Co., Ltd., a consolidated
VIE of the Company
Investee funds of Gopher Capital GP Ltd., a subsidiary
Investee funds of Kunshan Jingzhao Equity Investment Management Co.,
Ltd.
2015
RMB
30,687,837
As of December 31,
2016
RMB
9,702,246
2016
US$
1,397,414
18,428,721
50,617,764
158,270,393
50,043,708
22,795,678
7,207,793
20,322,711
10,193,071
1,468,108
Investee funds of Shanghai Gopher Languang Investment Management Co.,
Ltd., a consolidated VIE of the Company
33,423,362
—
—
Investee funds of Gopher Asset Management Co., Ltd., a consolidated VIE of
the Company
61,364,006
76,730,690
11,051,518
Investee funds of Hangzhou Vanke Investment Management Co., Ltd., a
consolidated VIE of the Company
935,529
375,130
54,030
Fund Managed by Gopher Nuobao (Shanghai) Asset Management Co., Ltd., a
consolidated VIE of the Company
9,629,670
24,635,070
3,548,188
Investee funds of Chongqing Gopher Longxin Equity Investment
Management Co., Ltd., a consolidated VIE of the Company
Investee funds of Wuhu Gopher Yintai Investment Management Co., Ltd., a
consolidated VIE of the Company
Investee funds of Tianjin Gopher Asset Management Co., Ltd., a consolidated
VIE of the Company
Investee funds of Kunming Gopher Asset Management Co., Ltd., a
consolidated VIE of the Company
Investee funds of Shanghai Gopher Asset Management Co., Ltd., a
consolidated VIE of the Company
Wuhu Bona Film Investment Management Co., Ltd.
Investees of Shanghai Gopher Fangduoduo Investment Management Co.,
Ltd., a consolidated VIE of the Company
Investees of Shanghai Gopher Nuo Tie Investment Management Co., Ltd., a
consolidated VIE of the Company
Yiwu Xinguang Equity Investment Fund Management Co., Ltd.
Investees of Noah Holdings (Hong Kong) Limited
Other funds managed by the Group and affiliates
Total
76,647
22,657
—
—
—
—
1,473,097
5,679,578
818,029
50,202
30,391
4,377
209,830
1,180,268
75,685,406
4,996,325
10,900,966
719,621
—
—
—
9,813,967
238,236,268
3,828,248
551,382
2,424,197
4,009,600
5,346,413
6,889,076
438,839,542
349,157
577,503
770,044
992,233
63,206,041
F-46
As of December 31, 2015 and 2016, deferred revenues related to the recurring management fee received in advance from
related parties were comprised of the following:
Investee funds of Shanghai Gopher Languang Investment
Management Co., Ltd., a consolidated VIE of the Company
Investee funds of Wuhu Gopher Asset Management Co., Ltd.
Wanjia Win-Win
Investee funds of Gopher Asset Management Co., Ltd.
Investee funds of Hangzhou Vanke Investment Management Co.,
Ltd., a consolidated VIE of the Company
Investee funds of Kunshan Jingzhao Equity Investment
Management Co., Ltd.
Fund Managed by Gopher Nuobao (Shanghai) Asset Management
Co., Ltd., a consolidated VIE of the Company
Investee funds of Chongqing Gopher Longxin Equity Investment
Management Co., Ltd., a consolidated VIE of the Company
Investee funds of Shanghai Gopher Asset Management Co., Ltd., a
consolidated VIE of the Company
Investee funds of Gopher Capital GP Ltd., a subsidiary
Investee of Tianjin Gopher Asset Management Co., Ltd., a
consolidated VIE of the Company
Investee of Wuhu Gopher Asset Management Co., Ltd., a
consolidated VIE of the Company
Total
F-47
2015
RMB
As of December 31,
2016
RMB
2016
US$
10,911,322
28,000
69,956
12,871,000
140,676
7,338
5,247,490
—
8,881,566
542,734
2,438,991
—
1,279,212
78,170
351,288
—
—
—
—
—
—
36,472
12,848
1,851
28,000
2,669,774
—
981,329
—
141,341
—
194,335
27,990
—
32,010,028
16,766,477
29,818,280
2,414,874
4,294,726
In 2014, Shanghai Yafu Investment Consulting Co., Ltd.(“Shanghai Yafu”), an investment vehicle of Noah’s employees,
acquired 10% of the equity interests of Shanghai Noah Yijie Finance Technology Co., Ltd upon formation of the entity. In July 2015,
Sequoia Mingde, acquired 9.8% of equity interests in Shanghai Noah Yijie Finance Technology Co., Ltd., at purchase price of
RMB31.6 million. The capital injection of Sequoia Mingde in 2015 into Shanghai Noah Yijie Finance Technology Co., Ltd. diluted the
shares of Shanghai Yafu from 10.00% to 8.55%.
In December 2016, Shanghai Qinjie Investment (Limited Partnership), a fund managed by Shanghai Gopher, acquired 9.88%
of the equity interests of Shanghai Noah Yijie Finance Technology Co., Ltd, at purchase price of RMB150 million through the issuance
of Series B shares. This acquisition diluted the shares of Shanghai Yafu to 7.5% and the shares of Sequoia Mingde to 8.6%.
During the year ended December 31, 2015 and 2016, donation made to Shanghai Noah Charity Fund were RMB3.5 million
and RMB6.0 million, respectively.
19. Commitments
(a) Operating Leases
The Group leases its facilities under non-cancelable operating leases expiring at various dates.
Future minimum lease payments under non-cancelable operating lease agreements as of December 31, 2016 were as follows:
Years Ended December 31
2017
2018
2019
2020
2021 and after
Total
RMB
71,839,452
61,417,714
50,316,494
43,588,626
131,776,349
358,938,635
US$
10,347,033
8,845,991
7,247,083
6,278,068
18,979,742
51,697,917
Rental expenses were RMB 46,852,399, RMB 75,964,160 and RMB 92,971,662 for the years ended December 31, 2014,
2015 and 2016, respectively.
20. Subsequent events
Effective on April 13, 2017, 2,492,146 of the Company’s ADSs held as treasury shares were cancelled.
F-48
Additional Financial Information of Parent Company – Financial Statements Schedule I
Under PRC regulations, foreign-invested companies in China may pay dividends only out of their accumulated profits, if
any, determined in accordance with PRC accounting standards and regulations. The Company’s PRC subsidiaries and VIEs are required
to set aside at least 10% of their respective accumulated profits each year, if any, to fund general reserve funds unless such reserve
funds have reached 50% of its respective registered capital. These reserves are not distributable in the form of cash dividends to the
Company. In addition, the share capital of the Company’s PRC subsidiaries and VIEs are considered restricted due to restrictions on the
distribution of share capital.
The following Schedule I has been provided pursuant to the requirements of Rules 12-04(a) and 5-04(c) of Regulation S-X,
which require condensed financial information as to the financial position, changes in financial position and results of operations of a
parent company as of the same dates and for the same periods for which audited consolidated financial statements have been presented
as the restricted net assets of the Company’s PRC subsidiaries and VIEs which may not be transferred to the Company in the forms of
loans, advances or cash dividends without the consent of PRC government authorities as of December 31, 2016, was more than 25% of
the Company’s consolidated net assets as of December 31, 2016.
a) Condensed balance sheets
ASSETS
Current assets
Cash and cash equivalents
Due from subsidiaries and VIEs
Deferred tax assets
Other current assets
Total current assets
Investment in subsidiaries and VIEs
Non-current deferred tax assets
Other non-current assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Other current liabilities
Total current liabilities
Convertible notes
Other non-current liabilities
Total liabilities
Shareholders’ equity
Class A ordinary shares (US$0.0005 par value):
91,394,900 shares authorized, 20,802,611
shares issued and 19,556,538 shares
outstanding as of December 31, 2015 and
21,003,533 shares issued and 19,716,328
shares outstanding as of December 31, 2016
Class B ordinary shares (US$0.0005 par value):
8,605,100 shares authorized, 8,515,000 shares
issued and outstanding as of December 31,
2015 and 2016
Treasury stock (1,246,073 ordinary shares as of
December 31, 2015 and 1,287,205 ordinary
shares as of December 31, 2016)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLERS’ EQUITY
F-49
As of December 31
2015
RMB
2016
RMB
2016
US$
321,418,159
543,918,770
755,246
31,146,365
897,238,540
2,091,409,293
2,979,502
647,780
2,992,275,115
364,864,405
504,906,811
—
32,821,866
902,593,082
3,000,710,841
2,794,810
694,300
3,906,793,033
52,551,405
72,721,707
—
4,727,332
130,000,444
432,192,257
402,536
100,000
562,695,237
15,300,517
15,300,517
518,224,000
9,864,869
543,389,386
10,443,302
10,443,302
555,440,000
8,773,490
574,656,792
1,504,148
1,504,148
80,000,000
1,263,645
82,767,793
69,086
69,758
10,047
29,047
29,047
4,184
(117,836,564)
990,515,956
1,597,865,303
(21,757,099)
2,448,885,729
2,992,275,115
(130,438,720)
1,226,215,683
2,241,693,736
(5,433,263)
3,332,136,241
3,906,793,033
(18,787,083)
176,611,794
322,871,055
(782,553)
479,927,444
562,695,237
b) Condensed statement of operations
Net revenues
Operating cost and expenses
Compensation and benefits
Selling expenses
General and administrative expenses
Total operating cost and expenses
Loss from operations
Other income (expenses):
Interest income
Interest expense
Investment income
Other income (expenses)
Total other income
Income before taxes and income from equity in
subsidiaries and VIEs
Income tax (benefit)/expenses
Income from equity in affiliates
Equity in profit of subsidiaries and VIEs
Net income attributable to Noah shareholders
c) Condensed statement of comprehensive income
Net income
Other comprehensive income, net of tax
Change in cumulative foreign currency translation
adjustment
Fair value fluctuation of available-for-sale investment
2014
RMB
Years ended December 31,
2016
RMB
2015
RMB
2016
US$
—
—
—
—
10,125,102
167,690
9,671,790
19,964,582
19,964,582
10,979,206
373,752
10,549,109
21,902,067
21,902,067
9,828,485
89,785
4,368,239
14,286,509
14,286,509
1,415,596
12,932
629,157
2,057,685
2,057,685
5,547,639
—
—
(451,217)
5,096,422
8,336,138
(16,050,359)
25,506,549
112,762
17,905,090
10,412,533
(19,288,813)
1,499,717
(2,778,167)
—
—
(968,676)
(9,844,956)
(139,518)
(1,417,968)
(14,868,160)
(1,268,040)
—
462,689,051
446,552,851
(3,996,977)
3,524,413
—
536,296,648
535,824,084
(24,131,465)
3,298,731
1,393,685
663,267,482
643,828,433
(3,475,653)
475,115
200,732
95,530,387
92,730,581
Years Ended December 31,
2014
RMB
446,552,851
2015
RMB
535,824,084
2016
RMB
643,828,433
2016
US$
92,730,581
6,427,932
4,882,284
19,324,565
2,783,317
(Note 4)
2,620,351
718,414
(1,291,318)
(185,988)
Fair value fluctuation of available-for-sale investment
of affiliates
Other comprehensive income
Comprehensive income attributable to Noah Holdings Ltd.
—
9,048,283
—
5,600,698
(1,709,411)
16,323,836
(246,206)
2,351,123
shareholders
455,601,134
541,424,782
660,152,269
95,081,704
F-50
d) Condensed statements of cash flows
Cash flows from operating activities:
Net income attributable to Noah shareholders
Adjustment to reconcile net income to net cash provided by
operating activities:
Share-based compensation
Gain from equity in subsidiaries and VIE
Changes in operating assets and liabilities:
Amount due from subsidiaries and VIEs
Other current assets
Deferred tax assets
Uncertain tax position liabilities
Other current liabilities
Other non-current liabilities
Net cash provided by (used in) operating
Cash flows from investing activities:
activities
2014
RMB
Years ended December 31,
2016
RMB
2015
RMB
2016
US$
446,552,851
535,824,084
643,828,433
92,730,581
10,125,102
(462,689,051)
10,979,206
(536,296,648)
9,828,485
(663,267,482)
1,415,596
(95,530,387)
13,853,941
(21,489,980)
(339,900)
1,016,786
3,066,233
82,534
(319,184,087)
(5,774,175)
(575,664)
(4,804,123)
7,942,352
1,821,548
39,011,959
(1,722,021)
939,938
—
(4,857,215)
(1,091,379)
5,618,892
(248,023)
135,379
—
(699,584)
(157,191)
(9,821,484)
(310,067,507)
22,670,718
3,265,263
Investment in subsidiaries and VIEs
Increase in investment in affiliates
Net cash used in investing activities
(79,958,941)
—
(79,958,941)
(7,851,539)
(22,672,300)
(30,523,839)
—
—
(27,702,118)
(27,702,118)
(3,989,935)
(3,989,935)
Cash flows from financing activities:
Proceeds from issuance of ordinary shares upon
exercise of stock options
Share repurchase
Proceeds from convertible notes
Net cash provided by financing activities
Effect of exchange rate changes
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents—beginning of year
Cash and cash equivalents—end of year
4,062,622
—
—
4,062,622
6,427,932
(79,289,871)
258,427,798
179,137,927
4,351,330
(44,586,036)
518,224,000
477,989,294
4,882,284
142,280,232
179,137,927
321,418,159
4,539,237
(12,602,156)
653,786
(1,815,088)
—
(8,062,919)
56,540,565
43,446,246
321,418,159
364,864,405
—
(1,161,302)
8,143,533
6,257,559
46,293,846
52,551,405
F-51
e) Notes to condensed financial statements
1.
The condensed financial statements of Noah Holdings Limited have been prepared using the same accounting policies as set out in
the consolidated financial statements except that the equity method has been used to account for investments in subsidiaries and
VIEs. Such investment in subsidiaries and VIEs are presented on the balance sheets as interests in subsidiaries and VIEs and the
profit of the subsidiaries and VIEs is presented as equity in profit of subsidiaries and VIEs on the statement of operations.
2. As of December 31, 2015 and 2016, there were no material contingencies, significant provisions of long-term obligations of the
Company, except for those which have been separately disclosed in the consolidated financial statements.
3.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been condensed or omitted. The footnote disclosure certain
supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction
with the notes to the accompanying Consolidated Financial Statements.
F-52
List of Significant Consolidated Entities of Noah Holdings Limited*
Exhibit 8.1
Name
Shanghai Noah Investment (Group) Co., Ltd. (1)
Noah Upright (Shanghai) Fund Investment Consulting Co., Ltd.
Shanghai Noah Financial Services Corp. (2)
Kunshan Noah Xingguang Investment Management Co., Ltd.
Noah Holdings (Hong Kong) Limited
Shanghai Rongyao Information Technology Co., Ltd.
Zigong Noah Financial Service Co., Ltd.
Noah Financial Express (Wuhu) Microfinance Co., Ltd.
Shanghai Noah Chuangying Enterprise Management Co., Ltd.
Shanghai Noah Yijie Finance Technology Co., Ltd
Noah Commercial Factoring Co., Ltd.
Noah (Shanghai) Financial Leasing Co., Ltd
Noah Holdings International Limited
Kunshan Noah Group Investment Management Co., Ltd.
Noah Insurance (Hong Kong) Limited
Gopher Holdings (Hong Kong) Limited
Gopher International Investment Management (Shanghai) Limited
Shanghai Noah Investment Management Co., Ltd.
Shanghai Noah Rongyao Insurance Broker Co., Ltd.
Gopher Asset Management Co., Ltd. (3)
Wuhu Gopher Asset Management Co., Ltd.
Gopher Nuobao (Shanghai) Asset Management Co., Ltd.
Relationship with us
Jurisdiction of
Incorporation
Wholly owned subsidiary
China
Wholly owned subsidiary
China
Wholly owned subsidiary
China
China
Wholly owned subsidiary
Hong Kong Wholly owned subsidiary
Wholly owned subsidiary
China
Wholly owned subsidiary
China
Wholly owned subsidiary
China
Wholly owned subsidiary
China
Majority owned subsidiary
China
Majority owned subsidiary
China
China
Wholly owned subsidiary
Hong Kong Wholly owned subsidiary
Wholly owned subsidiary
China
Hong Kong Wholly owned subsidiary
Hong Kong Wholly owned subsidiary
Wholly owned subsidiary
China
Consolidated affiliated entity
China
Consolidated affiliated entity
China
Consolidated affiliated entity
China
Consolidated affiliated entity
China
Consolidated affiliated entity
China
(1) Formerly known as Shanghai Noah Rongyao Investment Consulting Co., Ltd.
(2) Formerly known as Shanghai Noah Yuanzheng Investment Consulting Co., Ltd., and subsequently as Shanghai Noah Financial
Services Co., Ltd.
(3) Previously translated as “Tianjin Gefei Asset Management Co., Ltd.”
* Other consolidated entities of Noah Holdings Limited have been omitted from this list since, considered in the aggregate as a
single entity, they would not constitute a significant subsidiary.
Exhibit 12.1
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jingbo Wang, certify that:
1. I have reviewed this annual report on Form 20-F of Noah Holdings Limited;
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 (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
company’s internal control over financial reporting.
Date: April 21, 2017
/s/ Jingbo Wang
By:
Name: Jingbo Wang
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, Shang Yan Chuang, certify that:
1. I have reviewed this annual report on Form 20-F of Noah Holdings Limited;
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 (or persons performing the
equivalent function):
(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 21, 2017
/s/ Shang Yan Chuang
By:
Name: Shang Yan Chuang
Title: Chief Financial Officer
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.1
In connection with the Annual Report of Noah Holdings Limited (the “Company”) on Form 20-F for the year ended December 31,
2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jingbo Wang, 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.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: April 21, 2017
/s/ Jingbo Wang
By:
Name: Jingbo Wang
Title: Chief Executive Officer
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 13.2
In connection with the Annual Report of Noah Holdings Limited (the “Company”) on Form 20-F for the year ended December 31,
2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shang Yan Chuang, 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.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: April 21, 2017
/s/ Shang Yan Chuang
By:
Name: Shang Yan Chuang
Title: Chief Financial Officer
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-171541 on Form S-8 of our reports dated
April 21, 2017, relating to (1) the consolidated financial statements and financial statement schedule of Noah Holdings Limited and
subsidiaries (the “Group”) (which report expresses an unqualified opinion and includes an explanation paragraph regarding the
translation of Renminbi amounts into U.S. dollars for the convenience of the readers in the United States of America), and (2) the
effectiveness of the Group’s internal control over financial reporting, appearing in this Annual Report on Form 20-F of the Group for
the year ended December 31, 2016.
Exhibit 15.1
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Shanghai, China
April 21, 2017
Exhibit 15.2
CONSENT LETTER
April 21, 2017
TO: Noah Holdings Limited
Changyang Valley, Building 2
No. 1687 Changyang Road,
Shanghai 200090
People’s Republic of China
Dear Sirs,
We consent to the reference to our firm under the headings “Risk Factors” and “Regulations” in Noah Holdings Limited’s Annual
Report on Form 20-F for the year ended December 31, 2016, which will be filed with the Securities and Exchange Commission (the
“SEC”) in April 2017, and further consent to the incorporation by reference of the summaries of our opinions under these headings into
Noah Holdings Limited’s registration statement on Form S-8 (file No. 333-171541) that was filed on January 5, 2011. We also consent
to the filing with the SEC of this consent letter as an exhibit to the Annual Report on Form 20-F for the year ended December 31, 2016.
In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations
promulgated thereunder.
Yours faithfully,
/s/ Zhong Lun Law Firm
Zhong Lun Law Firm
Exhibit 15.3
Our ref
Direct tel
Email
RDS/658613-000001/11010111v1
+852 2971 3046
richard.spooner@maplesandcalder.com
Noah Holdings Limited
No. 1687 Changyang Road, Changyang Valley, Building 2
Shanghai 200090
People’s Republic of China
21 April 2017
Dear Sirs
Noah Holdings Limited
We have acted as legal advisers as to the laws of the Cayman Islands to Noah Holdings Limited, an exempted limited liability company
incorporated in the Cayman Islands (the “Company”), in connection with the filing by the Company with the United States Securities
and Exchange Commission (the “SEC”) of an annual report on Form 20-F for the year ended 31 December 2016 (“Form 20-F”).
We hereby consent to the reference of our name under the heading “Item 3.D Risk Factors” in the Form 20-F, and further consent to the
incorporation by reference of the summary of our opinion under this heading into the Company’s registration statement on Form S-8
(File No. 333-171541) that was filed on 5 January, 2011.
Yours faithfully
Maples and Calder (Hong Kong) LLP
Maples and Calder (Hong Kong) LLP
53rd Floor The Center 99 Queen’s Road Central Hong Kong
Tel +852 2522 9333 Fax +852 2537 2955 maplesandcalder.com
Resident Hong Kong Partners: Mark Western (British Virgin Islands), Anthony Webster (Cayman Islands), Greg Knowles (British Virgin Islands)
Mac Imrie (Cayman Islands), Stacey Overholt (England and Wales), John Trehey (New Zealand), Nick Harrold (England and Wales), Ann Ng (Victoria (Australia))
James Gaden (New South Wales (Australia)), Richard Grasby (England and Wales), Terence Ho (New South Wales (Australia)), Justin Pennay (Cayman Islands)
L.K. Kan (England and Wales), W.C. Pao (England and Wales), Richard Spooner (England and Wales), Sharon Yap (New Zealand), Aisling Dwyer (British Virgin Islands)
Registered Foreign Lawyers: Michelle Lloyd (Ireland), Caitriona Carty (Ireland)
Cayman Islands and British Virgin Islands Attorneys at Law | Offices: British Virgin Islands, Cayman Islands, Dubai, Dublin, Hong Kong, London, Singapore