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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 to
Commission file number: 001-38652
X Financial
(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)
7-8F, Block A, Aerospace Science and Technology Plaza
No. 168, Haide Third Avenue, Nanshan District
Shenzhen, 518067, the People’s Republic of China
(Address of principal executive offices)
Mr. Frank Fuya Zheng, Chief Financial Officer
7-8F, Block A, Aerospace Science and Technology Plaza
No. 168, Haide Third Avenue, Nanshan District
Shenzhen, 518067, the People’s Republic of China
Tel: +86-755-8628 2977
E-mail: frank.zheng@xiaoying.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
American depositary shares, each ADS represents six Class
A ordinary shares, par value US$0.0001 per share*
XYF
The New York Stock Exchange
Class A ordinary shares, par value US$0.0001 per share **
N/A
The New York Stock Exchange
* Effective from November 19, 2020, the ratio of ADSs representing the Class A ordinary shares changed from one (1) ADS representing two (2) Class
A ordinary shares to one (1) ADS representing six (6) Class A ordinary shares.
** Not for trading, but only in connection with the listing of the American depositary shares on the New York Stock Exchange.
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)
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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.
250,678,439 ordinary shares, comprised of 153,078,439 Class A ordinary shares, par value $0.0001 per share, and 97,600,000 Class B ordinary shares,
par value $0.0001per share, as of December 31, 2024.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Yes ☐ No ☒
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” 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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
If securities are registered pursuant to section 12(b) of Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐1
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
Other ☐
by the International Accounting Standards Board ☐
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 ☐
1The correction of an error in the previously issued financial statements included in this Form 20-F does not have an impact on the
financial reporting measure and therefore, this box is unchecked.
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i
TABLE OF CONTENTS
Page
INTRODUCTION
ii
FORWARD-LOOKING INFORMATION
iv
PART I
1
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
11
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
11
ITEM 3. KEY INFORMATION
11
ITEM 4. INFORMATION ON THE COMPANY
66
ITEM 4A. UNRESOLVED STAFF COMMENTS
104
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
104
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
124
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
135
ITEM 8. FINANCIAL INFORMATION
136
ITEM 9. THE OFFER AND LISTING
137
ITEM 10. ADDITIONAL INFORMATION
137
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
147
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
148
PART II
150
ITEM 13. ITEM DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
150
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
150
ITEM 15. CONTROLS AND PROCEDURES
151
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
152
ITEM 16B. CODE OF ETHICS
152
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
152
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
153
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
153
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
153
ITEM 16G. CORPORATE GOVERNANCE
153
ITEM 16H. MINE SAFETY DISCLOSURE
154
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
154
ITEM 16J. INSIDER TRADING POLICIES
154
ITEM 16K. CYBERSECURITY
154
PART III
156
ITEM 17. FINANCIAL STATEMENTS
156
ITEM 18. FINANCIAL STATEMENTS
156
ITEM 19. EXHIBITS
156
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ii
INTRODUCTION
Unless otherwise indicated, in this annual report on Form 20-F, the following terms shall have the meaning set out below:
●
“active borrowers” refers to, for a specified period, borrowers who made at least one transaction during that period on our
platform;
●
“ADSs” refers to American depositary shares, each of which represents six Class A ordinary shares, and “ADRs” refers to the
American depositary receipts that may evidence ADSs;
●
“APR” or “annual percentage rate” refers to the percentage number represents the actual annualized cost of borrowing over the
term of a loan. The APR for a type of our loan product equals to the annualized actual amount of total interests, guarantee
service fees and insurance premium divided by total amount of loans we facilitated.
●
“Beijing WFOE” refers to our wholly-owned Chinese Mainland subsidiary, Xiaoying (Beijing) Information Technology Group
Co., Ltd. (formerly known as Xiaoying (Beijing) Information Technology Co., Ltd.);
●
“Cayman Companies Act” refers to the Companies Act (As Revised) of the Cayman Islands, as amended;
●
“China” or “PRC” refers to the People’s Republic of China, including, Hong Kong and Macau;
●
“Class A ordinary shares” refers to our Class A ordinary shares, par value $0.0001 per share, carrying one vote per share;
●
“Class B ordinary shares” refers to our Class B ordinary shares, par value $0.0001 per share, carrying 20 votes per share;
●
“institutional funding partners” refers to our institutional funding sources, including banks, consumer finance companies, trust
companies and other institutions who funded the loans we facilitated to borrowers;
●
“insurance /guarantee protection” refers to credit insurance or guarantee services provided by insurance companies or financing
guarantee companies in partnership with online finance platforms against the default of both the principal and interest;
●
“Chinese Mainland” means the People’s Republic of China, excluding, for purposes of this annual report, Hong Kong, Macau
and Taiwan;
●
“ordinary shares” refers to our Class A and Class B ordinary shares, par value US$0.0001 per share;
●
“PBOC CRC” refers to the credit reference center of the People’s Bank of China;
●
“PCAOB” refers to the Public Company Accounting Oversight Board;
●
“prime borrower” refers to an individual having sound credit history, who has credit records with PBOC CRC and usually no
late payment record of over 60 days in the previous six months. In determining whether a prospective borrower is a prime
borrower, we will review his or her credit history, along with our risk management review system;
●
“RMB” or “Renminbi” refers to the legal currency of Chinese Mainland;
●
“U.S. dollars,” “US$,” “$” or “dollars” refers to the legal currency of the United States;
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iii
●
“variable interest entities” or “VIEs” refer to Beijing Ying Zhong Tong Rongxun Technology Service Co., Ltd, or Beijing Ying
Zhong Tong(VIE), Shenzhen Xiaoying Technology Co., Ltd., or Shenzhen Xiaoying(VIE), and Shenzhen Xintang Information
Consulting Co., Ltd. or Shenzhen Xintang(VIE), and their subsidiaries, which are Chinese Mainland companies in which we do
not have equity interests but whose financial results have been consolidated into our consolidated financial statements in
accordance with U.S. GAAP due to our having effective control over, and our being the primary beneficiary of, such entity; and
“affiliated entities” are to our VIE, the VIE’s direct subsidiaries under the Chinese Mainland laws;
●
“we,” “us,” “our company group,” “our,” or “X Financial” refers to X Financial, a Cayman Islands company, and unless the
context requires otherwise, includes its predecessor entities, consolidated subsidiaries and VIEs; and
Our reporting currency is Renminbi because substantially all of our operations are conducted in Chinese Mainland and all of our
revenues is denominated in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollars at specific rates
solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to
Renminbi in this annual report were made at a rate of RMB7.2993 to US$1.00, the exchange rate in effect as of December 31, 2024, as
set forth in the H.10 statistical release of the Federal Reserve Board published on January 6, 2025. We make no representation that the
Renminbi or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi,
as the case may be, at any particular rate or at all. The Chinese Mainland government imposes control over its foreign currency reserves
in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.
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FORWARD-LOOKING INFORMATION
This annual report on Form 20-F contains forward-looking statements that are based on our management’s beliefs and assumptions
and on information currently available to us. All statements other than statements of historical facts are forward-looking statements.
These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and
other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different
from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
You can identify forward-looking statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,” “plan,”
“intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “project” or “continue” or the negative of these terms or other similar
expressions. The forward-looking statements include, but are not limited to, statements about:
●
the Chinese Mainland online consumer finance industry ;
●
our goals and strategies;
●
our future business development, financial condition and results of operations;
●
expected changes in our revenues, costs or expenditures;
●
growth of and competition trends in our industry;
●
our expectations regarding demand for, and market acceptance of, our products and services;
●
our expectations regarding keeping and strengthening our relationships with borrowers, institutional funding partners and other
parties we collaborate with;
●
fluctuations in general economic and business conditions in the markets in which we operate; and
●
relevant government policies and regulations relating to our industry.
You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to this annual
report completely and with the understanding that our actual future results may be materially different from what we expect. Factors that
may cause actual results to differ materially from current expectations include, among other things, those listed under the heading “Risk
Factors” and elsewhere in this annual report. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove
to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No
forward-looking statement is a guarantee of future performance.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this
annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as
required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated
events.
We would like to caution you not to place undue reliance on these forward-looking statements and you should read these statements
in conjunction with the risk factors disclosed in “Item 3. Key Information—3.D. Risk Factors.” Those risks are not exhaustive. We
operate in an evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk
factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause
actual results to differ from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the
forward-looking statements except as required under applicable law. You should read this annual report and the documents that we
reference in this annual report completely and with the understanding that our actual future results may be materially different from what
we expect.
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1
PART I
VIE Structure and Risks Relating to Our Corporate Structure
X Financial is a Cayman Islands holding company conducting its operations in Chinese Mainland through Beijing WFOE, a wholly-
owned subsidiary of YZT (HK) Limited, Shenzhen Xiaoying Puhui Technology Co., Ltd., a wholly-owned subsidiary of Beijing WFOE
(“Shenzhen Puhui”), Shenzhen Xiaoying Information Technology Group Co., Ltd. (“Shenzhen Xiaoying IT”), a wholly-owned
subsidiary of Beijing WFOE, and the VIEs, including Shenzhen Xiaoying (VIE), Shenzhen Xintang (VIE), Beijing Ying Zhong Tong
(VIE) and their subsidiaries. The Company has equity interests in Beijing WFOE, Shenzhen Puhui, and Shenzhen Xiaoying IT, however,
neither the Company nor its subsidiaries own any share in the VIEs. Instead, the Company control and receive the economic benefits of
the VIEs’ business operation through a series of contractual arrangements (the “VIE Agreements”). To comply with Chinese Mainland
laws and regulations, the Company does not have an equity ownership interest in its VIEs but rely on the VIE Agreements with VIEs to
control and operate their businesses. The VIE Agreements are designed to provide the Beijing WFOE, with the power, rights, and
obligations equivalent in all material respects to those it would possess as the principal equity holder of the VIEs, including absolute
control rights and the rights to the assets, property, and revenues of the VIEs. As a result of these contractual arrangements, which have
not been tested in a court of law in the Chinese Mainland, the assets and liabilities of the VIEs are treated as the Company’s assets and
liabilities and the results of operations of the VIEs are treated in all aspects as if they were the results of the Company’s operations due to
the satisfaction for consolidation of the VIEs under generally accepted accounting principles in the United States (“U.S. GAAP”). The
Company is the primary beneficiary of the VIEs, and, therefore, consolidate the financial results of the VIEs in our consolidated financial
statements in accordance with U.S. GAAP. See “Item 4.C. Organizational Structure” for more information on these VIE Agreements.
Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the Chinese
Mainland laws and regulations, including but not limited to the validity and enforcement of the VIE Agreements. We are also subject to
the risks of uncertainty about any future actions of the Chinese Mainland government in this regard. Our VIE Agreements may not be
effective in providing control over the VIEs. The contractual arrangements have not been judicially tested in the Chinese Mainland and
there remain significant uncertainties regarding the ultimate outcome of arbitration should legal action become necessary. We rely on the
VIE Agreements with VIEs to control and operate their businesses. The investors may never hold equity interests in such VIEs. We may
also be subject to sanctions imposed by Chinese Mainland regulatory agencies including Chinese Securities Regulatory Commission, or
CSRC, if we fail to comply with their rules and regulations. We may also be subject to Chinese Mainland laws relating to, among others,
data security and restrictions over foreign investments due to the complexity of the regulatory regime in Chinese Mainland, and the
recent statements and regulatory actions by the Chinese Mainland government relating to data security may affect our remaining business
operations in Chinese Mainland or even our ability to offer securities in the United States. We are also subject to the risks and
uncertainties about any future actions of the Chinese Mainland government that could disallow the VIE structure, which would likely
result in a material change in our operations and/or a material change in the value of our securities, including causing the value of such
securities to significantly decline or become worthless. See “Risk Factors-Risks Relating to Our Corporate Structure” for more
information.
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2
The following diagram illustrates our corporate structure as of the date of this annual report. It omits certain entities that are
immaterial to our results of operations, business and financial condition and also omits certain trusts and limited partnership enterprises
we consolidate. The relationships between, on the one hand, each of Beijing Ying Zhong Tong (VIE), Shenzhen Xintang (VIE), and
Shenzhen Xiaoying (VIE), and on the other hand, Beijing WFOE as illustrated in this diagram are governed by contractual arrangements
and do not constitute equity ownership. See “Risk Factors-Risks Relating to Our Corporate Structure” for more information.
(1) In December 2017, Beijing WFOE acquired 100% of the equity interest held by Shenzhen Xiaoying (VIE) in Shenzhen Xiaoying
Puhui Technology Co., Ltd. and Shenzhen Xiaoying Information Technology Group Co., Ltd.
(2) Mr. Yue (Justin) Tang and entities controlled by Mr. Yue (Justin) Tang hold 42.9838% and 57.0162% of equity interest in Shenzhen
Xiaoying, respectively.
(3) Shenzhen Lelebu holds 100% equity interest in Shenzhen Xintang (VIE).
(4) Mr. Yue (Justin) Tang and Mrs. Jing Sun holds 51% and 49% of the equity interest in Beijing Ying Zhong Tong (VIE), respectively.
* Entities in which the shareholders of X Financial own the interests.
** Entities in which the shareholders of X Financial do not own any interests.
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Risks Associated with Being Based in or Having the Majority of our Operations in Chinese Mainland
We are exposed to legal and operational risks associated with our operations in Chinese Mainland. The Chinese Mainland
government has significant authority to exert influence on the ability of a company with operations in Chinese Mainland, including us, to
conduct its business. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of
the Chinese economy through regulation and state ownership. Our ability to operate in Chinese Mainland may be harmed by changes in
its laws and regulations, including those relating to taxation, data information, antitrust, finance, environmental regulations, land use
rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or
interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with
such regulations or interpretations. Any actions by the Chinese Mainland government to exert more oversight and control over offerings
that are conducted overseas and/or foreign investment in companies having operations in Chinese Mainland, including us, could
significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and cause the value of our
securities to significantly decline or become worthless. These Chinese Mainland-related risks could result in a material change in our
operations and/or the value of our securities, or could significantly limit or completely hinder our ability to offer securities to investors in
the future and potentially cause the value of such securities to significantly decline or become worthless.
The Chinese Mainland government may exert, at any time, substantial intervention and influence over the manner of our operations.
Recently, the Chinese Mainland government initiated a series of regulatory actions and statements to regulate business operations in
Chinese Mainland with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision
over Chinese Mainland-based companies listed overseas, adopting new measures to extend the scope of cybersecurity reviews and new
laws and regulations related to data security, and expanding the efforts in anti-monopoly enforcement.
The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of personal information and
important data worldwide is rapidly evolving in Chinese Mainland and is likely to remain uncertain for the foreseeable future.
Regulatory authorities in Chinese Mainland have implemented and are considering a number of legislative and regulatory proposals
concerning data protection. For example, the PRC Cybersecurity Law, which became effective in June 2017, established Chinese
Mainland’s first national-level data protection for “network operators,” which may include all organizations in Chinese Mainland that
connect to or provide services over the internet or other information network. The PRC Data Security Law, which was promulgated by
the Standing Committee of PRC National People’s Congress, or the SCNPC, on June 10, 2021 and became effective on September 1,
2021, outlines the main system framework of data security protection.
The amended Measures of Cybersecurity Review, which was promulgated by the Cyberspace Administration of China (the “CAC”)
in December 2021 and came into effect on February 15, 2022, requires cyberspace operators with personal information of more than one
million users to file for cybersecurity review with the Cybersecurity Review Office (“CRO”), in the event such operators plan for an
overseas listing. The amended Measures of Cybersecurity Review provide that, among others, an application for cybersecurity review
must be made by an issuer that is a “critical information infrastructure operator” or a “data processing operator” as defined therein before
such issuer’s securities become listed in a foreign country, if the issuer possesses personal information of more than one million users,
and that the relevant governmental authorities in the Chinese Mainland may initiate cybersecurity review if such governmental
authorities determine an operator’s cyber products or services, data processing or potential listing in a foreign country affect or may
affect China’s national security. In August 2021, the Standing Committee of the National People’s Congress of China promulgated the
Personal Information Protection Law which became effective on November 1, 2021. The Personal Information Protection Law provides
a comprehensive set of data privacy and protection requirements that apply to the processing of personal information and expands data
protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in Chinese
Mainland, and the processing of personal information of persons outside of Chinese Mainland if such processing is for purposes of
providing products and services to, or analyzing and evaluating the behavior of, persons in Chinese Mainland. The Personal Information
Protection Law also provides that critical information infrastructure operators and personal information processing entities who process
personal information meeting a volume threshold to be set by Chinese cyberspace regulators are also required to store in Chinese
Mainland the personal information generated or collected in Chinese Mainland, and to pass a security assessment administered by
Chinese cyberspace regulators for any export of such personal information. Moreover, pursuant to the Personal Information Protection
Law, persons who seriously violate this law may be fined for up to RMB50 million or 5% of annual revenues generated in the prior year
and may also be ordered to suspend any related activity by competent authorities.
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On September 30, 2024, the State Council of China published the Regulations on Network Data Security Administration, which took
effect on January 1, 2025. The Regulations on Network Data Security Administration provides that data processing operators engaging in
data processing activities that affect or may affect national security must be subject to network data security review by the relevant
cyberspace administration of the PRC. Network data processing activities refers to the collection, retention, use, processing,
transmission, provision, disclosure, deletion, and other activities of network data. Network data processing activities refers to the
collection, retention, use, processing, transmission, provision, disclosure, deletion, and other activities of network data.
Under the current cybersecurity laws in Chinese Mainland, critical information infrastructure operators that intend to purchase
internet products and services that may affect national security must be subject to the cybersecurity review. On July 30, 2021, the State
Council of the PRC promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure, which took
effect on September 1, 2021. The regulations require, among others, that certain competent authorities shall identify critical information
infrastructures. If any critical information infrastructure is identified, they shall promptly notify the relevant operators and the Ministry of
Public Security.
Currently, the cybersecurity laws and regulations have not directly affected our business and operations, but in anticipation of the
strengthened implementation of cybersecurity laws and regulations and the expansion of our business, we face potential risks if we are
deemed as a critical information infrastructure operator under the Cybersecurity Law. In such case, we must fulfill certain obligations as
required under the Cybersecurity Law and other applicable laws, including, among others, storing personal information and important
data collected and produced within the Chinese Mainland territory during our operations in Chinese Mainland, which we are already
doing in our business, and we may be subject to review when purchasing internet products and services. According to the amended
Measures of Cybersecurity Review, we may be subject to review when conducting data processing activities, and may face challenges in
addressing its requirements and make necessary changes to our internal policies and practices in data processing. As of the date of this
annual report, we have not been involved in any investigations on cybersecurity review made by the CAC on such basis, and we have not
received any inquiry, notice, warning, or sanctions in such respect. In addition, we have maintained a comprehensive and rigorous data
protection program and implemented comprehensive and strict internal policies, procedures and measures designed to ensure our
compliance with cybersecurity and data privacy laws and regulations:
●
Data transmission and storage encryption: we have encrypted and stored all the collected sensitive user data as a whole. Strict
decryption is required for queries or accessing this data. We have encrypted (State Secret Algorithm) the transmission of
sensitive data (https), which can authenticate users and servers, ensure that the data is sent to the correct clients and servers, and
prevent the data from being stolen in the middle of the process, maintain the integrity of the data, ensure that the data is not
altered during transmission, and effectively guarantee the security of the data transmission between the client and us.
●
Security of network architecture: we adopt hardware firewall to manage our network strictly, and divide our network according
to the business requirement and policy. We adopt a white list and access control strategy for delicate management, and identify
terminals through the 802.1X certification or portal online certification. Terminals meeting the access control and strategy
implementation requirements will be allowed to enter the internal network of us, so as to conduct accurate security control at
the network level over any terminal.
●
Security of service application management: we use fortress machines to realize real-time collection and monitoring of system
status, security events and network activities of every component in our network environment, so as to facilitate centralized
alarm, timely processing and audit.
●
Disaster recovery framework planning and deployment: the applications and data of our key business systems have been
deployed across machine rooms and regions so as to ensure the availability of services and business continuity. For the business
data, we have periodically implemented the backup strategy in accordance with the business timeliness requirements and
conducted regular rehearsals and verification of data recovery in accordance with the plan.
●
Intrusion prevention and web application firewall WAF deployment: we deploy intrusion prevention system, WAF in the
business application portal, which can real-time, active, in-depth defense against application layer network attacks security
defense.
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●
Terminal security protection: we deploy the anti-information leakage system for terminal data security, based on a unified
policy, using deep content analysis, instant identification, monitoring and protection of static data, dynamic data and data in use.
We adopt high-strength encryption algorithms to provide real-time and comprehensive encryption protection for electronic
documents in various formats. At the same time, the system also provides terminal security management functions, including
document security management, behavioral management, system management, asset management, external equipment control,
and operation auditing, etc., so that the intranet security risks in terms of information security, terminal behavioral management,
and asset operation and maintenance can be effectively controlled.
Security Compliance and Scanning: we will regularly conduct penetration tests on servers and application systems, i.e., non-
destructive simulated hacking attacks on network servers and application systems using security scanning tools and manually to ensure
the rapid discovery and repair of security threats existing in the user’s system. We also regularly combine manual scanning with tool
scanning to comprehensively dig into the code of general Web vulnerabilities, business logic vulnerabilities, application vulnerabilities,
application configuration file insecurity, etc., to solve the existing security risks from the code level.
Based on the foregoing, we do not expect that, as of the date of this annual report, the current applicable Chinese Mainland laws on
cybersecurity would have a material adverse impact on our business. However, any failure or perceived failure to comply with all
applicable laws and regulations may result in legal proceedings or regulatory actions against us, and could have an adverse effect on our
business and results of operations, and we cannot assure you that the operators from the CAC or other relevant governmental authority
will not introduce additional requirements or policies which may require significant changes in the way we operate our business.
On September 1, 2021, the PRC Data Security Law became effective, which imposes data security and privacy obligations on
entities and individuals conducting data-related activities, and introduces a data classification and hierarchical protection system based on
the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public
interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally
acquired or used. As of the date of this annual report, we have not been involved in any investigations on data security compliance made
in connection with the PRC Data Security Law, and we have not received any inquiry, notice, warning, or sanctions in such respect.
Based on the foregoing, we do not expect that, as of the date of this annual report, the PRC Data Security Law would have a material
adverse impact on our business.
On July 7, 2022, the CAC published the Outbound Data Transfer Security Assessment Measures that took effect on September 1,
2022 and outline the potential security assessment process for outbound data transfer. Under the Outbound Data Transfer Security
Assessment Measures, data processors that provide important data and personal information outbound that are collected or produced
through operations within the territory of the Chinese Mainland, where a security assessment shall be conducted according to the law,
shall apply to the provisions of these Measures. Under the Outbound Data Transfer Security Assessment Measures, data processors
providing outbound data shall apply for outbound data transfer security assessment with the CAC in any of the following circumstances:
(i) where a data processor provides important data abroad; (ii) where a critical information infrastructure operator or a data processor
processing the personal information of more than one million individuals provides personal information abroad; (iii) where a data
processor has provided personal information of 100,000 individuals or sensitive personal information of 10,000 individuals in total
abroad since January 1 of the previous year; and (iv) other circumstances prescribed by the CAC for which declaration for security
assessment for outbound data transfers is required. The Outbound Data Transfer Security Assessment Measures also provide procedures
for security assessment and submissions, important factors to be considered in conducting assessment, and legal liabilities of a data
processor for failure to apply for assessment.
On July 6, 2021, the relevant Chinese Mainland governmental authorities published the Opinions on Strictly Cracking Down Illegal
Securities Activities in Accordance with the Law. These opinions require the relevant regulators to coordinate and accelerate
amendments of legislation on the confidentiality and archive management related to overseas issuance and listing of securities, and to
improve the legislation on data security, cross-border data flow and management of confidential information. These opinions emphasized
the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by Chinese Mainland-
based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with
the risks and incidents faced by Chinese Mainland-based overseas-listed companies. As these opinions were recently issued, official
guidance and related implementation rules have not been issued yet and the interpretation of these opinions remains unclear at this stage.
As of the date of this annual report, we have not received any inquiry, notice, warning, or sanctions from the CSRC or any other Chinese
Mainland government authorities. Based on the foregoing and the currently effective Chinese Mainland laws, we are of the view that, as
of the date of this annual report, these opinions do not have a material adverse impact on our business.
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6
On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of the Overseas Securities Offering and Listing by
Domestic Companies, or the Trial Measures, and five supporting guidelines which took effect on March 31, 2023. Pursuant to the Trial
Measures, Chinese companies that seek to offer and list securities overseas shall fulfill the filing procedures with and report relevant
information to the CSRC, and that an initial filing shall be submitted within three working days after the application for an initial public
offering is submitted, and a second filing shall be submitted within three working days after the listing is completed. Further, at the press
conference held for the Trial Measures on February 17, 2023, officials from the CSRC clarified that the Chinese Mainland domestic
companies that have already been listed overseas on or before the effective date of the Trial Measures (i.e. March 31, 2021) shall be
deemed as existing issuers, or the Existing Issuers. The Existing Issuers are not required to complete the filing procedures immediately
but shall carry out filing procedures as required if they conduct refinancing or are involved in other circumstances that require filing with
the CSRC.
We are an Existing Issuer under the Trial Measures, as we were listed on September 19, 2018, which is before the effective date of
the Trial Measures. As an Existing Issuer, we currently do not have any intention or plan of refinancing or being involved in any other
circumstances that required filing with the CSRC under the Trial Measures. If we conduct refinancing or any other activities that are
subject to filing procedures in the future, we will actively communicate with the CSRC and initiate the filing procedures as required in a
timely manner. However, given that the Trial Measures were recently promulgated, uncertainties remain as to the implementation and
interpretation, if we fail to complete the filing with the CSRC in a timely manner or at all for any future offering or any other financing
activities which are subject to the filing requirements under the Trial Measures, our ability to raise or utilize funds and our operations
could be materially and adversely affected.
On February 24, 2023, the CSRC, Ministry of Finance of the Chinese Mainland, National Administration of State Secrets Protection
and National Archives Administration of Chinese Mainland promulgated the Provisions on Strengthening Confidentiality and Archives
Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Archives Rules, which took effect on March
31, 2023. Pursuant to the Archives Rules, Chinese Mainland domestic companies that seek overseas offering and listing shall strictly
abide by applicable laws and regulations of the Chinese Mainland and the Archives Rules, enhance legal awareness of keeping state
secrets and strengthening archives administration, institute a sound confidentiality and archives administration system, and take
necessary measures to fulfill confidentiality and archives administration obligations. Such domestic companies shall not leak any state
secret and working secret of government agencies, or harm national security and public interest. Furthermore, a Chinese Mainland
domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or
entities including securities companies, securities service providers and overseas regulators, any document and materials that contain
state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file
with the secrecy administrative department at the same level. Moreover, a Chinese Mainland domestic company that plans to, either
directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities
companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to
national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. The Archives
Rules also stipulate that a Chinese Mainland domestic company that provides accounting archives or copies of accounting archives to
any entities including securities companies, securities service providers and overseas regulators and individuals shall fulfill due
procedures in compliance with applicable national regulations. However, given that the Archives Rules was recently promulgated, there
are substantial uncertainties as to the implementation and interpretation, and we cannot predict the impact of the Trial Measures and the
Archives Rules on us, including but not limited to the maintenance of the listing status of our ADSs and/or other securities, or any of our
future offerings of securities overseas at this stage.
As there are still uncertainties regarding these new laws and regulations as well as the amendment, interpretation and
implementation of the existing laws and regulations related to cybersecurity and data protection, we cannot assure you that we will be
able to comply with these laws and regulations in all respects. The regulatory authorities may deem our activities or services non-
compliant and therefore require us to suspend or terminate its business. We may also be subject to fines, legal or administrative sanctions
and other adverse consequences, and may not be able to become in compliance with relevant laws and regulations in a timely manner, or
at all. These may materially and adversely affect its business, financial condition, results of operations and reputation.
Table of Contents
7
In addition, according to the institutional reform plan of the State Council approved by the National People’s Congress on March 10,
2023, the China Banking and Insurance Regulatory Commission, or the CBIRC, will no longer be retained. And Chinese Mainland will
set up a national financial regulatory administration, which will be in charge of regulating the financial industry except the securities
sector, coordinating the protection of the rights and interests of financial consumers, strengthening risk management and prevention and
disposal, and investigating and dealing with violations of the law. And a local financial regulatory mechanism will be developed with
agencies dispatched by central financial regulators as the mainstay. Also, Chinese Mainland has established the National Data Bureau on
October 25, 2023 under the administration of the National Development and Reform Commission, or the NDRC. The National Data
Bureau is responsible for advancing the development of data-related fundamental institutions, coordinating the integration, sharing,
development and application of data resources, and pushing forward the planning and building of a digital Chinese Mainland, the digital
economy and a digital society. Due to the enhanced supervision of financial industry and data protection, we may be under heightened
regulatory scrutiny, which may increase our compliance costs and subject us to heightened risks and challenges.
As such, our business segments may be subject to various government and regulatory interference in the provinces in which they
operate. We could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and
government sub-divisions. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or
penalties for any failure to comply.
Risks Associated with the Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act, or the HFCA Act, was signed into law on December 18, 2020 and amended
pursuant to the Consolidated Appropriations Act, 2023 on December 29, 2022. Under the HFCA Act and the rules issued by the SEC and
the PCAOB thereunder, if we have retained a registered public accounting firm to issue an audit report where the registered public
accounting firm has a branch or office that is located in a foreign jurisdiction and the PCAOB has determined that it is unable to inspect
or investigate completely because of a position taken by an authority in the foreign jurisdiction, the SEC will identify us as a “covered
issuer”, or SEC-identified issuer, shortly after we file with the SEC a report required under the Securities Exchange Act of 1934, or the
Exchange Act (such as our annual report on Form 20-F) that includes an audit report issued by such accounting firm; and if we were to
be identified as an SEC-identified issuer for two consecutive years, the SEC would prohibit our securities (including our shares or ADSs)
from being traded on a national securities exchange or in the over-the-counter trading market in the United States.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or
investigate completely registered public accounting firms headquartered in Chinese Mainland and Hong Kong and our auditor was
subject to that determination. The inability of the PCAOB to conduct inspections of auditors in China in the past has made it more
difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control
procedures as compared to auditors outside of China that are subject to the PCAOB inspections. On August 26, 2022, the PCAOB signed
an agreement with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China, allowing
the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely,
consistent with U.S. law. After the execution of the agreement, the PCAOB had access to inspect or investigate the registered public
accounting firms in mainland China and Hong Kong, and therefore, on December 15, 2022, the PCAOB removed Chinese Mainland and
Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For
this reason, we were not identified as an SEC-identified issuer under the HFCA Act in 2023.
Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in Chinese Mainland and Hong
Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate
completely accounting firms in Chinese Mainland and Hong Kong again and we use an accounting firm headquartered in one of these
jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be
identified as an SEC-identified issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance
with the HFCA Act, our securities would be prohibited from being traded on a national securities exchange or in the over-the-counter
trading market in the United States if we are identified as an SEC-identified issuer for two consecutive years in the future. If our shares
and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that
a market for our shares will develop outside of the United States. A prohibition of being able to trade in the United States would
substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with
delisting would have a negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise
capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and
prospects.
Table of Contents
8
Financial Information Related to the Consolidated VIEs, Trusts and Partnerships
The following tables present condensed consolidated financial statements for the Company, the consolidated VIEs, Trusts and
Partnerships, subsidiaries, and any eliminating adjustments. The statements depict the financial position as of December 31, 2022, 2023,
and 2024, and the results of operations and cash flows for fiscal years 2022, 2023, and 2024.
Selected Consolidated Statement of Balance Sheet Data
As of December 31, 2022
As of December 31, 2023
As of December 31, 2024
Consolidated
Consolidated
Consolidated
VIEs,
VIEs,
VIEs,
The
Trusts and
Group
The
Trusts and
Group
The
Trusts and
Group
Company
Partnerships
Subsidiaries
Eliminations
Consolidated
Company
Partnerships
Subsidiaries
Eliminations
Consolidated
Company
Partnerships
Subsidiaries
Eliminations
Consolidated
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
(in thousands)
(in thousands)
(in thousands)
Cash and cash equivalents
14,280
116,524
471,467
—
602,271
1,202
295,278
898,872
—
1,195,352
1,360
180,684
802,567
—
984,611
Restricted cash, net
—
403,439
1,250
—
404,689
—
716,870
32,200
—
749,070
—
532,604
144,189
—
676,793
Accounts receivable and
contract assets, net
—
65,290
1,096,622
—
1,161,912
—
83,535
1,576,053
—
1,659,588
—
74,751
1,954,799
—
2,029,550
Loans receivable from
Xiaoying Credit Loans and
other loans, net
—
3,777,595
32,798
—
3,810,393
—
4,876,731
71,102
—
4,947,833
—
4,775,127
53,190
—
4,828,317
Loan receivable from
Xiaoying Housing Loans,
net
—
10,061
—
—
10,061
—
8,657
—
—
8,657
—
—
—
—
—
Loans at fair value
—
120,280
—
—
120,280
—
—
—
—
—
—
—
—
—
—
Deposits to institutional
cooperators, net
—
—
1,770,317
—
1,770,317
—
—
1,702,472
—
1,702,472
—
—
1,958,297
—
1,958,297
Prepaid expenses and other
current assets
426
53,328
17,328
—
71,082
411
25,281
23,076
—
48,768
391
19,491
14,196
—
34,078
Deferred tax assets, net
—
2,277
86,151
—
88,428
—
118,587
17,371
—
135,958
—
174,396
23,317
—
197,713
Long-term investments
—
495,995
—
—
495,995
—
493,411
—
—
493,411
—
498,038
—
—
498,038
Financial investments
—
—
192,620
—
192,620
—
—
608,198
—
608,198
—
33,428
480,048
—
513,476
Property and equipment, net
—
605
5,256
—
5,861
—
1,055
7,588
—
8,643
—
1,138
14,695
—
15,833
Intangible assets, net
—
28,712
7,838
—
36,550
—
28,153
8,657
—
36,810
—
27,706
8,887
—
36,593
Other non-current assets
—
2,470
64,734
—
67,204
—
23
55,242
—
55,265
—
22
44,929
—
44,951
Financial guarantee derivative
—
—
—
—
—
—
—
—
—
—
—
—
1,038
—
1,038
Intercompany receivables
1,024,112
4,470,491
6,046,377
(11,540,980)
—
1,047,722
6,084,772
4,207,837
(11,340,331)
—
910,228
3,511,778
4,438,533
(8,860,539)
—
Investments in Consolidated
VIEs, Trusts and
Partnerships and
subsidiaries
3,717,374
2,299,383
3,492,373
(9,509,130)
—
4,857,620
2,331,412
4,600,589
(11,789,621)
—
6,286,783
2,487,967
5,873,197
(14,647,947)
—
Total Assets
4,756,192
11,846,450
13,285,131
(21,050,110)
8,837,663
5,906,955
15,063,765
13,809,257
(23,129,952)
11,650,025
7,198,762
12,317,130
15,811,882
(23,508,486)
11,819,288
As of December 31, 2022
As of December 31, 2023
As of December 31, 2024
Consolidated
Consolidated
Consolidated
VIEs,
VIEs,
VIEs,
The
Trusts and
Group
The
Trusts and
Group
The
Trusts and
Group
Company
Partnerships
Subsidiaries
Eliminations
Consolidated
Company
Partnerships
Subsidiaries
Eliminations
Consolidated
Company
Partnerships
Subsidiaries
Eliminations
Consolidated
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
(in thousands)
(in thousands)
Payable to investors and
institutional funding
partners at amortized cost
—
2,627,910
—
—
2,627,910
—
3,584,041
—
—
3,584,041
—
2,184,086
—
—
2,184,086
Payable to investors at fair
value
—
141,289
—
—
141,289
—
—
—
—
—
—
—
—
—
—
Guarantee liabilities
—
—
—
—
—
—
—
61,907
—
61,907
—
—
187,641
—
187,641
Financial guarantee derivative
—
107,890
—
—
107,890
—
—
—
—
—
—
—
—
—
—
Deferred guarantee income
—
—
—
—
—
—
—
46,597
—
46,597
—
—
164,725
—
164,725
Short-term borrowings
—
20,000
50,209
—
70,209
—
320,000
245,000
—
565,000
—
10,000
318,500
—
328,500
Accrued payroll and welfare
—
12,047
51,634
—
63,681
—
15,011
71,760
—
86,771
—
18,482
76,235
—
94,717
Other taxes payable
—
123,106
132,585
—
255,691
—
126,901
162,920
—
289,821
—
119,684
160,309
—
279,993
Income taxes payable
(receivable)
—
(1,872)
271,960
—
270,088
—
28,267
418,233
—
446,500
—
174,426
417,065
—
591,491
Deposit payable to channel
cooperators
—
—
19,700
—
19,700
—
—
19,700
—
19,700
—
—
12,016
—
12,016
Dividend payable
—
—
—
—
—
59,226
—
—
—
59,226
—
—
—
—
—
Accrued expenses and other
current liabilities
2,938
102,150
370,948
—
476,036
605
69,990
505,132
—
575,727
245,607
94,826
589,057
—
929,490
Other non-current liabilities
—
1,937
49,256
—
51,193
—
—
37,571
—
37,571
—
—
27,516
—
27,516
Deferred tax liabilities
—
—
722
—
722
—
—
30,040
—
30,040
—
643
65,316
—
65,959
Intercompany payables
—
5,424,862
6,116,118
(11,540,980)
—
—
7,411,124
3,929,207
(11,340,331)
—
—
5,639,171
3,221,368
(8,860,539)
—
Total Liability
2,938
8,559,319
7,063,132
(11,540,980)
4,084,409
59,831
11,555,334
5,528,067
(11,340,331)
5,802,901
245,607
8,241,318
5,239,748
(8,860,539)
4,866,134
Total shareholder’s equity
4,753,254
3,287,131
6,221,999
(9,509,130)
4,753,254
5,847,124
3,508,431
8,281,190
(11,789,621)
5,847,124
6,953,155
4,075,812
10,572,134
(14,647,947)
6,953,154
Selected Consolidated Statement of Comprehensive Income Data
Year ended December 31, 2022
Year ended of December 31, 2023
Year ended December 31, 2024
Consolidated
Consolidated
Consolidated
VIEs,
VIEs,
VIEs,
The
Trusts and
Group
The
Trusts and
Group
The
Trusts and
Group
Company
Partnerships
Subsidiaries
Eliminations
Consolidated
Company
Partnerships
Subsidiaries
Eliminations
Consolidated
Company
Partnerships
Subsidiaries
Eliminations
Consolidated
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
(in thousands)
(in thousands)
(in thousands)
Total net revenue
—
1,350,810
2,212,140
—
3,562,950
—
1,500,275
3,314,609
—
4,814,884
—
1,809,619
4,062,163
—
5,871,782
Intercompany revenues
—
61,267
857,646
(918,913)
—
—
59,711
1,131,338
(1,191,049)
—
—
76,661
544,729
(621,390)
—
Origination and servicing,
general and administrative
and sales and marketing
expenses
(8,739)
(330,622)
(1,974,353)
—
(2,313,714)
(5,899)
(816,332)
(2,246,668)
—
(3,068,899)
(7,503)
(896,578)
(2,592,463)
—
(3,496,544)
Intercompany costs
—
(492,732)
(426,181)
918,913
—
—
(465,773)
(725,276)
1,191,049
—
—
(544,070)
(77,320)
621,390
—
Net income
811,996
306,566
511,016
(817,582)
811,996
1,186,794
32,028
1,158,470
(1,190,498)
1,186,794
1,539,906
156,556
1,390,946
(1,547,502)
1,539,906
Table of Contents
9
The following table presents the roll-forward of investments in our consolidated VIEs, Trusts and Partnership and subsidiaries in FY
2022, FY 2023 and FY 2024.
Investments in
Consolidated VIEs,
Trusts and Partnerships
and subsidiaries
RMB in thousands
Balance as of December 31, 2021
2,899,792
Equity in earnings of the Consolidated VIEs, Trusts and Partnerships
738,032
Equity in earnings of subsidiaries
79,550
Balance as of December 31, 2022
3,717,374
Equity in earnings of the Consolidated VIEs, Trusts and Partnerships
438,091
Equity in earnings of subsidiaries
752,407
Dividend distributed from subsidiaries
(50,252)
Balance as of December 31, 2023
4,857,620
Equity in earnings of the Consolidated VIEs, Trusts and Partnerships
623,965
Equity in earnings of subsidiaries
923,537
Dividend distributed from subsidiaries
(118,339)
Balance as of December 31, 2024
6,286,783
Consolidated
VIEs,
The
Trusts and
Company
Partnerships
Subsidiaries
Amount due from (due to) Consolidated VIEs, Trusts and Partnerships and subsidiaries
RMB in thousands RMB in thousands RMB in thousands
Balance as of December 31, 2021
1,077,449
(1,443,237)
365,788
The Company transferred to the subsidiaries
(164,708)
—
164,708
The Consolidated VIEs, Trusts and Partnerships transferred to the subsidiaries
—
277,495
(277,495)
Intercompany transactions
23,157
211,371
(234,528)
Impact of foreign exchange rate
88,214
—
(88,214)
Balance as of December 31, 2022
1,024,112
(954,371)
(69,741)
The Company transferred to the subsidiaries
(74,702)
—
74,702
The Consolidated VIEs, Trusts and Partnerships transferred to the subsidiaries
—
1,171,533
(1,171,533)
—
(1,460,639)
1,460,639
Intercompany transactions
(741)
(82,875)
83,616
Impact of foreign exchange rate
99,053
—
(99,053)
Balance as of December 31, 2023
1,047,722
(1,326,352)
278,630
The Company transferred to the subsidiaries
(188,679)
—
188,679
The Consolidated VIEs, Trusts and Partnerships transferred to the subsidiaries
—
1,199,360
(1,199,360)
The subsidiaries transferred to Consolidated VIEs, Trusts and Partnerships
—
(1,881,194)
1,881,194
Intercompany transactions
(491)
(119,207)
119,698
Impact of foreign exchange rate
51,676
—
(51,676)
Balance as of December 31, 2024
910,228
(2,127,393)
1,217,165
Transfers of Cash through Our Organizations
X Financial is a holding company with no operations of its own. We conduct our operations in Chinese Mainland primarily through
our subsidiaries and the consolidated VIEs and their respective subsidiaries in Chinese Mainland. As a result, although other means are
available for us to obtain financing at the holding company level, X Financial’s ability to pay dividends to its shareholders and to service
any debt it may incur may depend upon dividends paid by our Chinese Mainland subsidiaries and service fees paid by the consolidated
VIEs in Chinese Mainland. If any of our Chinese Mainland subsidiaries or the consolidated VIEs incurs debt on its own behalf in the
future, the instruments governing such debt may restrict our Chinese Mainland subsidiaries’ ability to pay dividends to X Financial or the
consolidated VIEs’ ability to pay service fees. In addition, our Chinese Mainland subsidiaries are permitted to pay dividends to X
Financial only out of their retained earnings, if any, as determined in accordance with Chinese Mainland accounting standards and
regulations. Further, our Chinese Mainland subsidiaries and the consolidated VIEs are required to make appropriations to certain
statutory reserve funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. For
more details, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company
Structure.”
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Under Chinese Mainland laws and regulations, our Chinese Mainland subsidiaries and the consolidated VIEs are subject to certain
restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. Furthermore, cash transfers from our
Chinese Mainland subsidiaries and the consolidated VIEs to entities outside of Chinese Mainland are subject to Chinese Mainland
government controls on currency conversion. Shortages in the availability of foreign currency may temporarily delay the ability of our
Chinese Mainland subsidiaries and the consolidated VIEs to remit sufficient foreign currency to pay dividends or service fees to us, or
otherwise satisfy their foreign currency denominated obligations. For risks relating to the fund flows of our operations in China, see
“Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We rely to a significant extent on dividends
and other distributions on equity paid by our principal operating subsidiaries to fund offshore cash and financing requirements” and “—
We are subject to restrictions on currency exchange.”
Pursuant to the Arrangement between Chinese Mainland and the Hong Kong Special Administrative Region for the Avoidance of
Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered
to 5% if a Hong Kong resident enterprise owns no less than 25% of a Chinese Mainland project. However, the 5% withholding tax rate
does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project
must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share
ownership in the Chinese Mainland project during the 12 consecutive months preceding its receipt of the dividends. In current practice, a
Hong Kong project must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding
tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we
will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax
rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by the Beijing WFOE to its immediate holding
company, YZT (HK) Limited. For PRC and United States federal income tax consideration of an investment in our ADSs, see “Item 10.
Additional Information —E. Taxation.”
The following table presents the cash flows among the Company, its subsidiaries, and the Consolidated VIEs, Trusts and
Partnerships in FY 2022, FY 2023 and FY 2024.
FY 2022
FY 2023
FY 2024
RMB in thousands RMB in thousands RMB in thousands
Cash transferred from the Company to the subsidiaries for financing purposes
—
—
—
Cash transferred from the subsidiaries to the Company for financing purposes
164,708
74,702
188,679
Cash transferred from the Consolidated VIEs, Trusts and Partnerships to the
subsidiaries for financing purposes
277,495
1,171,533
1,199,360
Cash transferred from the subsidiaries to the Consolidated VIEs, Trusts and
Partnerships for financing purposes
—
1,460,639
1,881,194
Cash paid from Consolidated VIEs, Trusts and Partnerships to subsidiaries for
loan transferred under intermediary model
5,724,937
5,850,809
5,637,757
Cash paid by subsidiaries to invest in Consolidated VIEs, Trusts and
Partnerships
227,445
217,176
774,713
Cash contribution from Consolidated VIEs, Trusts and Partnerships to
subsidiaries
346,937
514,547
699,258
Service fees collected by subsidiaries from borrowers indirectly through
Consolidated VIEs, Trusts and Partnerships
133,300
47,966
—
For the years ended December 31, 2022, 2023 and 2024, dividends paid to U.S. investors were nil, US$8.3 million and US$16.5
million, respectively.
On August 28, 2023, our board of directors announced a special cash dividend of US$0.17 per ADS with a record date of September
19, 2023.
On March 26, 2024, our board of directors approved a semi-annual cash dividend policy. Under the dividend policy, starting from
2024, the determination to declare and pay such semi-annual dividend and the amount of dividend in any particular half year will be
made at the discretion of the board and will be based upon the Company group’s operations and earnings, cash flow, financial condition
and other relevant factors that the board may deem appropriate. See “Item 8. Financial Information—A. Consolidated Statements and
Other Financial Information—Dividend Policy.”
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11
On March 26, 2024, pursuant to the semi-annual dividend policy, our board approved the declaration and payment of a semi-annual
dividend of US$0.17 per ADS.
On August 21, 2024, pursuant to the semi-annual dividend policy, our board has approved the declaration and payment of a semi-
annual dividend of US$0.17 per ADS.
On March 19, 2025, pursuant to the semi-annual dividend policy, our board has approved the declaration and payment of a semi-
annual dividend of US$0.25 per ADS.
In 2022, we repurchased an aggregate of approximately 48.1 million Class A ordinary shares, of which about 1.6 million Class A
ordinary shares were in the forms of ADSs, with a total consideration of approximately US$21.1 million.
In 2023, we repurchased an aggregate of approximately 5.0 million Class A ordinary shares in the forms of ADSs, with a total
consideration of approximately US$3.5 million.
In 2024, we repurchased an aggregate of approximately 52.2 million Class A ordinary shares, of which about 50.5 million Class A
ordinary shares were in the forms of ADSs, with a total consideration of approximately US$59.5 million.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
For risks associated with being based in or having the majority of the operations in Chinese Mainland, see “-Risks Associated with
Being Based in or Having the Majority of the Operations in Chinese Mainland” as set forth at the outset of Part I.
For the risks related to the HFCA Act, see “-Risks Associated with the Holding Foreign Companies Accountable Act” as set forth at
the outset of Part I and “-Risk Factors-Risks Relating to Doing Business in Chinese Mainland- Our ADSs may be prohibited from trading
in the United States under the HFCA Act in the future if the PCAOB is unable to inspect or investigate completely auditors located in
Chinese Mainland. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your
investment. ”
For the description of how cash is transferred through our organization, see “—Transfers of Cash through Our Organizations” as set
forth at the outset of Part I.
3.A. [Reserved]
3.B. Capitalization and Indebtedness
Not applicable.
3.C. Reason for the Offer and Use of Proceeds
Not applicable.
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3.D. Risk Factors
Risks Relating to Our Business and Industry
We conduct our business in Chinese Mainland through our subsidiaries and the VIEs in Chinese Mainland. The operations of our
subsidiaries and the VIEs in Chinese Mainland are governed by laws and regulations of Chinese Mainland. As of the date of this annual
report, and except otherwise disclosed in this annual report, our Chinese Mainland subsidiaries and the VIEs have obtained the requisite
licenses and permits from the Chinese Mainland government authorities that are material for the business operations of our holding
company and the VIEs in Chinese Mainland, including (i) business licenses; (ii) financing guarantee license; (iii) online microcredit
business operating license; (iv) network microcredit license; (v) value-added telecommunications service operating license, or VATS
License.
However, given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement
practices by relevant governmental authorities, if the relevant governmental authorities consider that we were operating without proper
approvals, licenses or permits, or if the relevant governmental authorities promulgate new laws and regulations that require additional
approvals or licenses or impose additional restrictions on the operation of any part of our business and we are not able to obtain such
approvals, licenses or permits or adjust our business model in a timely manner or at all, they have the power, among other things, to levy
fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant business.
We have obtained an approval of online microcredit business operating qualification and have started online microcredit
business. Any lack of requisite approvals, licenses or permits applicable to our business may have a material and adverse impact
on our business, financial condition and results of operations.
According to the Guidelines on Further Strengthening and Regulating Pilot Access and Auditing of Microcredit Companies (Trial)
issued by Shenzhen Financial Services Office in April 2013, or the Trial Guidelines on Microcredit Companies, the Shenzhen financial
regulatory authority temporarily restricts funders or related parties that are certain kinds of companies including, among others, financing
guarantee companies, pawn investment companies or real estate development companies from establishing the online microcredit
business. Shenzhen Xiaoying Technology Co., Ltd. (“Shenzhen Xiaoying (VIE)”), one of our VIEs, has obtained a letter from the Local
Financial Regulatory Bureau of Shenzhen Municipality on May 12, 2021, stating the approval of the business qualification of Shenzhen
Xiaoying Microcredit Co., Ltd. (“Xiaoying Microcredit (VIE)”), a wholly-owned subsidiary of Shenzhen Xiaoying (VIE), for the
microcredit business in Chinese Mainland. One of our Chinese Mainland subsidiaries, Tianjin Yuexin holds the financing guarantee
license and started the financing guarantee business in 2023. However, it is uncertain whether the Trial Guidelines on Microcredit
Companies restricts financing guarantee companies outside Shenzhen from establishing the online microcredit business as funders or
related parties and it’s also unclear about the Shenzhen financial regulatory authority’s current attitude on temporary restrictions imposed
by the Trial Guidelines on Microcredit Companies. As a result, it is unclear how Tianjin Yuexin’s financing guarantee business will affect
the online microcredit business of Xiaoying Microcredit (VIE). As of the date of this annual report, we have not received any inquiry,
notice, warning, or sanctions from the Shenzhen financial regulatory authority.
Besides, the approved microcredit business qualification is subject to annual onsite inspections. We have started our microcredit
business in July 2021. However, since the regulatory regime and practice with respect to network microcredit companies are evolving in
recent years and subject to uncertainties, see “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations
Relating to Microcredit Business,” we cannot assure you that we would not be subject to any rectification requirements or administrative
penalties due to any non-compliance, nor can we assure you that we will be able to satisfy rectification requirements, if any, and maintain
such license or renew the license.
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Further, pursuant to Regulations on Local Financial Supervision and Administration (Draft for Public Comments), or the Draft Local
Financial Supervision and Administration Regulation promulgated on December 31, 2021, “Local Financial Organizations” refers to
microcredit companies, financing guarantee companies, regional equity markets, pawn shops, financial leasing companies, commercial
factoring companies, local asset management companies, and other institutions engaged in local financial business that are supervised
and managed by laws, administrative regulations, and provincial-level people’s governments authorized by the State Council. The Draft
Local Financial Supervision and Administration Regulation specify that provincial governments shall perform their duties of supervision,
management, and risk disposal of local financial organizations, and no individual or entity shall set up Local Financial Organizations
without prior approval. The merger, division, reduction of registered capital, change of the business scope or operating area, the change
of the shareholders holding more than 5% of its equity interests, as well as change of the actual controller of the Local Financial
Organization shall be subject to the approval of the provincial local financial supervision and management department. Also, Local
Financial Organization shall make filings to provincial local financial supervision and management department for setting up branches
within the provincial administrative region, changing the name or address of business, increasing the registered capital, changing the
directors, supervisors and senior management personnel. Penalties such as fines or criminal liability may be imposed if the Local
Financial Organizations fail to comply with the Draft Local Financial Supervision and Administration Regulation. Both of the Draft
Interim Administrative Measures and the Draft Local Financial Supervision and Administration Regulation were released for public
comment only, there remains substantial uncertainty regarding the Draft Interim Administrative Measures and the Draft Local Financial
Supervision and Administration Regulation, including with respect to their final content, adoption timeline or effective date. If we were
considered that we have engaged in the online microcredit business and the Draft Interim Administrative Measures and the Draft Local
Financial Supervision and Administration Regulation were issued, we may be subject to various regulatory restriction which may
adversely affect our business operations. We cannot assure you that Xiaoying Microcredit (VIE) will be able to maintain or renew its
business qualification for microcredit business if the draft measures are implemented. Although we believe that Xiaoying Microcredit
(VIE) is only a supplementary funding source and we do not intend to rely on it as a major source for funding, if we need to obtain
funding through Xiaoying Microcredit (VIE) but are unable to maintain or renew the business qualification for microcredit business, or
to obtain any other requisite approvals, licenses or permits, our business, financial condition and results of operations would be
materially and adversely affected.
On January 17, 2025, the State Financial Supervision and Administration Bureau published the Interim Measures for the Supervision
and Administration of Microcredit Companies, or the Interim Measures for Microcredit Companies. The Interim Measures for
Microcredit Companies impose a range of requirements for microcredit companies engaging in cooperative lending arrangements with
third-party institutions, including restrictions on business outsourcing, cross-regional operations, and joint lending contribution ratios.
Microcredit companies must achieve full compliance with the Interim Measures for Microcredit Companies within the transition period
stipulated by local financial regulatory authorities, which shall not exceed two years. Since the Interim Measures for Microcredit
Companies is newly adopted, it cannot be concluded on how it will be interpreted and implemented by the relevant PRC governmental
authorities and to what extent it will affect our operations. Given the evolving regulatory environment, there is uncertainty as to how the
requirements in the Draft Interim Administrative Measures, the Draft Local Financial Supervision and Administration Regulation, or the
Interim Measures for Microcredit Companies will be interpreted and implemented. To the extent that we are not able to fully comply
with the requirements, our business, financial condition and results of operations may be materially and adversely affected. We will
continuously make adjustments in our business to comply with evolving regulatory requirements, but we are unable to predict with
certainty the impact, if any, that future legislation, or regulations relating to the online microcredit business industry will have on our
business, financial condition and results of operations.
As of the date of this annual report, we have not been subject to any material fines or other penalties under any Chinese Mainland
laws or regulations including those governing the online consumer finance industry in Chinese Mainland. If our previous or existing
practice is deemed to violate any rules, laws or regulations, we may face injunctions, including orders to cease illegal activities,
correction order, condemnation, fines and criminal liability, and may be exposed to other penalties as determined by the relevant
government authorities. If such situations occur, our business, financial condition and prospects would be materially and adversely
affected.
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If our borrowers default their loans under our online microcredit business, our financial operation may still be subject to
material adverse effect.
Shenzhen Xiaoying (VIE) has obtained a letter from the Local Financial Regulatory Bureau of Shenzhen Municipality on May 12,
2021, stating the approval of the business qualification of Xiaoying Microcredit (VIE), a wholly-owned subsidiary of Shenzhen Xiaoying
(VIE), for the microcredit business in Chinese Mainland. Since the loans provided by Xiaoying Microcredit (VIE) is our own capital,
defaults by our borrowers may have material adverse effect on our financial operation. As of December 31, 2024, 3.8% of our
outstanding loans is issued by Xiaoying Microcredit (VIE) through our own capital. As of December 31, 2024, 82.8% of the outstanding
loan balance issued by Xiaoying Microcredit (VIE) was unsecured by external insurance or guarantees. Consequently, our financial
operations may be subject to material adverse effects in the event of borrower defaults.
We have a limited operating history in a new and evolving market, which makes it difficult to evaluate our future prospects.
We started to facilitate investment products to individual investors in Chinese Mainland in August 2014 and commenced our loan
facilitation business in July 2015 and thus have a limited operating history. However, the market is still evolving, and our attempts to
grow our business may make it difficult to evaluate our future prospects. We seek to expand the base of prospective borrowers that we
serve, which may result in higher delinquency rates of transactions facilitated by us. The delinquency rate for all outstanding loans on our
platform that were 31-60 days past due decreased from 1.57% as of December 31, 2023, to 1.17% as of December 31, 2024. In addition,
our ability to continuously attract low-cost funding sources is also critical to our business, as our primary funding source is our
institutional funding partners. As our business develops or in response to competition and regulation, we may continue to introduce new
loan products, make adjustments to our existing loan products and our proprietary credit assessment model, or make adjustments to our
business operation in general. For example, our product mix changed since our launch of Xiaoying Card Loan in December 2016. In
2016, 0.9% of our total loan facilitation amount were Xiaoying Card Loan, while in 2022, 2023 and 2024, such proportion was 99.8%,
100%, and 100%, respectively. Furthermore, in May 2021, we obtained a network microcredit license from the Local Financial
Regulatory Bureau of Shenzhen Municipality and started online microcredit business in July 2021 by providing loans funded from own
capital. Any significant change to our business model not achieving expected results may have a material adverse impact on our financial
condition and results of operations. Our historical financials during the limited operating history are not indicative of our future trends.
As a result, it is difficult to effectively assess our future prospects.
You should consider our business and prospects in light of the risks and challenges we encounter or may encounter given the rapidly
evolving market in which we operate and our limited operating history. These risks and challenges include, among other things, our
ability to:
●
offer personalized and competitive products and services;
●
increase the utilization of our products and services by existing borrowers and institutional funding partners as well as new
borrowers and institutional funding partners;
●
offer attractive service fee rates while driving growth in size and profitability of our business;
●
maintain low delinquency rates of loans facilitated by us;
●
develop sufficient, diversified, cost-efficient and reputable funding sources;
●
maintain and enhance our relationships with our institutional funding partners;
●
broaden our prospective borrower base;
●
navigate a complex and evolving regulatory environment;
●
improve our operational efficiency;
●
attract, retain and motivate talented employees to support our business growth;
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15
●
enhance our technology infrastructure to support the growth of our business and maintain the security of our system and the
confidentiality of the information provided and utilized across our system;
●
navigate economic condition and fluctuation; and
●
defend ourselves against legal and regulatory actions, such as actions involving intellectual property or privacy claims.
Failure of other online lending platforms or damage to the reputation of the online consumer finance industry may materially
and adversely affect our business and results of operations.
We operate in the online consumer finance industry, which is a new and evolving industry. Negative publicity about this industry and
the market segment may arise from time to time. Negative publicity about Chinese Mainland’s consumer finance industry in general may
also have a negative impact on our reputation, regardless of whether or not we have engaged in any inappropriate activities. The Chinese
Mainland government has instituted specific rules to develop a more transparent regulatory environment for the online consumer finance
industry. Any players in Chinese Mainland’s online consumer finance industry who are not in compliance with these regulations may
adversely impact the reputation of the industry as a whole. Negative developments in the consumer finance industry, such as widespread
user defaults, fraudulent behavior, the closure of other online consumer finance platforms, or incidents indirectly resulting from the
accumulation of large amounts of debt and inability to repay by any particular borrower, may also lead to tightened regulatory scrutiny of
the sector and limit the scope of permissible business activities that may be conducted by market players in the consumer finance
industry. Moreover, in the ordinary course of our business, we may need to bring lawsuits against certain borrowers for delinquent loans.
If courts do not support our claims, such legal proceedings may also negatively impact our reputation and brand image. If any of the
foregoing takes place, our business and results of operations could be materially and adversely affected.
The service fees we charge either borrowers or institutional funding partners may decline in the future due to factors beyond our
control and any material decrease in such service fees could harm our business, financial condition and results of operations.
Our revenue primarily comes from service fees associated with the loans we facilitate. These fees are collected in two main ways:
indirectly from guarantee companies, Tianjin Yuexin (our subsidiary) or external financial institutions, and directly from some
institutional funding partners. In 2023, one of our Chinese Mainland subsidiaries, Tianjin Yuexin that holds the financing guarantee
license, started the financing guarantee business. See “Item 4. Information on the Company—4.B. Business Overview—Our Partnership
with Financial Institutional Cooperators.”
The level of these service fees is critical to our financial performance. Any material decrease in our service fees would have a
substantial impact on our revenues and profitability. In the event that the amount of service fees we collect from borrowers or
institutional funding partners for loans we facilitate decrease significantly in the future, our business, financial condition and results of
operations will be harmed. The level of service fees we collect from borrowers or institutional funding partners may also be affected by a
variety of factors, including our borrowers’ creditworthiness and ability to repay, the competitive landscape of our industry, our access to
funding sources of loans we facilitate and regulatory requirements. Our service fees may also be affected by changes in our product and
service mix and changes to our borrower engagement initiatives. Our competitors may also offer more attractive fees, which may require
us to reduce our service fees to compete effectively. Certain consumer financing solutions offered by traditional financial institutions may
provide lower fees than our service fees. Although we do not believe such consumer financing solutions currently compete with our
products or target the same underserved consumers in Chinese Mainland, such traditional financial institutions may decide to do so in the
future, which may have a material adverse effect as to the service fees that we will be able to charge borrowers or institutional funding
partners. Our service fees may also be affected by regulatory restrictions applied to our institutional funding partners. In August 2021, it
was reported that some consumer finance companies received window guidance from regulators to keep the interest rate on personal
loans within 24%. As the funding for loans we facilitated are partly provided by those institutional funding partners, the service fees we
charge borrowers or institutional funding partners may be further affected.
In addition, our service fees are sensitive to many macroeconomic factors that are beyond our control, such as inflation, recession,
the performance of credit markets, global economic disruptions, unemployment and fiscal and monetary policies. If the service fees we
collect from borrowers decrease significantly due to factors beyond our control, our business, financial condition and results of
operations will be materially and adversely affected.
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Our service fees, to the extent that they are fully or partially deemed as loan interest, may also be subject to the restrictions on
interest rates as specified in applicable rules on private lending. Pursuant to the Provisions on Several Issues Concerning Laws
Applicable to Trials of Private Lending Cases issued by the Supreme People’s Court on August 6, 2015 (as further amended on August
19, 2020 and December 29, 2020), or the Private Lending Judicial Interpretations, if the services fees that we charge borrowers are
considered as loan interest and we are deemed as a lender, and if the sum of the annual interest that lenders charge and our service fees
exceed 36%, the portion of the service fees that exceeds the 36% limit is invalid, and even if the borrower has paid the portion of the
service fees that exceeds the 36% limit, such borrower may request us to refund the portion of the service fees that exceeds the 36% limit
and the Chinese Mainland courts will uphold such request. In accordance with Circular 141, the overall cost of loans, including the loan
interest and other forms of fees charged by the institutions shall be included in an overall annualized interest rate and conform to the
restrictions on interest rates as specified in applicable rules on private lending. The Compliance Checklist further specifies that interests
and fees collected by any third party collaborator or charged offline shall form part of an overall annualized interest rate. On August 19,
2020, the Private Lending Judicial Interpretations was amended by the Supreme People’s Court, where a lender claims that
corresponding borrower shall pay interest as per the interest rate contractually stipulated, relevant people’s court shall uphold such claim,
except where the interest rate agreed on by both parties concerned exceeds four times the loan prime rate (“LPR”), for one-year loan
when the contract is concluded. “LPR for one-year loan” refers to the LPR for one-year loan to be published on a monthly basis by the
National Interbank Funding Center authorized by the People’s Bank of China as of August 20, 2019. On December 29, 2020, the
Supreme People’s Court issued the Official Reply of the Supreme People’s Court to the Issues concerning the Scope of Application of
the New Judicial Interpretation on Private Lending, or the Official Reply and further amended the Private Lending Judicial
Interpretations. According to the Private Lending Judicial Interpretations and the Official Reply, for financial institutions and branches
engaging in loan business and established upon the approval of the financial regulatory authorities, including but not limited to
microcredit company, Private Lending Judicial Interpretations shall not apply to disputes caused by granting loans and relevant financial
business. Therefore, currently, there is no clear regulatory guidance on the loan interest ceiling for the loans between the borrowers and
the institutional partners.
On March 31, 2021, PBOC issued Announcement 2021 No. 3, or the Announcement 3, to clarify the calculation methodology of
annual loan interest rate. Annual loan interest rate shall be the ratio, on an annualized basis, of all the loan-related costs charged on the
borrower to the loan principal actually occupied. However, the Announcement 3 does not further interpret the constitution of the costs
directly related to the loan. The calculation method is not clearly defined, and we are not sure whether our APR calculation method has
fully complied with the regulatory requirements.
Calculating the annualized fee rate using simple interest based on the ratio from all loan fees charged to the borrower to the principal
amount of the loan actually occupied by the borrower, none of the loans we provided or facilitated in 2024 had an annualized fee rate in
excess of 36%. We do not believe that our current service fees and various other fees charged from our borrowers violate these
provisions. However, due to the lack of the specific and clear regulatory guidance on the loan interest ceiling and the calculation method,
if our current fee level is deemed to be excessive or constitutes usurious loans under any existing or future relevant Chinese Mainland
laws, regulations and rules, parts or all of the fees we collected may be ruled as invalid by the Chinese Mainland courts, and we may
face, among others, regulatory warning, correction order, or be required to reduce the fees and annual interest rate we charge our
borrowers. In addition, any future changes on annualized fee rate ceiling may affect our profitability. If such situations were to occur, our
business, financial condition, results of operations and prospects would be materially and adversely affected.
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17
We face competition in the online consumer finance industry, and, if we do not compete effectively, our results of operations
could be harmed.
The online consumer finance industry in Chinese Mainland is highly competitive, and we compete with other sizable online
consumer lending marketplaces with a focus on prime borrowers. We also compete with other financial products and companies that
attract borrowers, investors, or institutional funding partners. Our competitors may operate different business models, have different cost
structures or selectively participate in different market segments. They may ultimately be proven more successful or more adaptable to
consumer demand and new regulatory, technological and other developments. Some of our current and potential competitors have
significantly more financial, technological, marketing and other resources than we do and may be able to devote greater resources to the
development, promotion, sale and support of their product and services offerings. Our competitors may also have longer operating
history, more extensive user bases, greater brand recognition and brand loyalty and broader relationships with business partners.
Additionally, a current or potential competitor may acquire, or form strategic alliances with, one or more of our competitors. Our
competitors may be better at satisfying user demand by developing tailored products, offering attractive service fees, strengthening risk
management capabilities, introducing more advanced and effective data analytics technologies, obtaining funding sources at more
favorable rates and undertaking more extensive and effective marketing campaigns. Furthermore, more players may enter into this
market and increase the level of competition. In face of such competition, in order to grow or maintain the amount of loans facilitated to
borrowers, we may have to lower our service fees, which could materially and adversely affect our business and results of operations. If
we are unable to compete with such companies and meet the need for innovation in our industry, the demand for our products or services
could stagnate or substantially decline, which could harm our business and results of operations.
The Administrative Measures for Credit Information Services may impose adverse effects on our business, financial condition
and results of operations.
In July 2021, according to media reports, the Credit Information Administration of the PBOC put forward requirements in a non-
public manner to certain internet platforms engaged in financing business, requiring that the information voluntarily submitted by an
individual, as generated from the platform or acquired externally, shall not be disclosed to financial institutions during the business
cooperation with such institutions, or to be directly provided to the institutions in the name of application information, identity
information, basic information, profile information, etc.
On September 27, 2021, the PBOC promulgated the Administrative Measures for Credit Information Services, or the Credit
Information Services Measures, which took effect on January 1, 2022. Pursuant to the Credit Information Services Measures, Credit
Information Services, shall mean the collection, sorting, retention, and processing of credit information of enterprises and individuals,
and the provision of the foregoing information to information users. Credit information, shall mean the basic individual information,
lending information and other relevant information used for identification and determination of creditworthiness status of enterprises and
individuals, and collected pursuant to the law for the purpose of providing services for financial activities, as well as the analyzed and
evaluated information formed based on the foregoing information. Entities engaging in personal credit information services shall obtain
the personal credit information organization license pursuant to the Credit Information Services Measures. Financial institutions shall not
carry out commercial cooperation with entities who have not obtained business qualifications for engaging in credit information services
to obtain any credit information services.
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In our current cooperation with financial institutions, we would directly provide financial institutions with the personal information
of our users on our platform, including basic user information (such as name, age, etc.) and loan-related information (such as loan
purpose, annual income, etc.), which may be deemed as credit information under the Credit Information Services Measures. As of the
date of this annual report, we have not obtained personal credit information organization license, and our direct provision of such users’
personal information to financial institutions may not be permitted. However, our consolidated VIE, Shenzhen Xiaoying Microcredit Co.,
Ltd. (“Xiaoying Microcredit (VIE)”), and our subsidiary, Tianjin Yuexin, are officially connected to the credit reference system of PBOC
CRC and report business information relating to individual credit loan services. Further, we have been collaborating closely with PuDao
Credit Information Co., Ltd., a licensed personal credit information institution, to execute a plan that complies with the new regulation.
We have entered into a collaboration agreement and a service agreement and have implemented a built-in data interfacing technology
within our internal system to establish a connection with the PuDao Credit Information Co., Ltd.’s independent data domain. Meanwhile,
as the Credit Information Services Measures has no specific implementation rules, we are not sure how it will be interpreted and
implemented and whether it will have an adverse impact on our business. Even if we made efforts and adjustments to comply with the
evolving regulatory requirements, we cannot assure you that we are in full compliance with all of the relevant requirements and
regulations as neither clear guidance nor implementation rules with regard to the Measures for Credit Reporting Business has been issued
and the acceptance criteria of the regulators are uncertain. We will closely monitor the regulatory requirements and adjust the applicable
measures in timely manner to ensure compliance. As of the date of this annual report, we have not been subject to any penalties from the
PBOC or any of its branches related to our cooperation with the institutional funding partners.
If we are unable to maintain or increase the amount of loans we facilitate or if we are unable to retain existing borrowers or
attract new borrowers, our business and results of operations will be adversely affected.
The amount of loans facilitated through our platform was RMB73,655 million in 2022, RMB 105,557million in 2023 and 104,889
million in 2024. To maintain and increase the amount of loans we facilitate, we must continue to engage our existing borrowers and
attract new borrowers, which may be affected by several factors, including our brand recognition and reputation, our products and
services offered, our efficiency in engaging prospective borrowers, our ability to convert registered users to borrowers, the effectiveness
of our credit analysis and risk management system, our ability to secure sufficient and cost-efficient funding, the service fees we charge
borrowers, our borrower experience, the Chinese Mainland regulatory environment governing our industry and the macroeconomic
environment. For example, although we do not believe any of the loan products we currently facilitate is explicitly prohibited in
accordance with the requirements under Circular 141 and Circular 57, we have taken rectification measures, including adjusting the
annualized fee rates not to exceed 36% and ceasing deducting service fees from a loan principal in advance, to better comply with the
applicable requirements.
In addition, as of December 31, 2024, we collaborated with 58 partners to obtain borrowers for our various loan products. In 2023
and 2024, approximately 80.4% and 79.8% of our active borrowers for Xiaoying Card Loan were engaged through our channel partners.
If these channels become less effective or less efficient, or if we are unable to continue to use these channels or work with less channel
partners, or if we cannot expand our business partner base or work with more business partners, we may not be able to acquire and
engage new and existing borrowers efficiently. In addition, we may also impose more stringent borrower qualifications to ensure the
quality of the loans we facilitate, which may negatively affect the amount of loans we facilitate. If we are unable to attract borrowers or if
borrowers do not continue to use our products and services, we may be unable to increase our amount of loans facilitated and
corresponding revenues, and our business and results of operations may be materially and adversely affected.
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We face risks related to natural disasters, public health emergencies, epidemic, pandemics and other outbreaks, which could
significantly disrupt our operations.
We are vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications
failures, break-ins, war, riots, terrorist attacks or similar events may give rise to severe interruptions, breakdowns, system failures or
Internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our
ability to provide our products and services. Our business could also be adversely affected by the effects of diseases, including Ebola
virus disease, Zika virus disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, COVID-19 or other
epidemics. For example, the outbreak of coronavirus, or COVID-19, had caused us to take specific precautionary measures intended to
minimize the risks of COVID-19 to our employees, users, business partners and our borrowers, including temporarily requiring our
employees to work remotely and canceling or postponing sponsored offline events and activities, thus compromising our efficiency and
productivity during such periods, and requiring us to incur additional costs, slow down our branding and marketing efforts, and resulting
in short-term fluctuations in our results of operations. China began to modify its COVID-19 policy in late 2022, and most of the travel
and other public health restrictions were lifted in December 2022. There were increases of COVID-19 cases in many cities in China
during this time, which disrupted normal business activities in early 2023. Should a global health crisis like COVID-19 happen again, it
could harm economies and financial markets worldwide and reduce demand for our services, which may in turn have a material adverse
effect on our business, financial condition and results of operations.
If the provision of services by financial institutional cooperators, such as insurance companies and financing guarantee
companies, becomes limited, restricted, or is rendered less effective or more expensive, our business may be materially and
adversely affected.
91.5% of our outstanding loans were covered by external financial institutional cooperators as of December 31, 2024. We
collaborate with various external financing guarantee companies and insurance companies who provide guarantee/insurance services to
protect institutional funding partners from losses. See “Item 4. Information on the Company—4.B. Business Overview—Our Partnership
with Financial Institutional Cooperators.” Although we have entered into a series of agreements relating to our ongoing business
cooperation and service arrangement with our financial institutional cooperators, we cannot assure you that the provisions of services
provided by such financial institutional cooperators will be renewed upon expiration of the agreements or continue to remain at the same
level or on more favorable terms in the future. If any of such financial institutional cooperators ceases business collaboration with us, it
may adversely affect our relationship with our users and institutional funding partners.
The protections offered by our financial institutional cooperators on our loan products significantly enhance the confidence of our
institutional funding partners. We cooperated with Shenzhen Xintang (VIE) to provide guarantees for certain loan products that we
facilitate in the past. Shenzhen Xintang (VIE) did not renew its financing guarantee license in 2022. We settled the remaining business of
Shenzhen Xintang (VIE) in the first quarter of 2023. Shenzhen Xintang (VIE) no longer guarantees any loan products, and in 2023, one
of our Chinese Mainland subsidiaries, Tianjin Yuexin started the financing guarantee business. See “Item 4. Information on the Company
—4.B. Business Overview—Our Partnership with Financial Institutional Cooperators.” We cannot assure you that new arrangements
would be perceived by them, which may have adverse impact on our business operations. If our financial institutional cooperators cease
business collaboration with us, it may adversely affect our relationship with our institutional funding partners, who view on the
protection offered by our financial institutional cooperators with importance.
We cannot assure you that our financial institutional cooperator will continue to provide its insurance or guarantee decision opinion,
which is based on its credit analysis model, leveraging its resources and access to various databases, including PBOC CRC that is only
available to licensed financial institutions. We are working with other partners with financial license on co-developing risk management
capabilities. The denial of access to their insurance or guarantee decision opinion may materially and adversely impact our ability to
assess the creditworthiness of prospective borrowers in the future. Any deterioration in our risk assessment capabilities may adversely
affect the quality of transactions that we facilitate and we may experience higher delinquency rates, which may materially and adversely
affect our business, results of operations and financial condition.
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If we are unable to obtain adequate credit insurance under terms or conditions acceptable to us due to changes in the credit
insurance regulations in Chinese Mainland, our business, financial condition and results of operations would be materially and
adversely affected.
On May 8, 2020, the CBIRC promulgated the Measures for the Regulation of Credit Insurance and Guarantee Insurance, or the
Measures for the Credit Insurance and Guarantee Insurance, as amended on June 21, 2021, which repeals the Interim Measures for the
Supervision of Credit Guarantee and Insurance Business issued on July 11, 2017. Pursuant to the Measures for the Credit Insurance and
Guarantee Insurance, the insurance companies carrying out credit insurance and guarantee insurance (together, the “Credit and Guarantee
Insurance”) businesses are required to comply with the regulatory requirements on solvency and ensure the overall size of business is
appropriate for the capital strength of the company.
We have cooperated with insurance companies to develop Credit and Guarantee Insurance products to secure insurance
protection for the loans we facilitated. While our cooperation with these insurance companies has decreased, if the remaining
Credit and Guarantee Insurance business cannot continue on the same terms or if we need to pay more for such insurance, it
could impact our ability to secure sufficient coverage for our loan products and may negatively affect our business and financial
condition. Our cooperation model with Institutional Funding Partners may be deemed to operate financing guarantee business
by the Chinese Mainland regulatory authorities.
The State Council promulgated the Regulations on the Supervision and Administration of Financing Guarantee Companies, or
Financing Guarantee Rules, on August 2, 2017, which became effective on October 1, 2017. Pursuant to the Financing Guarantee Rules,
“financing guarantee” refers to the activities in which guarantors provide guarantee to the guaranteed parties as to loans, bonds or other
types of debt financing, and “financing guarantee companies” refer to companies legally established and operating financing guarantee
business. According to the Financing Guarantee Rules, the establishment of financing guarantee companies shall be subject to the
approval by the competent government department, and unless otherwise stipulated by the state, no entity may operate financing
guarantee business without such approval. If any entity violates these regulations and operates financing guarantee business without
approval, the entity may be subject to penalties including ban or suspension of business, fines ranging from RMB500,000 to
RMB1,000,000, confiscation of illegal gains if any, and if the violation constitutes a criminal offense, criminal liability shall be imposed
in accordance with the law. We have cooperated with banks, trust companies, and other institutional funding partners who funded the
loans for our borrowers. See “Item 4. Information on the Company—4.B. Business Overview—Our Investors and Institutional Funding
Partners.”
For the impact of Circular 141 and Circular 57 on our cooperation with institutional funding partners, see “Item 3. Key Information
on the Company—3.D. Risk Factors—Risks Relating to Our Business and Industry—Our platform requires adequate funding and access
to adequate lending capital on terms acceptable to us cannot be assured.”
Failure in our proprietary credit analysis and risk management system may materially and adversely affect our products
and service.
We offer our products and services based on risk assessment conducted by our proprietary credit analysis and risk management
system, which is strengthened by our financial institutional cooperators’ insurance or guarantee decision opinion based on their credit
analysis models. Our system uses machine learning and modeling techniques to analyze transaction and repayment data from loans that
we facilitated and data from applicants and other third party sources. Even though we have accumulated a large amount of applicant data
and extensive credit analysis experience to perform risk management analysis in our system, our credit analysis and risk management
system may not be continuously effective as we continue to increase the amount of loans we facilitate, expand our borrower base and
broaden our funding channels in the future. If our credit analysis model contains inaccurate assumptions or inefficiencies through model
updates, or if the credit data and analysis we obtain are inaccurate or outdated, our credit analysis could be negatively affected, resulting
in inaccurate decision.
If we are unable to effectively and accurately assess the credit profiles of applicants based on their credit profiles, we may either be
unable to offer attractive service fee rates and products and services to borrowers, or unable to maintain low delinquency rates for loans
we facilitate or to attract institutional funding partners. In addition, our credit analysis may not be able to provide more predictive
assessments of future borrower behavior and result in better evaluation of our borrower base as compared to our competitors.
Furthermore, our risk management model and system may not optimally protect our business against systemic risk. If our proprietary
credit analysis and risk management system fails to perform effectively, our business, liquidity and results of operations may be
materially and adversely affected.
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If we are unable to maintain low delinquency rates for transactions facilitated by us, our business and results of operations may
be materially and adversely affected. Further, historical delinquency rates may not be indicative of future results.
Our institutional funding partners may experience losses due to borrower defaults. The delinquency rate for all outstanding loans on
our platform that were 31-60 days past due decreased from 1.57% as of December 31, 2023, to 1.17% as of December 31, 2024.
Our ability to attract and retain borrowers and institutional funding partners is significantly dependent on our ability to effectively
assess a borrower’s credit profile and maintain low delinquency rates. To conduct this assessment, we have employed a series of
procedures and developed a proprietary credit assessment and decision model. Our credit scoring model aggregates and analyzes the
personal information submitted by a prospective borrower as well as the data we collect from a number of internal and external sources,
and then generates a credit assessment result for the prospective borrower. If our credit scoring model contains programming or other
errors or the information provided by borrowers or third parties is incorrect or stale, our loan pricing and approval process could be
negatively affected, resulting in misclassified loans or incorrect approvals or denials of loans. If we are unable to effectively and
accurately assess the credit profiles of borrowers, we may be unable to maintain low delinquency rates of loans facilitated by
our platform.
If widespread defaults were to occur, institutional funding partners may lose confidence in our platform and our financial
institutional cooperators may cease business collaboration with us or increase their fees collectible from new borrowers or raise some
unfavorable terms in the future, which may materially and adversely affect our business and results of operations. We have been
expanding cooperation relationships with various institutional funding partners and financial institutional cooperators to reduce our risk
of heavy dependency on certain institutional funding partners or financial institutional cooperators.
In 2023, one of our Chinese Mainland subsidiaries, Tianjin Yuexin that holds the financing guarantee license, started the financing
guarantee business. Tianjin Yuexin built a new business model by collaboration with external financing guarantee companies, where
Tianjin Yuexin assumes 20% of the guarantee liability, and the external financing guarantee company assumes 80% of the guarantee
liability. Under this business model, Tianjin Yuexin is directly obligated to pay up to 20% of the defaulted principal and interest to our
institutional funding partners and has no obligation to pay the portion guaranteed by the external financing guarantee company. However,
if widespread defaults were to occur, institutional funding partners may cease business collaboration with Yuexin. In 2024, Tianjin
Yuexin introduced a new business model involving collaborations with external financing guarantee companies. This new arrangement
specifically requires Tianjin Yuexin to make payments, up to a pre-agreed cap, to reimburse external financing guarantee companies for a
pre-determined portion of borrower payment defaults and the guarantee fee amount that was not collected due to prepayments. Under
this business model, Tianjin Yuexin has no obligation to pay to the institutional funding partners. When the delinquency rates of our loan
products increase, we may also need to increase the guarantee fees that we charge new borrowers. In the event we are not able to raise
the APR to capture such increase in guarantee fees, our results of operations would be adversely affected. See “Item 4. Information on
the Company—4.B. Business Overview—Our Partnership with Financial Institutional Cooperators —Credit Insurance and Guarantee
Services” for more details. Therefore, if we are unable to maintain low delinquency rates for transactions we facilitated, our business and
results of operations may be materially and adversely affected.
The data that we collect may be inaccurate due to inadvertent error or fraud. If we fail to detect inaccurate and false information,
the performance of our credit analysis will be compromised, and our business, results of operations and brand and reputation
will be negatively impacted.
We analyze data provided directly by applicants or with their authorization and data from third parties. The data we receive may not
accurately reflect an applicant’s creditworthiness because such data may be based on outdated, incomplete or inaccurate information due
to inadvertent error or fraud. In addition, the completeness and reliability of consumer credit history information in the Chinese Mainland
is relatively limited. The People’s Bank of China, or PBOC, has developed and put into use a national personal and corporate credit
information database which remains relatively underdeveloped.
The data provided directly by an applicant to us may become outdated and inaccurate, as he or she may have, after providing the
data to us:
●
become delinquent in the payment of an outstanding obligation;
●
defaulted on a pre-existing debt obligation;
●
taken on additional debt; or
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●
sustained other adverse financial events.
We conduct data screening to detect inaccurate information and improve the quality of the data input for our credit analysis model.
However, our data screening and anti-fraud systems may be insufficient to accurately detect inaccurate and fraudulent information. Such
inaccurate or fraudulent information could compromise the accuracy of our credit analysis and adversely affect the effectiveness of our
control over our delinquency rates. We may not be able to recoup funds underlying loans made in connection with inaccurate or
fraudulent data, which may materially and adversely affect our results of operations. To better assess a borrower’s creditworthiness, we
consult our institutional cooperators for their credit analysis and cooperate with third party credit agencies and databases for credit data
of borrowers. However, due to the underdevelopment of an industry-wide information sharing arrangement, we are unable to determine
whether applicants have outstanding loans through other online lending platforms at the time when they obtain a loan from us or the
aggregate amount borrowed by a borrower through our platform and other online lending platforms. This creates the risk that a borrower
may borrow money through us in order to pay off loans on other online lending platforms and vice versa. The additional debt may
adversely affect the borrower’s creditworthiness generally, and could result in the financial distress or insolvency of the borrower,
impairing the borrower’s ability to repay the loan and the investor and institutional funding partner’s ability to receive repayment of such
loan. In addition, if a borrower incurs debt on other online lending platforms in order to repay our loans, the borrower’s ability to repay
such loans is limited by the availability of funding sources subject to factors beyond the borrower’s control, which may adversely affect
our results of operations. For example, the release of Circular 141 and Circular 57 in December 2017 tightened industry regulations and
resulted in an unexpected short-term volatility of borrower credit performance across our industry. The impact is relatively more acute on
products with short term and small loan balance, such as Xiaoying Card Loans, as borrowers previously used to be able to easily borrow
from other online lending platforms to fund their repayment. The release of Circular 141 and Circular 57 led to liquidity shortage for
certain borrowers who relied on other lending platforms to repay Xiaoying Card Loans.
In addition, a significant increase in fraudulent activities could negatively impact our brand name and reputation, discourage
institutional funding partners from investing in loans on our platform, reduce the amount of loans facilitated to borrowers and make it
necessary to take additional steps to reduce fraud risk, which could increase our costs. High profile fraudulent activities could even lead
to regulatory intervention, and may divert our management’s attention and cause us to incur additional expenses and costs.
Although we have not experienced any material business or reputational harm as a result of fraudulent activities or inaccurate
information in the past, we cannot rule out the possibility that inaccurate information or fraudulent activities may materially and
adversely affect our business, financial condition and results of operations in the future.
We may be required to obtain or reapply for additional value-added telecommunication business licenses.
Chinese Mainland regulations impose sanctions on entities for engaging in the provision of telecommunication business of a
commercial nature without having obtained a value-added telecommunication business license. If we fail to obtain or maintain licenses
required for our business, we could be subject to sanctions including corrective orders and warnings from the Chinese Mainland
telecommunication administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the
websites and mobile applications may be ordered to cease operation.
Pursuant to the Interim Measures, we are required to apply for appropriate telecommunication business operation permit, i.e., the
value-added telecommunication business license, in accordance with relevant provisions of competent communication departments after
we have completed the registration of online lending intermediary with local financial regulatory authority. The local government
authority has not yet issued the relevant implementation rules regarding such filing and therefore we cannot assure you we will be able to
make the necessary filing or apply for the value-added telecommunication business license. Even if we have obtained the
telecommunication business license, we may also be subject to monetary penalty or suspension of operation and rectification by the
telecommunication administrations if we fail to operate the business as prescribed in the telecommunication operating licenses, or fail to
operate the business as regulated by the telecommunications administration or other regulatory authorities.
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Given the evolving regulatory environment of the consumer finance industry and value-added telecommunication business, we
cannot rule out the possibility that the Chinese Mainland communication administration authority or other government authorities will
explicitly require any of our consolidated VIEs or subsidiaries of our consolidated VIEs to obtain Internet content provider licenses, or
ICP licenses, online data processing and transaction processing licenses, or ODPTP licenses or other value-added telecommunication
business licenses, or issue new regulatory requirements to institute a new licensing regime for our industry. If such value-added
telecommunication business licenses are required in the future, or a new license regime is introduced or new regulatory rules are
promulgated, we cannot assure you that we would be able to obtain any required license or other regulatory approvals in a timely
manner, or at all, which would subject us to the sanctions described above or other sanctions as stipulated in the new regulatory rules,
and materially and adversely affect our business and impede our ability to continue our operations.
Additionally, according to Guidance on Regulating Asset Management Business of Financial Institutions, or the Guidance, which
was promulgated jointly by the PBOC, China Insurance Regulatory Commission (“CIRC”), CSRC and the State Administration of
Foreign Exchange(“SAFE”) on April 27, 2018, only financial institutions, such as banks, trusts, securities, funds, futures, insurance asset
management agencies and financial asset investment companies, can operate asset management business. As ancillary services that we
currently provide are not “asset management business” as defined in the Guidance or other applicable Laws and Regulations, we do not
believe that we would be subject to the Guidance. However, we cannot assure you if the money market products offered by the relevant
financial institutions to which we provide the ancillary services will not be ceased pursuant to the Guidance.
Nevertheless, the interpretation and the enforcement of such regulations in the context of online consumer finance industry remains
uncertain, and therefore, it is unclear what kind of value-added telecommunication business licenses we should obtain. Given the
evolving regulatory environment of the consumer finance industry and value-added telecommunication business, we cannot rule out the
possibility that the Chinese Mainland communication administration authority or other government authorities will explicitly require any
of our consolidated VIEs or subsidiaries of our consolidated VIEs to obtain Internet content provider licenses, or ICP licenses, online
data processing and transaction processing licenses, or ODPTP licenses or other value-added telecommunication business licenses, or
issue new regulatory requirements to institute a new licensing regime for our industry.
In addition, the Telecommunications Regulations promulgated by the State Council and its related implementation rules, including a
catalog issued by the Ministry of Industry and Information Technology, or MIIT, categorize various types of value-added
telecommunications services. Under the Telecommunications Regulations, e-commerce operator may be required to obtained an online
data processing and transaction processing license, or ODPTP license. Our online shopping mall may be required to obtain ODPTP
license.
If such value-added telecommunication business licenses are clearly required in the future, or a new license regime is introduced or
new regulatory rules are promulgated, we cannot assure you that we would be able to obtain or maintain any required license or other
regulatory approvals in a timely manner, or at all, which would subject us to the sanctions described above or other sanctions as
stipulated in the new regulatory rules, and materially and adversely affect our business and impede our ability to continue our operations.
In addition, as certain shareholder of the VIEs has changed his nationality, our consolidated VIEs may be deemed as foreign-
invested telecommunications enterprises. Therefore, we are required to reapply for the ICP licenses as foreign-invested
telecommunications enterprises. However, we cannot assure you that we will be able to complete such procedure in a timely manner, or
even at all. In addition, we cannot assure you that we will be able to comply with these laws and regulations in all respects. We may also
be subject to fines, legal or administrative sanctions and other adverse consequences, and may not be able to become in compliance with
relevant laws and regulations in a timely manner, or at all. These may materially and adversely affect its business, financial condition,
results of operations and reputation.
If our products and services do not achieve sufficient market acceptance, our financial condition, results of operations and
competitive position will be materially and adversely affected.
We intend to broaden the scope of products and services that we offer, while we may not be successful in doing so. New products
and services must achieve a certain level of market acceptance in order for it to be economically feasible for us to bear the default risks
associated with them and recoup our investment costs in developing and bringing them to market. Our existing or new products and
services could fail to attain sufficient market acceptance for many reasons, including:
●
our failure to predict market demand accurately and supply attractive and increasingly personalized products and services at
appropriate prices and in amount that meet this demand in a timely fashion;
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●
our existing products and services may cease to be popular among current borrowers and institutional funding partners or prove
to be unattractive to prospective borrowers and institutional funding partners;
●
our failure to assess risk associated with new products and services and to properly price such products and services;
●
negative publicity about our products and services or mobile applications’ performance or effectiveness;
●
critical assessment taken by regulatory authorities that the launch of new products and services and changes to our existing
products and services do not comply with Chinese Mainland laws, regulations or rules applicable to us; and
●
the introduction or anticipated introduction of competing offerings by competitors.
If our existing and new products and services do not achieve adequate acceptance in the market, our financial condition, competitive
position and results of operations could be harmed.
Increases in market interest rates could negatively affect the amount of loans facilitated by us and cost of funds provided to
borrowers.
The total borrowing costs of all loans facilitated by us are fixed, including the fixed service charged by us or our financial
institutional cooperators and interest rates charged by our institutional funding partners. If prevailing market interest rates rise, the
service fee rates and interest rates of loans we facilitate may rise accordingly, and borrowers may be less likely to accept such adjusted
terms. If borrowers decide not to use our products because of such an increase in market interest rates, our ability to retain existing
borrowers and engage prospective borrowers as well as our competitive position may be severely impaired. If we are unable to
effectively manage such market interest rate risk, our business, profitability, results of operations and financial condition could be
materially and adversely affected.
Any harm to our brand or reputation or any negative publicity about the parties that we collaborate with may materially and
adversely affect our business and results of operations.
Enhancing the recognition and maintaining the reputation of our brand is critical to the current performance and future growth of our
business and competitiveness, since this initiative affects our ability to better attract and serve consumers and to maintain and expand our
relationship with institutional funding partners. Factors that are vital to this objective include our ability to:
●
maintain the effectiveness, quality and reliability of our systems;
●
provide consumers with satisfactory services;
●
engage a large number of quality borrowers with low delinquency rate;
●
improve our credit analysis and risk management system;
●
effectively manage and resolve user complaints; and
●
effectively protect personal information and privacy of users.
Any malicious or otherwise negative allegation made by the media or other parties about our company group, including our
management, business, compliance with law, financial condition, prospects or our historical business operations, whether with or without
merit, could severely hurt our reputation and harm our business and results of operations.
In addition, certain factors that may adversely affect our reputation are beyond our control. Negative publicity about parties that we
collaborate with in the operation of our business, including negative publicity about any failure by them to adequately protect the
information of their users, to comply with applicable laws and regulations or to otherwise meet required quality and service standards,
could also harm our reputation or result in negative perception of the products or services we offer. Although we selectively establish
collaboration relationships with reliable third parties, we cannot assure you that they will not conduct any unsatisfactory, inappropriate or
illegal actions that will damage our reputation and brand, which consequently could cause our business to be harmed.
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We have obligations to verify information relating to borrowers and detecting fraud. If we fail to perform such obligations to
meet the requirements of relevant laws and regulations, we may be subject to liabilities.
We are an intermediary that connecting institutional funding partners with individual borrowers. Under the PRC Civil Code, an
intermediary that intentionally conceals any material information or provides false information in connection with the conclusion of an
intermediation contract, which results in harm to the client’s interests may not claim for any service fee for its intermediary services, and
is liable for any damage incurred by the client. Therefore, if we fail to provide true and accurate information to institutional funding
partners in time and in full, and are found to be at fault for failure or deemed failure to exercise proper care, or to conduct adequate
information verification or supervision, we could be subject to liabilities as an intermediary under the PRC Civil Code. We do not
conceal any material information and intentionally provide false information to institutional funding partners. In addition, we also
leverage a large database of past fraud accounts information and rule-based detection technology in detecting fraudulent behaviors.
Based on new data collected and fraudulent behaviors detected during our daily business operations, we update our database on a
monthly basis. Although we believe that we should not bear the credit risk for institutional funding partners as long as we take reasonable
measures to detect fraudulent behaviors, we cannot assure you that we would not be subject to any liabilities if we fail to detect any
fraudulent behavior. If that were to occur, our results of operations and financial condition could be materially and adversely affected.
We may face regulatory risk as we indirectly charge our borrowers in the manner that our borrowers are not aware
External financing guarantee companies that we cooperate provide guarantee for a number of loans if our borrowers fail to repay.
The financing guarantee companies that we cooperate charge borrowers a guarantee fee, a portion of which will be subsequently paid to
us by the financing guarantee companies as the service fee for the intermediary service we provide. We cooperated with Shenzhen
Xintang(VIE) to provide guarantees for certain loan products that we facilitate in the past. Shenzhen Xintang(VIE) did not renew its
financing guarantee license in 2022. We settled the remaining business of Shenzhen Xintang(VIE) in the first quarter of 2023. Shenzhen
Xintang(VIE) no longer guarantees any outstanding loan products. In 2023, one of our Chinese Mainland subsidiaries, Tianjin Yuexin
that holds the financing guarantee license, started the financing guarantee business. See “Item 4. Information on the Company—4.B.
Business Overview—Our Partnership with Financial Institutional Cooperators.” The Announcement 3 states that all institutions engaged
in loan business shall display annual loan interest rate to borrowers in an obvious way when marketing through websites, mobile
applications, posters and other channels and that the annual loan interest rate shall be the ratio, on an annualized basis, of all the loan-
related costs charged on the borrower to the loan principal actually occupied. However, our borrowers are not aware of the fact that we
actually charge service fees and the manner in which such fees are charged. Therefore, our business practices and the way we collect
service fees may be considered by the regulatory authorities as a violation of regulations and we may be subject to administrative
penalties. If we were imposed penalties or forced to adjust the way by which we charge fees, there will be an adverse impact on our
business, financial condition, and operating results.
We finance certain loans offered with our own funds, which may subject us to regulatory risks.
In our current operation model, certain loans are initially advanced by unaffiliated third parties who will subsequently transfer such
loans to our wholly-owned subsidiary. Such wholly-owned subsidiary, as the intermediary, will then transfer such loans to partnerships in
which we serve as the general partner. While we do not believe that such acquired loans from existing lenders are prohibited under the
Interim Measures, we cannot assure you that such practice would not be deemed by the Chinese Mainland authorities as illegal provision
of loans to the general public or illegally granting loans without the PBOC’s permit, which are prohibited by relevant Chinese Mainland
laws and regulations. If such practices were found to violate the Interim Measures or other relevant Chinese Mainland laws and
regulations, we might be subject to fines, penalties or other liabilities, which could materially and adversely affect our business, financial
condition and prospects.
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We have obtained a letter from the Local Financial Regulatory Bureau of Shenzhen Municipality on May 12, 2021, stating the
approval of the business qualification of Xiaoying Microcredit (VIE) for microcredit business from the relevant local authority and have
started our microcredit business in July 2021. As of December 31, 2024, 3.8% of our outstanding loans is funded by our own capital.
However, since the regulatory regime and practice with respect to network microcredit companies are evolving in recent years and
subject to uncertainties, see “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to
Microcredit Business,” we cannot assure you that we would not be subject to any rectification requirements or administrative penalties
due to any non-compliance, nor can we assure you that we will be able to satisfy rectification requirements, if any, and maintain such
license or renew the license. For example, on January 17, 2025, the State Financial Supervision and Administration Bureau published the
Interim Measures for Microcredit Companies. The Interim Measures for Microcredit Companies provides that: (i) permissible business
activities for microcredit companies include: (1) issuance of micro-loans; (2) acceptance and discounting of commercial bills; and (3)
other activities as prescribed by laws, administrative regulations, and the National Financial Regulatory Administration; (ii) the total
outstanding loans to a single borrower shall not exceed 10% of the company’s net assets, and the combined outstanding loans to a single
borrower and its affiliates shall not exceed 15% of the company’s net assets; (iii) for loans extended for consumption purposes, the
outstanding balance for a single borrower shall not exceed RMB 200,000; for loans extended for production and operational purposes,
the aggregate outstanding balance shall not exceed RMB 10 million; (iv) for microcredit companies that are categorized as “unreachable”
or “shell” companies, provincial-level local financial regulatory authorities shall make public announcements to inform the society. If no
objections are raised upon the expiration of the announcement period, the authorities shall guide such companies to proceed with name or
business scope amendments or deregistration with the market regulation department. The Interim Measures for Microcredit Companies
impose a range of requirements for microcredit companies engaging in cooperative lending arrangements with third-party institutions,
including restrictions on business outsourcing, cross-regional operations, and joint lending contribution ratios. Microcredit companies
must achieve full compliance with the Interim Measures for Microcredit Companies within the transition period stipulated by local
financial regulatory authorities, which shall not exceed two years.
Since the Interim Measures for Microcredit Companies is newly adopted, it cannot be concluded on how it will be interpreted and
implemented by the relevant PRC governmental authorities and to what extent it will affect our operations. We cannot assure you that
Xiaoying Microcredit (VIE) will be able to achieve full compliance with the Interim Measures for Microcredit Companies within the
transition period stipulated by local financial regulatory authorities and we cannot assure you that Xiaoying Microcredit (VIE) will be
able to maintain or renew its business qualification for microcredit business after the Interim Measures for Microcredit Companies are
implement. Although we believe that Xiaoying Microcredit (VIE) is only a supplementary funding source and we do not intend to rely
on it as a major source for funding, if we need to obtain funding from Xiaoying Microcredit but are unable to maintain or renew the
business qualification for microcredit business or obtain any other requisite approvals, licenses or permits, our business, financial
condition and results of operations would be materially and adversely affected.
We are subject to risks associated with other parties with which we collaborate. If we cannot effectively cooperate with such other
parties or if such other parties fail to perform or provide reliable or satisfactory services, our business, financial condition and
results of operations may be materially and adversely affected.
We collaborate with certain third parties across various aspects of our business operation, including user acquisition partners, other
institutions from which we obtain information for our credit assessment model and risk management system, guarantee providers for
certain loans we facilitated and our cloud computing service provider.
These parties may not be able to provide accurate and complete data, sufficiently or timely perform guarantee obligations over the
defaulted loans that we facilitated or provide satisfactory services to us, borrowers and institutional funding partners on commercially
acceptable terms or at all. Any failure by these parties to continue with good business operations, comply with applicable laws and
regulations, in particular, the relevant laws and regulations in collecting and distribution personal information, or any negative publicity
on these parties could damage our reputation, expose us to significant penalties and decrease our total revenues and profitability. Also, if
we fail to retain existing or attract new quality parties to collaborate with, our ability to retain existing borrowers and institutional
funding partners, engage prospective borrowers and institutional funding partners may be severely limited, which may have a material
and adverse effect on our business, financial condition and results of operations. In addition, certain of these other parties that we
collaborate with have access to our user data to a limited extent in order to provide their services. If these other parties engage in
activities that are negligent, illegal or otherwise harmful to the trustworthiness and security of our products or system, including the leak
or negligent use of data, or users are otherwise dissatisfied with their service quality, we could suffer reputational harm and experience a
decrease in users, even if these activities are not related to, attributable to or caused by us.
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If our ability to collect delinquent loans is impaired, there is misconduct in payment collection, our business and results of
operations might be materially and adversely affected.
We have implemented internal payment and collection policies and practices designed to optimize the repayment process. We also
engage several third party collection service providers to assist us with payment collection from time to time. However, we may not
receive payments as expected on loans that we facilitate. Upon a borrower’s default, we will classify the defaulting borrowers into
different risk levels based on the type of loan products, outstanding amount, delinquent days and historical repayment pattern. The third
party collection agencies that we engaged will make phone calls, send text messages, and claim lawsuits to the defaulting borrower to
request repayment. In particular, the third party collection agencies that we engage may not possess adequate resource and manpower to
collect payment on and service the loans we facilitated.
If we are unable to provide a high-quality user experience, our reputation and business may be materially and adversely affected.
The success of our business largely depends on our ability to provide a high-quality user experience, which in turn depends on
factors such as: (i) our ability to estimate future borrowing requests from our users, (ii) our ability to continue to offer products and
services at competitive service fee rates, (iii) our ability to provide a reliable and user-friendly mobile application user interface for users
and our ability to further improve and streamline our online loan application and approval process. As of December 31, 2024, most of the
transactions were completed through our mobile application. If users are not satisfied with our level of service when we failed to provide
sufficient loans to our users, or if our system is severely interrupted or otherwise fails to meet user requests, for example, the users have
to wait for days to receive their loan application results or our mobile app is constantly disrupted due to system failure and breakdown,
our reputation could be adversely affected and we could fail to maintain user loyalty.
Our ability to provide high-quality user experience also depends on the quality of the products and services provided by our business
partners over which we have limited or no control. In the event that a user is dissatisfied with the quality of the products and services
provided by our business partners, we do not have any means to directly make improvements in response to user complaints, and our
business, reputation, financial performance and prospects could be materially and adversely affected.
In addition, we depend on our user service hotline and WeChat online user service center to provide certain services to our users. If
our user service representatives fail to provide satisfactory service, or if waiting time is too long due to the high volume of calls from
borrowers at peak times, our brands and user loyalty may be adversely affected. In addition, any negative publicity or poor feedback
regarding our user service may harm our brands and reputation and in turn cause us to lose users and market share. As a result, if we are
unable to continue to maintain or enhance our user experience and provide a high quality user service, we may not be able to retain users
or attract prospective users, which could have a material adverse effect on our business, financial condition and results of operations.
Failure to manage our liquidity and cash flows may materially and adversely affect our financial condition and results of
operations.
We had positive cash flow from operating activities of RMB626.8 million, RMB1,391.4 million and RMB1,523.4 million
(US$208.7 million) in 2022, 2023 and 2024, respectively. We cannot guarantee that we will not have negative cash flows in the future.
We collect service fees on a monthly basis and interest on a monthly basis from borrowers. Inability to collect payments from users,
borrowers in particular, in a timely and sufficient manner may adversely affect our liquidity, financial condition and results of operations.
We may need additional capital to accomplish business objectives, pursue business opportunities, and respond to challenges or
unforeseen circumstances, and financing may not be available on terms acceptable to us, or at all.
Historically, we have issued equity securities to support the growth of our business. As we intend to continue to make investments to
support the growth of our business, we may require additional capital to accomplish our business objectives and pursue business
opportunities, and respond to challenges or unforeseen circumstances, including developing new products and services, further
enhancing our risk management capabilities, increasing our marketing expenditures to improve brand awareness and enhancing our
operating infrastructure. Accordingly, we may need to engage in equity or debt financings to secure additional funds. However,
additional funds may not be available when we need them, on terms acceptable to us, or at all. In the event that we obtain debt financing,
repayment of debt may divert a substantial portion of cash flow, which would reduce funds available for expenses and payment pursuant
to other general corporate purposes.
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Volatility in the credit markets may also have an adverse effect on our ability to obtain debt financing. If we raise additional funds
through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new
equity securities we issue could have rights, preferences and privileges superior to those of holders our ordinary shares. If we are unable
to obtain adequate financing or financing on terms satisfactory to us when it is needed, our ability to continue to accomplish our business
objectives and pursue business opportunities, and respond to challenges or unforeseen circumstances could be significantly limited, and
our business, operating results, financial condition and prospects could be adversely affected.
Our marketing efforts are critical to our performance and future growth, and if we are unable to promote and maintain our
brands in an effective and cost-efficient way, our business and financial results may be harmed.
We believe that developing and maintaining awareness of our brand effectively is critical to attract borrowers and institutional
funding partners. This depends largely on the effectiveness of our marketing efforts and the success of the channels we use to promote
our platform. If any of our current marketing channels become less effective, if we are unable to continue to use any of these channels, if
the cost of using these channels were to significantly increase or if we are not successful in generating new channels, we may not be able
to attract new borrowers and institutional funding partners in a cost-effective manner or convert potential borrowers and institutional
funding partners into active borrowers and institutional funding partners on our platform.
Our efforts to build our brands may cause us to incur significant expenses. These efforts may not result in increased revenue in the
immediate future. Even if they do, any increases in revenue may not offset the expenses incurred. If we fail to successfully promote and
maintain our brands while incurring substantial expenses, our results of operations and financial condition would be adversely affected,
which may impair our ability to grow our business.
Undetected errors or significant disruption in our IT system, including events beyond our control, could prevent us from offering
our products and services, thereby reducing the attractiveness of our products and services and resulting in a loss of borrowers.
Our business and internal systems rely on software and processes that are highly technical and complex. In addition, our business
depends on the abilities of these software and processes to store, retrieve, process and manage large amounts of data. The software and
processes on which we rely have contained, and may now or in the future contain, errors or bugs. Some errors may only be discovered
after the code has been released for external or internal use.
In addition, in the event of a system outage and physical data loss, our ability to provide products and services would be materially
and adversely affected. The reliability, availability and satisfactory performance of our technology and our underlying network
infrastructure are critical to our operations, user service, reputation and our ability to attract new and retain existing borrowers and
institutional funding partners. Our information technology systems infrastructure is currently deployed and our data is currently
maintained on customized computing services in Chinese Mainland. Our operations depend on the service provider’s ability to protect its
and our systems in its facilities against damage or interruption from natural disasters, power or telecommunications failures, air quality
issues, environmental conditions, computer viruses or hackers’ attempts to harm our systems, criminal acts and other similar events.
Moreover, if our arrangement with this service provider is terminated or if there is a lapse of service or damage to their facilities, we
could experience interruptions in our service as well as delays and additional expense in providing products and services to our
borrowers and institutional funding partners.
Any interruptions or delays in our service, whether as a result of third party error, our error, natural disasters or security breaches,
whether willful or not, could harm our reputation and our relationships with borrowers and institutional funding partners. Additionally, in
the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. We also
may not have sufficient capacity to recover all data and services in the event of an outage. These factors could prevent us from
processing loan applications and other business operations, damage our brand name and reputation, divert our employees’ attention,
reduce our revenue, subject us to liability and discourage users from using our products and services, any of which could adversely affect
our business, financial condition and results of operations.
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Misconduct, errors and failure to function by our employees and parties we collaborate with could harm our business
and reputation.
We are exposed to the risk of misconduct and errors by our employees and parties that we collaborate with. Our business depends on
our employees and/or business partners to interact with users, process large numbers of transactions and support the loan collection
process. We could be materially and adversely affected if the transactions were redirected, misappropriated or otherwise improperly
executed, if personal information was disclosed to unintended recipients or if an operational breakdown or failure in the processing of
transactions occurred, whether as a result of human error, purposeful sabotage or fraudulent manipulation of our operations or systems. It
is not always possible to identify and deter misconduct or errors by our employees and other business partners, and the precautions we
take to detect and prevent such activities may not be effective in controlling unknown or unmanageable risks or losses. If any of our
employees and other business partners misuse or misappropriate funds, commit fraud or other misconduct or fail to follow our rules and
procedures when interacting with our users we could be liable for damages and subject to regulatory actions and penalties. We could also
be perceived to have facilitated or participated in the illegal misappropriation of funds, documents or data, and therefore be subject to
civil or criminal liability. In addition, we have engaged certain third party service providers for loan collection services. Aggressive
practices or misconduct by any of our third party service providers in the course of collecting loans could damage our reputation.
Any of these occurrences could result in our diminished ability to operate our business, potential liability to users inability to attract
users reputational damage, regulatory intervention and financial harm, which could negatively impact our business, financial condition
and results of operations.
If we are unable to protect the confidential information of our users and adapt to the relevant regulatory framework regarding
protection of such information, our business and operations may be adversely affected.
We have access to, store and process certain personal information and other sensitive data from our users and our business partners,
which makes us an attractive target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins or
similar disruptions. We have taken steps to protect confidential information that we have access to, and while we have been targeted
previously from cybersecurity attacks, none of which were successful or had a material adverse impact to our operations historically.
However, because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not
recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures. Any accidental or willful security breaches or other unauthorized access to our system could cause confidential
user information to be stolen and be used for criminal purposes.
We also face indirect technology, cybersecurity and operational risk relating to the third parties upon whom we rely to facilitate or
enable our business activities, including, among others, third party online payment service providers who manage accounts for funds.
Any cyber-attack, computer viruses, physical or electronic break-ins or similar disruptions of such third party payment service providers
could, among other things, adversely affect our ability to serve our users.
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Security breaches or unauthorized access to confidential information could expose us to liability related to the loss of information,
time-consuming and expensive litigation and negative publicity. If security measures are breached because of third party action,
employee error, malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, our relationships
with users could be severely damaged, we could incur significant liability and our business and operations could be adversely affected. In
addition, Chinese Mainland government authorities have enacted a series of laws and regulations in regard of the protection of personal
information, under which internet service providers and other network operators are required to comply with the principles of legality,
justification and necessity, to clearly indicate the purposes, methods and scope of any information collection and usage, and to obtain the
consent of users, as well as to establish a user information protection system with appropriate remedial measures. We have obtained
consent from our users to use their personal information within the scope of authorization and we have taken technical measures to
ensure the security of such personal information and to prevent any loss or divergence of personal information from. However, there is
uncertainty as to the interpretation and application of such laws. On August 20, 2021, the Standing Committee of the National People’s
Congress promulgated the Personal Information Protection Law of the PRC, or the Personal Information Protection Law, which took
effect on November 1, 2021. As the first systematic and comprehensive law specifically for the protection of personal information in the
Chinese Mainland, the Personal Information Protection Law provides, among others, that (i) an individual’s consent shall be obtained to
use sensitive personal information, (ii) personal information operators using sensitive personal information shall notify individuals of the
necessity of such use and impact on the individual’s rights, and (iii) where it is necessary for personal information to be provided by a
personal information processor to a recipient outside the territory of the Chinese Mainland due to any business need or any other need, a
security assessment organized by the national cyberspace authority shall be passed. If such laws or regulations are to be interpreted and
applied in a manner inconsistent with our current policies and practices, changes to the features of our system may be required and
additional costs incurred. We cannot assure you that our existing user information protection system and technical measures will be
considered sufficient under applicable laws and regulations. If we are unable to address any information protection concerns, or to
comply with the then applicable laws and regulations, we may incur additional costs and liability and our reputation, business and
operations might be adversely affected. See “Item 4. Information on the Company—4.B. Business Overview—Regulation—Regulations
on Internet Information Security” for details. On June 1, 2017, the Cybersecurity Law of the PRC became effective. The law requires
network products and services providers as we are, among other things, to strictly preserve the secrecy of user information they collect
and to store within Chinese Mainland data that is gathered or produced by such network products and services provider in the country. If
we are deemed to have violated the law, potential penalties include, depending on the nature of violation, regulatory warning, correction
order, forced shut down of our websites, suspension of operation revocation of business licenses, confiscation of illegal gains, and fines
imposed on the company ranging from approximately RMB10,000 to RMB1 million or management personnel ranging from
approximately RMB5,000 to RMB1 million. On June 10, 2021, the Standing Committee of the National People’s Congress promulgated
the Data Security Law of PRC, or Data Security Law, which took effect on September 1, 2021. The Data Security Law imposes data
security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and
hierarchical protection system. The Data Security Law also provides that the state shall establish a data security review system, where
data handling activities that affect or may affect the national security will undergo national security review, and shall implement export
controls on certain data. On July 7, 2022, the CAC published the Outbound Data Transfer Security Assessment Measures that took effect
on September 1, 2022 and outline the potential security assessment process for outbound data transfer. Under the Outbound Data
Transfer Security Assessment Measures, data processors that provide important data and personal information outbound that are
collected or produced through operations within the territory of Chinese Mainland, where a security assessment shall be conducted
according to the law, shall apply to the provisions of these Measures. Under the Outbound Data Transfer Security Assessment Measures,
data processors providing outbound data shall apply for outbound data transfer security assessment with the CAC in any of the following
circumstances: (i) where a data processor provides important data abroad; (ii) where a critical information infrastructure operator or a
data processor processing the personal information of more than one million individuals provides personal information abroad; (iii)
where a data processor has provided personal information of 100,000 individuals or sensitive personal information of 10,000 individuals
in total abroad since January 1 of the previous year; and (iv) other circumstances prescribed by the CAC for which declaration for
security assessment for outbound data transfers is required. The Outbound Data Transfer Security Assessment Measures also provide
procedures for security assessment and submissions, important factors to be considered in conducting assessment, and legal liabilities of
a data processor for failure to apply for assessment. On February 24, 2023, the CAC published the Measures for the Standard Contract
for Outbound Transfer of Personal Information (the “ Measures for the Standard Contract “) and its annexes of Standard Contract for
Outbound Transfer of Personal Information (the “Standard Contract”) that took effect on June 1, 2023, and outlined that the domestic
personal information processor and the overseas recipient must sign and perform in strict accordance with the terms provided by the
CAC, who is the only one to be authorized to amend and modify the Standard Contract and enterprises must not make additional
agreements or any other forms of documents that are in conflict with the terms of the Standard Contract that has been established. Under
the Measures for the Standard Contract, personal information processors are required to file a recordal of the Standard Contract with the
provincial level of cyberspace administration where they are located, within 10 working days from the effective date of the Standard
Contract. According to Measures for the Standard Contract, any personal information processor transferring personal information
overseas by entering into the Standard Contract shall meet all of the following conditions: (i) it is not a critical information infrastructure
operator; (ii) it processes the personal information of less than 1 million individuals; (iii) it has cumulatively transferred abroad the
personal information of less than 100,000 individuals since January 1 of the previous year; and (iv) it has cumulatively transferred abroad
the sensitive personal information of less than 10,000 individuals since January 1 of the previous year. The Measures for the Standard
Contract also provides submitting materials, supplementation or re-filing, grace period, and legal liabilities for breach of the Measures
for the Standard Contract.
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Due to the relatively new nature of the Cybersecurity Law of the PRC, Data Security Law, Outbound Data Transfer Security
Assessment Measures, and Measures for the Standard Contract as well as the lack of clarification in the statutory law itself as to the
circumstances and standard under which the law should apply and violations be found, there are great uncertainties as to the
interpretation and application of the law. The law’s vagueness in its own statutory language also indicates that the CAC, the designated
government enforcement agency, will have broad latitude to direct how the law is interpreted and enforced, thus creating greater
uncertainties with regard to the interpretation and application of the law since the government enforcement agency has yet to provide
further guidance on the enforcement mechanism of the law. If we are found to have violated the Cybersecurity Law of the PRC, Data
Security Law, Outbound Data Transfer Security Assessment Measures, and Measures for the Standard Contract in a government
enforcement action, we may face severe penalties that may result in monetary losses, losses of access to assets essential for daily
operation of our business or for the continuance of service provision, and temporary or total disruption of our business for an extended
period of time. In addition, the finding of a violation of the Cybersecurity Law of the PRC, Data Security Law, Outbound Data Transfer
Security Assessment Measures, and Measures for the Standard Contract, even if later repealed, may cause damages to our reputation and
our brand name, causing users to lose confidence in our service and to refrain from choosing or continuing to use our products and
services. All of these consequences may have a material adverse impact on our business, financial condition and results of operations.
Furthermore, the stringent reporting obligation imposed by the Cybersecurity Law of the PRC, Data Security Law and Outbound
Data Transfer Security Assessment Measures, without a finding of violation, may have a material adverse impact on our business and
results of operations. As we are obligated by the laws to inform our users of any security flaw or vulnerability as they are discovered,
users may become wary of the existence or frequency of such reports and lose confidence in the security of our system, thus discouraged
from choosing or continuing to use our products and services, even though the security flaws or vulnerabilities are readily fixed and
overcome.
If we fail to implement and maintain an effective system of internal controls over financial reporting, we may be unable to
accurately report our results of operations, meet our reporting obligations or prevent fraud.
We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley
Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal control over
financial reporting in its annual report, which contains management’s assessment of the effectiveness of our internal control over
financial reporting. As we are no longer an emerging growth company, we are subject to the requirement that an independent registered
public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting.
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 (as defined in Rule 13a-15I under the Exchange Act) and internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) as of the end of the period covered by this annual report, as
required by Rule 13a-15(b) through (c) under the Exchange Act. Based upon that evaluation, we determined that the material weaknesses
previously identified in our internal control over financial reporting, related to a lack of sufficient U.S. GAAP knowledge regarding
consolidated statements of cash flows classification and consolidated financial statements presentation, had been fully remediated. In
2024, we addressed the material weakness by implementing targeted U.S. GAAP training for financial reporting personnel and by
enhancing our financial statement review process. As a result of these measures and our assessment of their effectiveness, our
management has concluded that our internal control over financial reporting was effective as of December 31, 2024. Our independent
registered public accounting firm, KPMG Huazhen LLP, also attested and reported our internal control over financial reporting. See the
attestation report on page F-2 issued by our independent registered public accounting firm for further details.
However, if we fail to maintain effective internal control over financial reporting in the future, we could suffer material
misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose
confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations,
and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us
to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list,
regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.
In addition, our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no
matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be
met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
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We may not be able to prevent unauthorized use of our intellectual property, which could harm our business and competitive
position.
We regard our trademarks, domain names, copyrights, know-how, proprietary technologies and similar intellectual properties as
critical factors to our success, and we rely on trademark and trade secret law, confidentiality agreement, invention assignment and non-
compete agreements with our employees and others to protect our proprietary rights. See “Item 4. Information on the Company—4.B.
Business Overview—Intellectual Property” and ”Item 4. Information on the Company—4.B. Business Overview—Regulation—
Regulations Related to Intellectual Property.” However, we cannot assure you that any of our intellectual property rights would not be
challenged, invalidated, circumvented or misappropriated, or that such intellectual property will be sufficient to provide us with
competitive advantages. Because of the rapid pace of technological development, we cannot assure you that all of our proprietary
technologies and similar intellectual property will be patented in a timely or cost-effective manner, or at all. Furthermore, parts of our
business rely on technologies developed or licensed by other parties, or co-developed with other parties, and we may not be able to
obtain or continue to obtain licenses and technologies from these other parties on reasonable terms, or at all.
It is often difficult to register, maintain and enforce intellectual property rights in Chinese Mainland. Statutory laws and regulations
are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory
interpretation. Confidentiality agreement, invention assignment and non-compete agreements may be breached by counterparties, and
there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our
intellectual property rights or to enforce our contractual rights in Chinese Mainland. Preventing any unauthorized use of our intellectual
property is difficult and costly and the steps we take may be inadequate to prevent the misappropriation of our intellectual property. In
the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial litigation costs
and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In
addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. To the
extent that our employees or consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights
in related know-how and inventions. Any failure in protecting or enforcing our intellectual property rights could have a material adverse
effect on our business, financial condition and results of operations.
We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business
and operations.
We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate
trademarks, copyrights, know-how, proprietary technologies or other intellectual property rights held by other parties. We may
unknowingly infringe on other parties’ trademarks, copyrights, know-how, proprietary technologies or other intellectual property rights
through our products and services or other aspects of our business. As a result, we may be subject to legal proceedings and claims
relating to the intellectual property rights of others from time to time in the future. Holders of such intellectual property rights may seek
to enforce such intellectual property rights against us in Chinese Mainland, the United States or other jurisdictions. If any infringement
claims are brought against us, we may be forced to divert management’s time and other resources from our business and operations to
defend against these claims, regardless of their merits.
Additionally, the interpretation and application of Chinese Mainland’s intellectual property right laws and the procedures and
standards for protecting trademarks, copyrights, knowhow, proprietary technologies or other intellectual property rights in Chinese
Mainland are uncertain and still evolving, and we cannot assure you that Chinese Mainland courts or regulatory authorities would agree
with our analysis. If we were found to have violated the intellectual property rights of others, we may be subject to liability for our
infringement or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop
alternatives of our own. As a result, our business and results of operations may be materially and adversely affected.
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We may be subject to risks related to litigation and regulatory proceedings.
We may be, and in some instances have been, subject to claims, lawsuits (including class actions and individual lawsuits), regulatory
and government investigations, and other proceedings relating to intellectual property, consumer protection, privacy, labor and
employment, import and export practices, competition, securities, tax, marketing and communications practices, contracts, commercial
disputes and various other matters. We may also be subject to claims or lawsuits for infringement or violation of third party intellectual
property rights. The number and significance of our legal disputes and inquiries have increased as we have grown larger, as our business
has expanded in scope and geographic reach, and as our services have increased in complexity.
Moreover, having become a public company has raised our public profile, which may result in increased litigation as well as
increased public awareness of any such litigation. In addition, we may be target of securities class action and derivative lawsuits. We will
need to defend against such lawsuits, including any appeals, and we may also initiate legal proceedings to protect our rights and interests.
There is substantial uncertainty regarding the scope and application of many of the laws and regulations to which we are subject, which
increases the risk that we will be subject to claims alleging violations of those laws and regulations. There can be no assurance that we
will prevail in any such cases, and any adverse outcome of these cases could have a material adverse effect on our reputation, business
and results of operations.
Regardless of the outcome of any particular claim, lawsuit, investigation, dispute or proceeding, any of these types of legal
proceedings can have a material and adverse impact on us due to their costs, diversion of our resources, and other factors. We may decide
to settle legal disputes on terms that are unfavorable to us. Furthermore, if any litigation to which we are a party is resolved adversely, we
may be subject to an unfavorable judgment that we may not choose to appeal or that may not be reversed upon appeal. In addition, the
terms of any settlement or judgment in connection with any legal claims, lawsuits, or proceedings may require us to cease some or all of
our operations, or pay substantial amounts to the other party and could materially and adversely affect our business, financial condition
and results of operations.
Any failure by us, or institutional funding partners or payment service providers to comply with applicable anti-money
laundering and anti-terrorist financing laws and regulations could damage our reputation, expose us to significant penalties, and
decrease our revenues and profitability.
On September 29, 2018, the PBOC, the CBIRC and CSRC jointly promulgated the Administrative Measures for the Anti-money
Laundering and Anti-terrorist Finance of Internet Finance Service Agencies (for Trial Implementation), which further specified that, any
Internet finance institutions incorporated upon approval or upon record-filing by applicable regulatory authority, shall report any forms of
cash receipts and payments whose transaction value reaches or exceeds RMB50,000 or foreign currency equivalent of US$10,000 on a
per-transaction or cumulative basis on a given day, within five working days from the date when such transaction takes place. On August
1, 2021, the PBOC promulgated the Measures for the Supervision and Administration of Anti-money Laundering and Counter-terrorism
Financing of Financial Institutions, requiring financial institutions, including non-bank payment institutions and online micro-loan
companies, to effectively perform the obligations for anti-money laundering and counter-terrorism financing. The said obligations
include establishing and improving the internal control system for anti-money laundering and counter-terrorism financing, assessing
money laundering and counter-terrorism financing risks, establishing a risk management mechanism compatible with their risk status and
business scale, establishing an anti-money laundering information system and setting up or designating a department equipped with
corresponding personnel.
We have adopted and implemented various policies and procedures including internal controls and “know-your-customer”
procedures, for preventing money laundering and terrorist financing. In addition, we rely on our institutional funding partners and
payment service providers to have their own appropriate anti-money laundering policies and procedures. Our institutional funding
partners may be subject to anti-money laundering obligations under applicable anti-money laundering laws and regulations and are
regulated in that respect by the PBOC. We have adopted commercially reasonable procedures for monitoring our institutional funding
partners and payment processors.
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As of December 31, 2024, we have not been subject to fines or other penalties, or suffered business or other reputational harm, as a
result of actual or alleged money laundering or terrorist financing activities in the past. However, our policies and procedures may not be
completely effective in preventing other parties from using us, any of our institutional funding partners, or payment service providers as a
conduit for money laundering (including illegal cash operations) or terrorist financing without our knowledge. If we were to be
associated with money laundering (including illegal cash operations) or terrorist financing activities, our reputation could suffer and we
could become subject to regulatory fines, sanctions, or legal enforcement, including being added to any “blacklists” that would prohibit
certain parties from engaging in transactions with us, all of which could have a material adverse effect on our financial condition and
results of operations. Even if we, our institutional funding partners and payment service providers comply with the applicable anti-money
laundering laws and regulations, we, our institutional funding partners and payment service providers may not be able to fully eliminate
money laundering and other illegal or improper activities in light of the complexity and the secrecy of these activities. Any negative
perception of the industry, such as that which might arise from any failure of other online consumer finance platforms to detect or
prevent money laundering activities, even if factually incorrect or based on isolated incidents, could tarnish our image, undermine the
trust and credibility we have established, and negatively impact our financial condition and results of operations.
We cannot assure you that the anti-money laundering policies and procedures we have adopted will be deemed to be in compliance
with applicable anti-money laundering implementation rules if and when adopted.
From time to time we may evaluate and potentially consummate strategic investments, acquisitions or international expansion,
which could require significant management attention, disrupt our business and adversely affect our financial results.
We may evaluate and consider strategic investments, combinations, acquisitions or alliances with other businesses or international
expansion to further better serve borrowers and enhance our competitive position. These transactions could have a material impact on our
financial condition and results of operations if consummated. Even if we are able to identify an appropriate business opportunity, we may
not be able to successfully consummate the transaction and, even if we do consummate such a transaction, we may be unable to obtain
the benefits or avoid the difficulties and risks of such transaction, which may result in investment losses. In addition, we made certain
investments through nominee arrangements where we have appointed nominees as registered shareholders of certain investee companies,
as we currently do not qualify under certain regulatory financial requirements to be registered as a shareholder of such investee
companies. While we believe such investments and the nominee arrangements reflect the true intentions of us and the respective business
partners, and are therefore legal and valid under PRC Civil Code, we cannot assure you that the Chinese Mainland courts or other
regulators would hold the same view as ours, and such investments may not have the same effect as direct shareholding ownership in the
investee companies where our nominee shareholders may fail to perform their respective obligations under the nominee arrangements,
such as, among others, to vote on the shareholders’ meetings per our instructions, or to transfer all dividends obtained from such
companies to us on a timely manner.
Strategic investments, acquisitions or international expansion will involve risks commonly encountered in business relationships,
including:
●
difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the
acquired business;
●
inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or
other benefits including the failure to successfully further develop the acquired technology;
●
difficulties in retaining, training, motivating and integrating key personnel;
●
diversion of management’s time and resources from our normal daily operations and potential disruptions to our ongoing
businesses;
●
difficulties in maintaining uniform standards, controls, procedures and policies within the combined organizations;
●
difficulties in retaining relationships with our platform users, employees and other partners of the acquired business;
●
risks of entering markets in which we have limited or no prior experience;
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●
regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or
post-closing approvals, as well as being subject to new regulators with oversight over the acquired business;
●
assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual
property rights or increase our risk for liability;
●
liability for activities of the acquired business before the acquisition, including intellectual property infringement claims,
violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and
●
unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions.
We may not make any investments, acquisitions or international expansion, or, alternatively, any future investments, acquisitions or
international expansion may not be successful, may not benefit our business strategy, may not generate sufficient revenues to offset the
associated acquisition costs or may not otherwise result in the intended benefits.
Our business depends on the continued efforts of our senior management and key technology development personnel. If one or
more of our key executives or key technology development personnel were unable or unwilling to continue in their present
positions, our business may be severely disrupted.
Our business operations depend on the continued services of our senior management and key technology development personnel. In
particular, Mr. Yue (Justin) Tang, our founder, Chairman and Chief Executive Officer, Mr. Kan (Kent) Li, our president, Mr. Frank Fuya
Zheng, our Chief Financial Officer and Mr. Yufan (Jason) Jiang, our Chief Risk Officer are critical to the management of our business
and operations and the development of our strategic direction. While we have provided different incentives to our management and key
technology development personnel, we cannot assure you that we can continue to retain their services. If one or more of our key
executives or key technology development personnel were unable or unwilling to continue in their present positions, we may not be able
to replace them easily or at all, our future growth may be constrained, our business may be severely disrupted and our financial condition
and results of operations may be materially and adversely affected, and we may incur additional expenses to recruit, train and retain
qualified personnel. In addition, we have entered into confidentiality and non-competition agreements with our management, there is no
assurance that any member of our management team and technology development team will not join our competitors or form a
competing business. If any dispute arises between our current or former officers or key technology development personnel and us, we
may have to incur substantial costs and expenses in order to enforce such agreements in Chinese Mainland or we may be unable to
enforce them at all.
Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to
support our business.
We believe our success depends on the efforts and talent of our employees, primarily including technology development, financial
products, risk management, general management and sales and marketing. Our future success depends on our continued ability to attract,
develop, motivate and retain qualified and skilled employees. It is competitive to attract and retain skilled talent with expertise in
technology, risk management, and general management. We may not be able to hire and retain these personnel at compensation levels
consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced
employees have greater resources than we have and may be able to offer more attractive terms of employment.
In addition, we invest significant time and resources in the training of our employees, which increases their value to competitors who
may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements,
and the quality of our services and our ability to serve users could diminish, resulting in a material adverse effect to our business.
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If we grant employees stock options or other equity incentives in the future, our net income could be adversely affected.
We granted incentives and rewards to employees and executives under our share incentive plan. We are required to account for
share-based compensation in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718,
Compensation—Stock Compensation, which generally requires a company to recognize, as an expense, the fair value of stock options
and other equity incentives to employees based on the fair value of equity awards on the date of the grant, with the compensation
expense recognized over the period in which the recipient is required to provide service in exchange for the equity award. As of
December 31, 2024, holders of our outstanding options and other equity incentives were entitled to purchase a total of 17,378,784
ordinary shares. As a result, we incurred share-based compensation expense of RMB40.2 million (US$5.5 million) during the year ended
December 31, 2024. If we grant more options or other equity incentives in the future, we could incur significant compensation charges
and our results of operations could be adversely affected.
Increase in labor costs in the Chinese Mainland may adversely affect our business and results of operations.
In recent years, the Chinese Mainland’s economy has experienced labor costs increases. Average wages are projected to continue to
increase. Further, under Chinese Mainland law we are required to pay various statutory employee benefits, including pension, housing
fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government
agencies for the benefit of our employees. The relevant government agencies may examine whether an employer has made adequate
payments to the statutory employee benefits, and those employers who fail to make adequate payments may be subject to late payment
fees, fines and/or other penalties. We expect that our labor costs, including wages and employee benefits, will continue to increase. If we
are unable to control our labor costs or pass such increased labor costs on to our users by increasing the fees of our services, our financial
condition and results of operations may be adversely affected.
We do not have any business insurance coverage for our operations.
Insurance companies in Chinese Mainland currently do not offer as extensive an array of insurance products as insurance companies
in more developed economies. Currently, we do not have any business liability or disruption insurance to cover our operations. We have
determined that the costs of insuring these risks and the difficulties associated with acquiring such insurance on commercially reasonable
terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in substantial costs and the
diversion of resources, which could have an adverse effect on our results of operations and financial condition.
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We are subject to the risk of ongoing geopolitical tensions worldwide, a severe or prolonged downturn in the Chinese or global
economy and deterioration of credit profiles of borrowers, which may materially and adversely affect our business and financial
condition.
The global macroeconomic environment continues to face significant challenges, including the economic slowdown in the Eurozone
since 2014, the realized and evolving impacts of the United Kingdom’s exit from the European Union on January 31, 2020, and the long-
term impact on the global economies and financial markets as the COVID-19 outbreak evolved into a worldwide health crisis in 2020.
The growth of the Chinese Mainland economy has slowed down since 2012 compared to the previous decade and the trend may
continue. There is considerable uncertainty over the long-term effects of the monetary and fiscal policies adopted by the central banks
and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns
over unrest and terrorist threats in the Middle East, Europe and Africa and over the conflicts involving Ukraine, Syria and North Korea.
Recently, the Russia-Ukraine conflict has caused, and continues to intensify, significant geopolitical tensions in Europe and across the
world. There have also been concerns on the relationship among China and other Asian countries and the trade disputes between the
United States and China. The ongoing trade tensions between the United States and China may have tremendous negative impact on the
economies of not merely the two countries concerned, but the global economy as a whole. The U.S. government has made statements and
taken certain actions that may lead to potential changes to U.S. and international trade policies towards China. In April 2025, the U.S.
government further introduced a new series of tariff increases on Chinese imports. These measures are poised to significantly disrupt the
operations and financial viability of Chinese enterprises, intensifying the prevailing challenges and uncertainties within the global
economic landscape. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may
have on the global political and economic conditions in the long term. If economic conditions deteriorate, we may face increased risk of
default or delinquency of borrowers, which will result in lower returns or losses. In the event that the creditworthiness of our borrowers
deteriorates or we cannot track the deterioration of their creditworthiness, the criteria we use for the analysis of borrower credit profiles
may be rendered inaccurate, and our risk management system may be subsequently rendered ineffective. This in turn may lead to higher
default rates and adverse impacts on our reputation, business, results of operations and financial positions.
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Economic conditions in China are sensitive to global economic conditions, changes in domestic economic and political policies, and
the expected or perceived overall economic growth rate in China. While the economy in China has grown significantly over the past
decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been
slowing in recent years. Although growth of China’s economy remained relatively stable, there is a possibility that China’s economic
growth may materially decline in the near future. Any severe or prolonged slowdown in the global or Chinese Mainland economy may
materially and adversely affect our business, results of operations and financial condition. Moreover, the heightened geopolitical
uncertainty and potential for further escalation may discourage investments in securities issued by China-based issuers (including us) and
affect the global macroeconomic environment. For example, it has been reported that the U.S. administration may consider imposing
further restrictions or prohibitions on trading of Chinese securities. Although cross-border trade is not our principal business, any such
geopolitical developments could materially and adversely affect our overall financial performance and prices of our ADSs.
Separately, we may also be subject to review and enforcement under domestic and foreign laws that screen foreign investment and
acquisitions. In both the U.S. and non-U.S. jurisdictions, these regulatory requirements may treat companies differently based on the type
of company in question and investor profile in the company. As a result of these laws, investments by particular investors may need to be
filed with local regulators, which in turn may impose added costs on our business, impact our operations, and/or limit our ability to
engage in strategic transactions that might otherwise be beneficial to us and our investors. These laws are also regularly changed and
updated. For example, recently the Office of Investment Security of the U.S. Department of the Treasury issued a final rule (the
“Outbound Investment Rule”) to implement the Executive Order 14105, which provided for the establishment of a new national security
regulatory framework to control outbound investment from the United States in certain sensitive industry sectors in the People’s
Republic of China, including Hong Kong and Macau. The Outbound Investment Rule took effect in January 2025 and restricts U.S.
persons’ direct and indirect investment into companies with specified connections to China that engage in specified “Covered Activities”
within three areas of technology: semiconductors and microelectronics, quantum information technologies, and artificial intelligence
systems. Notably, President Trump issued a presidential memorandum entitled “America First Trade Policy” on January 20, 2025, which
proposes to further expand the set of technologies of concern. These rules may limit our ability to engage in certain kinds of business
operations; they may also limit our ability to raise capital from U.S. and other sources if we engage in the development of such
technologies of concern. Continuing changes in both U.S. and non-U.S. jurisdictions to foreign investment laws and rules could
adversely affect our strategic initiatives, financial performance, and growth prospects .
The offering of our products and services depends on effective use of mobile operating systems and distribution through mobile
application stores, which we do not control.
We facilitate most of loans through our mobile applications. We may need to devote significant resources to support and maintain of
such applications. The mobile applications are dependent on the interoperability of popular mobile operating systems that we do not
control, such as Android and iOS. Any changes in such systems that degrade the accessibility of our mobile applications or give
preferential treatment to competing products and services could adversely affect the usability of our mobile applications. In addition, we
rely upon third party mobile application stores for users to download our mobile applications. As such, the distribution, operation and
maintenance of our mobile applications are subject to application stores’ standard terms and policies for application developers.
Our future growth and results of operations could suffer if we experience difficulties in the future in offering our products and
services through our mobile applications, or if we face increased costs to distribute our mobile applications. If it becomes increasingly
difficult for our users to access and utilize our products and services on their mobile devices, or if the prevailing mobile operating
systems do not support our mobile applications, our business and financial condition and operating results may be adversely affected.
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Our operations depend on the performance of the Internet infrastructure and fixed telecommunications networks in Chinese
Mainland.
Almost all access to the Internet in Chinese Mainland is maintained through state-owned telecommunication operators under the
administrative control and regulatory supervision of the MIIT. We primarily rely on a limited number of telecommunication service
providers to provide it with data communications capacity through local telecommunications lines and Internet data centers to host its
servers. We may have limited access to alternative networks or services in the event of disruptions, failures or other problems with
Chinese Mainland’s Internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers.
With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with increasing traffic.
We cannot assure you that our cloud computing service provider and the underlying Internet infrastructure and the fixed
telecommunications networks in Chinese Mainland will be able to support the demand associated with the continued growth in Internet
usage. In addition, we have no control over the costs of the services provided by telecommunication service providers which in turn, may
affect our costs of using customized cloud computing services. If the prices we pay for customized cloud computing services rise
significantly, our results of operations may be adversely affected. Furthermore, if Internet access fees or other charges to Internet users
increase, our user traffic may decline and our business may be harmed.
Risks Relating to Our Corporate Structure
We do not have direct ownership of some of our operating entities in Chinese Mainland, but exercise control over the operating
activities that most impact the economic performance, bear the risks of, enjoys the rewards normally associated with ownership
of the entity, and consolidate the financial results of the VIEs in our consolidated financial statements in accordance with U.S.
GAAP through contractual arrangements with the VIEs and its shareholders, which may not be effective in providing control
over our operating entities.
We do not have direct ownership of some of our operating entities in Chinese Mainland, but through contractual arrangements (the
“VIE Agreements”), we exercise control over the operating activities that most impact the economic performance, bears the risks of, and
enjoys the rewards normally associated with ownership of the entity. As a result, through such contractual arrangements with the VIEs
and their shareholders, we are the primary beneficiary of the VIEs, and, therefore, consolidate the financial results of the VIEs in our
consolidated financial statements in accordance with U.S. GAAP. A substantial portion of our current revenue is derived from these VIEs
in Chinese Mainland. To comply with Chinese Mainland laws and regulations, we do not have an equity ownership interest in our VIEs
but rely on the VIE Agreements with VIEs to control and operate their businesses. However, as discussed below, these VIE Agreements
may not be effective from Chinese Mainland laws in providing us with the necessary control over VIEs and their operations. Any
deficiency in these VIE Agreements may result in our loss of control over the management and operations of VIEs, which will result in a
significant loss in the value of an investment in the Company. Because of the practical restrictions on direct foreign equity ownership
imposed by the Chinese Mainland government authorities, we must rely on contractual rights through our VIE structure to effect control
over and management of VIEs, which exposes us to the risk of potential breach of contract by the shareholders of VIEs. For further
description about our VIE Agreements, please see “4.C. Organizational Structure - Contractual Arrangements with Consolidated VIEs
and Their Shareholders (“VIE Agreements”).”
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Because we are an offshore holding company and our business is conducted through the VIE Agreements with our VIEs in
Chinese Mainland, if the Chinese Mainland government deems that the contractual arrangements in relation to our consolidated
VIEs do not comply with Chinese Mainland 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 an offshore holding company incorporated in the Cayman Islands. As a holding company with no material operations, our
operations were conducted in Chinese Mainland by our subsidiaries and through the VIE Agreements with our VIEs in Chinese
Mainland, the equity of which is owned by Xiaoying (Beijing) Information Technology Group Co., Ltd., or Beijing WFOE, through the
VIE Agreements, as a result of which, under United States generally accepted accounting principles, the assets and liabilities of the VIEs
are treated as our assets and liabilities and the results of operations of VIEs are treated in all respects as if they were the results of our
operations. The Chinese Mainland government regulates telecommunications-related businesses through strict business licensing
requirements and other government regulations. These laws and regulations also include limitations on foreign ownership of Chinese
Mainland companies that engage in telecommunications-related businesses. Specifically, foreign investors are not allowed to own more
than 50% equity interest in any Chinese Mainland company engaging in value-added telecommunications businesses (except for e-
commerce, domestic multi-party communication, store-and-forward and call center services). The primary foreign investor must also
have operating experience and a good track record in providing value-added telecommunications services, or VATS, overseas. On March
29, 2022, the Decision of the State Council on Revising and Repealing Certain Administrative Regulations, which took effect on May 1,
2022, was promulgated to amend certain provisions of regulations including the Provisions on the Administration of Foreign-Invested
Telecommunications Enterprises (2016 Revision), the requirement for major foreign investor to demonstrate a good track record and
experience in operating value-added telecommunications businesses is deleted.
Because we are an exempted company incorporated with limited liability in the Cayman Islands, we are classified as a foreign
enterprise under Chinese Mainland laws and regulations, and our wholly-owned Chinese Mainland subsidiary, Xiaoying (Beijing)
Information Technology Group Co., Ltd., or Beijing WFOE, is a foreign-invested enterprise, or an FIE. To comply with the current
Chinese Mainland laws and regulations, we conduct our business in Chinese Mainland through our certain consolidated VIEs and their
affiliates. Beijing WFOE has entered into a series of contractual arrangements with our consolidated VIEs and their shareholders. For a
description of these contractual arrangements, see “Item 4. Information on the Company—4.C. Organizational Structure—Contractual
Arrangements with Consolidated VIEs and their Shareholders (“VIE Agreements”).” As certain shareholder of the VIEs has changed his
nationality, our consolidated VIEs may be deemed as foreign-invested telecommunications enterprises. Therefore, we are required to
reapply for the ICP licenses as foreign-invested telecommunications enterprises. However, we cannot assure you that we will be able to
complete such procedure in a timely manner, or even at all. In addition, we cannot assure you that we will be able to comply with these
laws and regulations in all respects. We may also be subject to fines, legal or administrative sanctions and other adverse consequences,
and may not be able to become in compliance with relevant laws and regulations in a timely manner, or at all. These may materially and
adversely affect its business, financial condition, results of operations and reputation.
The Guideline No.2 on the Application of Regulatory Rules on Overseas Securities Offerings and Listings, or the Guideline No.2, as
one of the supporting guidelines for the Trial Measures, provides that the filing documents submitted to the CSRC shall specify, among
other things: (i) whether the issuer’s business, licenses or qualifications are not allowed to be controlled by way of contractual
arrangements by Chinese Mainland laws, administrative regulations or relevant provisions; (ii) whether the domestic operating entities
controlled by way of contractual arrangements are subject to any restricted or prohibited industries for foreign investments. The officials
from the CSRC clarified at the press conference held for the Trial Measures on February 17, 2023 that, the CSRC will solicit opinions
from relevant regulatory authorities and complete the filing of the overseas listing of companies with VIE structure which duly meet the
compliance requirements. Uncertainty still remains on how such rules will be interpreted and implemented, including the Regulations on
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, the Trial Measures, and the
Telecommunications Regulations and the relevant regulatory measures concerning the telecommunications industry, there can be no
assurance that how the Chinese Mainland government authorities, such as the Ministry of Commerce, or the MOFCOM, the MIIT, the
CSRC or other authorities that regulate online consumer finance platforms and other participants in the telecommunications industry,
would ultimately take a view of our corporate structure or any of the above contractual arrangements, with existing policies or with
requirements or policies that may be adopted in the future. Chinese Mainland laws and regulations governing the validity of these
contractual arrangements are uncertain and the relevant government authorities have broad discretion in interpreting these laws and
regulations.
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If our corporate structure and contractual arrangements are deemed by the MIIT or the MOFCOM or other regulators having
competent authority to be illegal, either in whole or in part, we may lose control of our consolidated VIEs and may have to modify such
structure to comply with regulatory requirements. However, there can be no assurance that we can achieve this without material
disruption to our business. Further, if our corporate structure and contractual arrangements are found to be in violation of any existing or
future Chinese Mainland laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such
violations, including:
●
revoking our business and operating licenses;
●
levying fines on us;
●
confiscating any of our income that they deem to be obtained through illegal operations;
●
shutting down our services;
●
discontinuing or restricting our operations in Chinese Mainland;
●
imposing conditions or requirements with which we may not be able to comply;
●
requiring us to change our corporate structure and contractual arrangements;
●
restricting or prohibiting our use of the proceeds from overseas offerings to finance our Chinese Mainland consolidated VIEs’
business and operations;
●
requiring us to delist from the NYSE; and
●
taking other regulatory or enforcement actions that could be harmful to our business.
Furthermore, new Chinese Mainland laws, rules and regulations may be introduced to impose additional requirements that may be
applicable to our corporate structure and contractual arrangements. Occurrence of any of these events could materially and adversely
affect our business and financial condition and results of operations. In addition, if the imposition of any of these penalties or
requirements to restructure our corporate structure causes us to lose the right to direct the activities of our consolidated VIEs or our right
to receive their economic benefits, we would no longer be able to consolidate the financial results of such VIEs in our consolidated
financial statements. If our corporate structure and contractual arrangements are deemed to be illegal by relevant regulators, our business
and results of operations would be materially and adversely affected and the price of our ADSs may decline. However, we do not believe
that such actions would result in the liquidation or dissolution of the Company, our wholly-owned subsidiaries in Chinese Mainland or
our consolidated VIEs or their subsidiaries. See “Item 4. Information on the Company—4.C. Organizational Structure—Contractual
Arrangements with Consolidated VIEs and their Shareholders (“VIE Agreements”).”
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We do not hold equity interests in the VIEs. We rely on contractual arrangements with our consolidated VIEs and their
shareholders to operate our business, which may not be as effective as direct ownership in providing operational control and may
have potential conflicts of interests with us. If the Chinese Mainland government determines that the VIE Agreements do not
comply with Chinese Mainland regulations, or if these regulations change or are interpreted differently in the future, our ADSs
may decline in value or become worthless if the determinations, changes, or interpretations result in our inability to assert
contractual control over the assets of our VIEs that conduct all or substantially all of our operations.
We have equity interests in Beijing WFOE, Shenzhen Puhui, and Shenzhen Xiaoying IT, however, neither we nor our subsidiaries
own any equity interests in the VIEs. We control and receive the economic benefits of the VIEs’ business operation through the VIE
Agreements. To comply with Chinese Mainland laws and regulations, we do not have an equity ownership interest in our VIEs but rely
on the VIE Agreements with VIEs to control and operate our business. X Financial’s control over the VIEs and X Financial’s position of
being the primary beneficiary of the VIEs for the accounting purposes are limited to the conditions that X Financial met for consolidation
of the VIEs under U.S. GAAP. Such conditions include that (i) X Financial controls VIEs through power to govern the activities which
most significantly impact the VIEs’ economic performance, (ii) X Financial is contractually obligated to absorb losses of VIEs that could
potentially be significant to VIEs, and (iii) X Financial is entitled to receive benefits from VIEs that could potentially be significant to
VIEs. Only if X Financial meets the aforementioned conditions for consolidation of the VIEs under U.S. GAAP, X Financial will be
deemed as the primary beneficiary of the VIEs, and the VIEs will be treated as X Financial’s consolidated affiliated entities for
accounting purposes.
For a description of these contractual arrangements, see “Item 4. Information on the Company—4.C. Organizational Structure—
Contractual Arrangements with Consolidated VIEs and Their Shareholders (“VIE Agreements”).” A significant portion of our revenue is
attributed to our consolidated VIEs. These contractual arrangements may not be as effective as direct ownership in providing us with
control over our consolidated VIEs. If our consolidated VIEs or their shareholders fail to perform their respective obligations under these
contractual arrangements, our recourse to the assets held by our consolidated VIEs is indirect and we may have to incur substantial costs
and expend significant resources to enforce such arrangements in reliance on legal remedies under Chinese Mainland law. These
remedies may not always be effective, particularly in light of uncertainties in the Chinese Mainland legal system. Furthermore, in
connection with litigation, arbitration or other judicial or dispute resolution proceedings, assets under the name of any of the record
holders of equity interest in our consolidated VIEs, including such equity interest, may be put under court custody. The validity of the
VIE Agreements has not been tested in the Chinese Mainland jurisdiction. These VIE Agreements may not be enforceable in Chinese
Mainland if Chinese Mainland government authorities or courts take a view that such VIE Agreements contravene Chinese Mainland
laws and regulations or are otherwise not enforceable for public policy reasons. In the event we are unable to enforce these VIE
Agreements, we may not be able to exert effective control over the VIEs, and our ability to conduct our business may be materially and
adversely affected. As a consequence, our ADSs may decline in value or become worthless if the determinations, changes, or
interpretations result in our inability to assert contractual control over the assets of our VIEs that conduct all or substantially all of our
operations.
All of these contractual arrangements are governed by Chinese Mainland law and provide for the resolution of disputes through
arbitration in the Chinese Mainland. Accordingly, these contracts would be interpreted in accordance with Chinese Mainland laws and
any disputes would be resolved in accordance with Chinese Mainland legal procedures. And X Financial could face heightened risks and
substantial costs in enforcing these contractual arrangements, because, although contractual arrangements similar to the VIE Agreements
have been widely adopted by Chinese Mainland companies seeking for listing aboard, such arrangements have not been tested in any of
the Chinese Mainland courts and there remain significant uncertainties in this regard. The legal environment in the Chinese Mainland is
not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the Chinese Mainland legal system could
limit our ability to enforce these contractual arrangements. In the event that we are unable to enforce these contractual arrangements, or if
we suffer significant time delays or other obstacles in the process of enforcing these contractual arrangements, it would be very difficult
to exert effective control over our consolidated VIEs, and our ability to conduct our business and our financial condition and results of
operations may be materially and adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business
in Chinese Mainland—Uncertainties with respect to the Chinese Mainland legal system, including uncertainties regarding the
enforcement of laws, and sudden or unexpected changes in laws and regulations in Chinese Mainland could adversely affect us and limit
the legal protections available to you and us.”
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In connection with our operations in Chinese Mainland, we rely on the shareholders of our consolidated VIEs to fulfill by the
obligations under such contractual arrangements. The interests of these shareholders in their individual capacities as shareholders of our
consolidated VIEs may differ from the interests of the Company as a whole, as what is in the best interests of our consolidated VIEs,
including matters such as whether to distribute dividends or to make other distributions to fund our offshore requirement, may not be in
the best interests of the Company. There can be no assurance that when conflicts of interest arise, any or all of these individuals or
entities will act in the best interests of the Company or that those conflicts of interest will be resolved in our favor. In addition, these
individuals and entities may breach or cause our consolidated VIEs and their subsidiaries to breach or refuse to renew the existing
contractual arrangements with us.
Currently, we do not have arrangements that address potential conflicts of interest shareholders of our consolidated VIEs may
encounter due to their dual roles as shareholders of consolidated VIEs and as beneficial owners of the Company. However, we could, at
all times, exercise our option under the exclusive call option agreement to cause them to transfer all of their equity ownership in our
consolidated VIEs to a Chinese Mainland entity or individual designated by us as permitted by the then applicable Chinese Mainland
laws. In addition, if such conflicts of interest arise, we could also, in the capacity of attorney-in-fact of the then existing shareholders of
our consolidated VIEs as provided under the powers of attorney, directly appoint new directors of our consolidated VIEs. We rely on the
shareholders of our consolidated VIEs to comply with Chinese Mainland laws and regulations, which protect contracts, and to provide
that directors and executive officers owe a duty of loyalty to the Company and require them to avoid conflicts of interest and not to take
advantage of their positions for personal gains, and with the laws of the Cayman Islands, which provide that directors have a duty of care
and a duty of loyalty to act honestly in good faith with a view to our best interests. However, the legal frameworks of Chinese Mainland
and the Cayman Islands do not provide guidance on resolving conflicts in the event of a conflict with another corporate governance
regime. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of our consolidated VIEs, we would
have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the
outcome of any such legal proceedings.
Our corporate actions will be substantially controlled by Mr. Yue (Justin) Tang, who will have the ability to control or exert
significant influence over important corporate matters that require approval of shareholders, which may deprive you of an
opportunity to receive a premium for your ADSs and materially reduce the value of your investment.
Mr. Yue (Justin) Tang, our Chief Executive Officer, beneficially owns all of the Class B ordinary shares outstanding, representing
42.91% of our total outstanding share capital and 93.14% of our aggregate voting power as of March 31, 2025. As a result, he will have
the ability to control or exert significant influence over important corporate matters and investors may be prevented from influencing
important corporate matters involving the Company that require approval of shareholders, including:
●
the composition of our board of directors and, through the voting of the board of directors, any determinations with respect to
our operations, business direction and policies, including the appointment and removal of officers;
●
any determinations with respect to mergers or other business combinations;
●
our disposition of all or substantially all of our assets; and
●
any change in control.
These actions may be taken even if they are opposed by our other shareholders, including the holders of the ADSs. Furthermore, this
concentration of ownership may also discourage, delay or prevent a change in control of the Company, which could deprive our
shareholders of an opportunity to receive a premium for their shares as part of a sale of the Company and reducing the price of the ADSs.
As a result of the foregoing, the value of your investment could be materially reduced.
If the custodians or authorized users of our controlling nontangible assets, including chops and seals, fail to fulfill their
responsibilities, misappropriate or misuse these assets, our business and operations may be materially and adversely affected.
Under Chinese Mainland law, legal documents for corporate transactions, including agreements and contracts such as the leases and
sales contracts that our business relies on, are executed using the chop or seal of the signing entity or with the signature of a legal
representative whose designation is registered and filed with the relevant local branch of the SAIC. We generally execute legal
documents by affixing chops or seals, rather than having the designated legal representatives sign the documents.
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We have three major types of chops—corporate chops, contract chops and finance chops. We use corporate chops generally for
documents to be submitted to government agencies, such as applications for changing business scope, directors or company name, and
for legal letters. We use contract chops for executing leases and commercial contracts. We use finance chops generally for making and
collecting payments, including issuing invoices. Generally, all contracts are required to undergo review and obtain approval from our
legal department prior to being officially sealed and executed. Use of corporate chops and contract chops must be approved by our
administrative department, and use of finance chops must be approved by our finance department. The chops of our subsidiaries and
consolidated VIEs are generally held by the relevant entities so that documents can be executed locally. Although we usually utilize
chops to execute contracts, the registered legal representatives of our subsidiaries and consolidated VIEs have the apparent authority to
enter into contracts on behalf of such entities without chops, unless such contracts set forth otherwise.
In order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to the
designated key employees of our administrative or finance departments. Our designated legal representatives generally do not have
access to the chops. Although we have approval procedures in place and mechanisms to monitor our key employees, including the
designated legal representatives of our subsidiaries and consolidated VIEs, the procedures may not be sufficient to prevent all instances
of abuse or negligence. There is a risk that our key employees or designated legal representatives could abuse their authority, for
example, by binding our subsidiaries and consolidated VIEs with contracts against our interests, as we would be obligated to honor these
contracts if the other contracting party acts in good faith in reliance on the apparent authority of our chops or signatures of our legal
representatives. If any designated legal representative obtains misappropriates the chop in an effort to obtain control over the relevant
entity, we would need to have a shareholder or board resolution to designate a new legal representative and to take legal actions to seek
the return of the chop, apply for a new chop with the relevant authorities, or otherwise seek legal remedies for the legal representative’s
misconduct. If any of the designated legal representatives obtains, misuses or misappropriates our chops and seals or other controlling
intangible assets for whatever reason, we could experience disruption to our normal business operations. We may have to take corporate
or legal action, which could involve significant time and resources expenses while distracting management from our operations, and our
business and operations may be materially and adversely affected.
Our business may be significantly affected by the newly enacted PRC Foreign Investment Law, and its enactment may materially
and adversely affect our business and financial condition.
On March 15, 2019, the National People’s Congress promulgated the PRC Foreign Investment Law, which took effect on January 1,
2020 and replaced the existing laws regulating foreign investment in Chinese Mainland, namely, the PRC Equity Joint Venture Law, the
PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and
ancillary regulations. Meanwhile, the Regulations for the Implementation of the Foreign Investment Law, or the FIL Implementations,
came into effect on January 1, 2020, which clarified and elaborated the relevant provisions of the Foreign Investment Law.
Since the Foreign Investment Law and the FIL Implementations are newly enacted, there is still uncertainties in relation to its
interpretation and implementation. The PRC Foreign Investment Law has revised the definition of “foreign investment” and removed all
references to the definitions of “actual control” or “variable interest entity structure” under the 2015 Draft Foreign Investment Law.
Instead, the PRC Foreign Investment Law stipulates that foreign investment includes “foreign investors invest in China through other
methods under laws, administrative regulations, or provisions prescribed by the State Council “. Therefore, there are still possibilities
that future laws, administrative regulations or provisions of the State Council may deem contractual arrangements as a way of foreign
investment. There can be no assurance that our contractual arrangements will not be deemed to be in violation of the market access
requirements for foreign investment under the Chinese Mainland laws and regulations. Once an entity falls within the definition of
foreign investment entity, it may be subject to foreign investment “restrictions” or “prohibitions” set forth in a “negative list” to be
separately issued by the State Council later. If a foreign investment entity proposes to conduct business in an industry subject to foreign
investment “restrictions” in the “negative list,” it must go through a pre-approval process.
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The most updated negative list, issued on September 6, 2024 and became effective on November 1, 2024, stipulates that any Chinese
Mainland domestic enterprise engaging in the fields prohibited by the negative list shall obtain the consent of the relevant competent
Chinese Mainland authorities for overseas listing, and the foreign investors shall not participate in the operation and management of such
enterprise, and the shareholding percentage of the foreign investors in such enterprise shall be subject to the relevant administrative
provisions of Chinese Mainland domestic securities investment by foreign investors. Such negative list does not further elaborate
whether existing overseas listed enterprise will be subject to such requirements. The staff of the NDRC addressed in an interview on
December 27, 2021 that certain existing overseas listed enterprises whose foreign investors’ shareholding percentage exceed the
aforementioned threshold are not required to make adjustment or deduction. If any of the businesses that we operate were in the
“restricted” category on the “negative list,” and the enacted version of the PRC Foreign Investment Law and the final “negative list”
mandate further actions to be taken by us, such as a pre-approval process, there is no assurance that we can obtain such pre-approval on a
timely basis, or at all. Such determination would materially and adversely affect the value of our ADSs, and such further actions required
to be taken by us under the newly enacted PRC Foreign Investment Law may materially and adversely affect our business and financial
condition. Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with
respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a
timely manner, or at all.
In addition, the PRC Foreign Investment Law provides a five-year period for the existing foreign invested enterprises established
according to the existing laws regulating foreign investment to maintain their structure and corporate governance after the
implementation of the PRC Foreign Investment Law. Thus we may be required to adjust the structure and corporate governance of
certain of our Chinese Mainland entities after the expiration of such period. Failure to take timely and appropriate measures to cope with
any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate
governance and business operations.
Contractual arrangements in relation to our variable interest entities, may be subject to scrutiny by the Chinese Mainland tax
authorities and they may determine that we, or our variable interest entities and their subsidiaries, owe additional taxes, which
could negatively affect our financial condition and the value of your investment.
Under applicable Chinese Mainland laws and regulations, arrangements and transactions among related parties may be subject to
audit or challenge by the Chinese Mainland tax authorities. The Chinese Mainland enterprise income tax law and regulations require
enterprises that conduct related party transactions to prepare transfer pricing documentations to demonstrate the basis of determining the
price, the computation methodology and detailed explanations. The tax authorities may impose reasonable adjustments on taxation if
they have identified any related party transactions that are inconsistent with arm’s length principles after they conducted tax inspection.
We may face material and adverse tax consequences if the Chinese Mainland tax authorities determine that the contractual arrangements
among our Chinese Mainland subsidiaries, our variable interest entities and their shareholders were not entered into on an arm’s length
basis in such a way as to result in an impermissible reduction in taxes under applicable Chinese Mainland laws, regulations and rules,
and adjust income of our variable interest entities in the form of a transfer pricing adjustment. A transfer pricing adjustment could,
among other things, result in a reduction of expense deductions recorded by our variable interest entities for Chinese Mainland tax
purposes, which could in turn increase their tax liabilities without reducing the tax expenses of our Chinese Mainland subsidiaries. Please
see Note 12 “Income taxes” to our audited consolidated financial statements. In addition, if a Chinese Mainland subsidiary requests the
shareholders of our variable interest entities to transfer their equity interests at nominal or no value pursuant to these contractual
arrangements, such transfer could be viewed as a gift and subject the Chinese Mainland subsidiary to Chinese Mainland income tax.
Furthermore, the Chinese Mainland tax authorities may impose late payment fees and other penalties on our variable interest entities for
the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially adversely affected if our
variable interest entities’ tax liabilities increase or if they are required to pay late payment fees and other penalties.
Risks Relating to Doing Business in Chinese Mainland
Changes in the political and economic policies of the Chinese Mainland government may materially and adversely affect our
business, financial condition and results of operations and may result in our inability to sustain our growth and expansion
strategies.
Substantially all of our operations are conducted in the Chinese Mainland and all of our revenue is sourced from the Chinese
Mainland. Accordingly, our financial condition and results of operations are affected to a significant extent by economic, political and
legal developments in the Chinese Mainland.
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The Chinese Mainland economy differs from the economies of most developed countries in many respects, including the extent of
government involvement, level of development, growth rate, and control of foreign exchange and allocation of resources. Although the
Chinese Mainland government has implemented measures emphasizing the utilization of market forces for economic reform, the
reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a
substantial portion of productive assets in Chinese Mainland is still owned by the government. In addition, the Chinese Mainland
government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese
Mainland government also exercises significant control over Chinese Mainland’s economic growth by allocating resources, controlling
payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions and
providing preferential treatment to particular industries or companies.
While the Chinese Mainland economy has experienced significant growth in the past three decades, growth has been uneven, both
geographically and among various sectors of the economy. The Chinese Mainland government has implemented various measures to
encourage economic growth and to guide the allocation of resources. Some of these measures may benefit the overall Chinese Mainland
economy, but may also have a negative effect on us. Our financial condition and results of operations could be materially and adversely
affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the Chinese
Mainland government has implemented in the past certain measures to control the pace of economic growth. These measures may cause
decreased economic activity, which in turn could lead to a reduction in demand for our services and consequently have a material adverse
effect on our businesses, financial condition and results of operations.
Uncertainties with respect to the Chinese Mainland legal system, including uncertainties regarding the enforcement of laws, and
sudden or unexpected changes in laws and regulations in Chinese Mainland could adversely affect us and limit the legal
protections available to you and us.
Our operating subsidiaries are incorporated under and governed by the laws of the Chinese Mainland. The Chinese Mainland legal
system is based on written statutes. Prior court decisions may be cited for reference, but have limited precedential value. In 1979, the
Chinese Mainland government began to promulgate a comprehensive system of laws and regulations governing economic matters in
general, such as foreign investment, corporate organization and governance, commerce, taxation and trade. As a significant part of our
business is conducted in Chinese Mainland, our operations are principally governed by Chinese Mainland laws and regulations.
However, since the Chinese Mainland legal system continues to evolve rapidly, the interpretations of many laws, regulations and rules
are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections
available to us. Uncertainties due to evolving laws and regulations could also impede the ability of a Chinese Mainland-based company,
such as our company group, to obtain or maintain permits or licenses required to conduct business in Chinese Mainland. In the absence
of required permits or licenses, governmental authorities could impose material sanctions or penalties on us. In addition, some regulatory
requirements issued by certain Chinese Mainland government authorities may not be consistently applied by other Chinese Mainland
government authorities (including local government authorities), thus making strict compliance with all regulatory requirements
impractical, or in some circumstances impossible. For example, we may have to resort to administrative and court proceedings to enforce
the legal protection that we enjoy either by law or contract. However, since Chinese Mainland administrative and court authorities have
discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of
administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, the
Chinese Mainland legal system is based in part on government policies and internal rules, some of which are not published on a timely
basis or at all and may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until
sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including
intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our
operations.
Furthermore, if Chinese Mainland adopts more stringent standards with respect to corporate social responsibilities or financial
regulations, we may incur increased compliance costs or become subject to additional restrictions in our operations. Intellectual property
rights and confidentiality protections in Chinese Mainland may also not be as effective as in the United States or other countries. In
addition, we cannot predict the effects of future developments in the Chinese Mainland legal system on our business operations,
including the promulgation of new laws, or changes to existing laws or the interpretation or enforcement thereof. These uncertainties
could limit the legal protections available to us and our investors, including you. Moreover, any litigation in Chinese Mainland may be
protracted and result in substantial costs and diversion of our resources and management attention.
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The Chinese Mainland government has significant oversight and discretion over the conduct of our business and may intervene or
influence our operations as the government deems appropriate to further regulatory, political and societal goals. The Chinese Mainland
government has recently published new policies that significantly affected certain industries such as the education and internet industries,
and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely
affect our business, financial condition and results of operations. Furthermore, the Chinese Mainland government has recently indicated
an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas and
foreign investment in Chinese Mainland-based companies like us. On July 6, 2021, State Council issued the Opinions on Lawfully and
Severely Combating Illegal Securities Activities to further strengthen cross-border supervision and consolidate the primary responsibility
for information security of overseas listed companies. On February 17, 2023, the CSRC promulgated the Trial Administrative Measures
of the Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines which
took effect on March 31, 2023. Pursuant to the Trial Measures, Chinese companies that seek to offer and list securities overseas shall
fulfill the filing procedures with and report relevant information to the CSRC, and that an initial filing shall be submitted within three
working days after the application for an initial public offering is submitted, and a second filing shall be submitted within three working
days after the listing is completed. Moreover, an overseas offering and listing is prohibited under circumstances if (i) it is prohibited by
Chinese Mainland laws, (ii) it may endanger national security as reviewed and determined by competent Chinese Mainland authorities
under the State Council in accordance with law, (iii) the Chinese Mainland domestic companies intending to make the securities offering
and listing, or its controlling shareholder(s) and the actual controller, have committed corruption, bribery, embezzlement,
misappropriation of property or undermining the order of the socialist market economy during the latest three years, (iv) the Chinese
Mainland domestic companies intending to make the securities offering and listing is currently under investigations for suspicion of
criminal offenses or major violations of laws and regulations, and no clear conclusion has yet been made thereof, (v) it has material
ownership disputes over equity interests held by the Chinese Mainland domestic companies’ controlling shareholder(s) or by other
shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller. The Trial Measures stipulate that the overseas
securities offering and listing of any issuer will be deemed as indirect overseas offering by Chinese Mainland domestic companies if the
following conditions are met: (i) 50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as
documented in its audited consolidated financial statements for the most recent fiscal year is accounted for by Chinese Mainland
domestic companies; and (ii) the main parts of the issuer’s business activities are conducted in Chinese Mainland, or its main place(s) of
business are located in Chinese Mainland, or the majority of senior management staff in charge of its business operations and
management are Chinese Mainland citizens or have their usual place(s) of residence located in Chinese Mainland. Further, at the press
conference held for the Trial Measures on February 17, 2023, officials from the CSRC clarified that the Chinese Mainland domestic
companies that have already been listed overseas on or before the effective date of the Trial Measures (i.e. March 31, 2021) shall be
deemed as existing issuers, or the Existing Issuers. The Existing Issuers are not required to complete the filing procedures immediately
but shall carry out filing procedures as required if they conduct refinancing or are involved in other circumstances that require filing with
the CSRC. The officials from the CSRC have also confirmed that for the Chinese Mainland domestic companies that seek to list overseas
with VIE structure, the CSRC will solicit opinions from relevant regulatory authorities and complete the filing of the overseas listing of
companies with VIE structure which duly meet the compliance requirements. We are an Existing Issuer under the Trial Measures, as we
were listed on September 19, 2018, which is before the effective date of the Trial Measures. As an Existing Issuer, we currently do not
have any intention or plan of refinancing or being involved in any other circumstances that required filing with the CSRC under the Trial
Measures. If we conduct refinancing or any other activities that are subject to filing procedures in the future, we will actively
communicate with the CSRC and initiate the filing procedures as required in a timely manner. However, given that the Trial Measures
were recently promulgated, there are substantial uncertainties as to the implementation and interpretation, and how they will affect our
listing status and future financing. If we fail to complete the filing with the CSRC in a timely manner or at all, for any future offering or
any other activities which are subject to the filing requirements under the Trial Measures, our ability to raise or utilize funds and our
operations could be materially and adversely affected. On February 24, 2023, the CSRC, Ministry of Finance of the PRC, National
Administration of State Secrets Protection and National Archives Administration of China promulgated the Provisions on Strengthening
Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Archives Rules,
which took effect on March 31, 2023. Pursuant to the Archives Rules, Chinese Mainland domestic companies that seek overseas offering
and listing shall strictly abide by applicable laws and regulations of the Chinese Mainland and the Archives Rules, enhance legal
awareness of keeping state secrets and strengthening archives administration, institute a sound confidentiality and archives
administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. Such domestic
companies shall not leak any state secret and working secret of government agencies, or harm national security and public interest.
Furthermore, a Chinese Mainland domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or
provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any
document and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent
authorities according to law, and file with the secrecy administrative department at the same level.
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Moreover, a Chinese Mainland domestic company that plans to, either directly or through its overseas listed entity, publicly disclose
or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any
other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant
procedures stipulated by applicable national regulations. The Archives Rules also stipulate that a Chinese Mainland domestic company
that provides accounting archives or copies of accounting archives to any entities including securities companies, securities service
providers and overseas regulators and individuals shall fulfill due procedures in compliance with applicable national regulations.
However, given that the Archives Rules were recently promulgated, there are substantial uncertainties as to the implementation and
interpretation. We cannot predict the impact of the Trial Measures and the Archives Rules on us, including but not limited to the
maintenance of the listing status of our ADSs and/or other securities, or any of our future offerings of securities overseas at this stage.
Any failure of us to fully comply with new regulatory requirements may significantly limit or completely hinder our ability to
continually offer our Shares, cause significant disruption to our business operations, severely damage our reputation, materially and
adversely affect our financial condition and results of operations and cause our Shares to significantly decline in value or become
worthless. Substantially all of our operations are conducted in the Chinese Mainland, and are governed by Chinese Mainland laws, rules
and regulations. Our Chinese Mainland subsidiaries and VIEs are subject to laws, rules and regulations applicable to foreign investment
in Chinese Mainland. The Chinese Mainland legal system is a civil law system based on written statutes. Unlike the common law system,
prior court decisions may be cited for reference but have limited precedential value. Any such intervention in or influence on our
business operations or action to exert more oversight and control over securities offerings and other capital markets activities, once taken
by the Chinese Mainland government, could adversely affect our business, financial condition and results of operations and the value of
our Class A ordinary shares or the ADSs, or significantly limit or completely hinder our ability to offer or continue to offer securities to
investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.
Uncertainties exist with respect to the enactment timetable, interpretation and implementation of the laws and regulations with
respect to our online platform business operation.
Our online platform business is subject to various internet-related laws and regulations. These internet-related laws and regulations
are relatively new and evolving, and their enactment timetable, interpretation and implementation involve significant uncertainties.
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For example, on February 7, 2021, the State Administration for Market Regulation, or the SAMR, promulgated Guidelines to Anti-
Monopoly in the Field of Platform Economy, or the Anti-Monopoly Guidelines for Platform Economy. The Anti-Monopoly Guidelines
for Platform Economy provides operational standards and guidelines for identifying certain internet platforms’ abuse of market dominant
position which are prohibited to restrict unfair competition and safeguard users’ interests, including without limitation, prohibiting
personalized pricing using big data and analytics, selling products below cost without reasonable causes, actions or arrangements seen as
exclusivity arrangements, using technology means to block competitors’ interface, using bundle services to sell services or products. In
addition, internet platforms’ compulsory collection of user data may be viewed as abuse of dominant market position that may have the
effect to eliminate or restrict competition. On August 20, 2021, the Standing Committee of the National People’s Congress promulgated
the Personal Information Protection Law of the PRC, or the Personal Information Protection Law which took effect on November 1,
2021. As the first systematic and comprehensive law specifically for the protection of personal information in the Chinese Mainland, the
Personal Information Protection Law provides, among others, that (i) an individual’s consent shall be obtained to use sensitive personal
information, (ii) personal information operators using sensitive personal information shall notify individuals of the necessity of such use
and impact on the individual’s rights, and (iii) where it is necessary for personal information to be provided by a personal information
processor to a recipient outside the territory of the Chinese Mainland due to any business need or any other need, a security assessment
organized by the national cyberspace authority shall be passed. In addition, on June 10, 2021, the Standing Committee of the National
People’s Congress promulgated the PRC Data Security Law, which took effect in September 2021. The Data Security Law, among
others, provides for security review procedures for data activities that may affect national security. Furthermore, Measures for
Cybersecurity Review, which became effective on June 1, 2020, as amended on December 28, 2021, and became effective on February
15, 2022, set forth the cybersecurity review mechanism for critical information infrastructure operators, and provide that (i) critical
information infrastructure operators who intend to purchase internet products and services that affect or may affect national security shall
be subject to a cybersecurity review; (ii) online platform operators who are engaged in data processing are also subject to the regulatory
scope; (iii) the CSRC is included as one of the regulatory authorities for purposes of jointly establishing the state cybersecurity review
working mechanism; (iv) the online platform operators holding more than one million users/users’ individual information and seeking a
listing outside Chinese Mainland shall file for cybersecurity review; (v) the risks of core data, material data or large amounts of personal
information being stolen, leaked, destroyed, damaged, illegally used or illegally transmitted to overseas parties and the risks of critical
information infrastructure, core data, material data or large amounts of personal information being influenced, controlled or used
maliciously shall be collectively taken into consideration during the cybersecurity review process. Although we do not believe we are a
critical information infrastructure provider, and as the date of this annual report, we have not been involved in any investigations on
cybersecurity review made by the CAC on such basis and we have not received any inquiry, notice, warning, or sanctions from any other
Chinese Mainland government authorities in this regard, the Chinese Mainland authorities could interpret such term broadly. If we are
deemed to be a critical information infrastructure operator under such rules, we could be subject to cybersecurity review by Cyberspace
Administration of China and other relevant Chinese Mainland regulatory authorities and be required to change our existing practices in
data privacy and cybersecurity matters at substantial costs. During such cybersecurity review, we may be required to stop providing
services to our customers, and such review could also result in negative publicity to us and diversion of our managerial and financial
resources.
On August 31, 2018, the Standing Committee of the National People’s Congress promulgated the E-commerce Law, which came
into effect on January 1, 2019. The E-commerce Law imposes a series of requirements on e-commerce operators including e-commerce
platform operators, merchants operating on the platform and the individuals and entities carrying out business online. The platform
governance measures we adopt in response to the enhanced regulatory requirements may fail to meet these requirements and may lead to
penalties or our loss of merchants to those platforms, or to complaints or claims made against us by customers on our platforms.
As there are uncertainties regarding the enactment timetable, interpretation and implementation of the existing and future internet-
related laws and regulations, we cannot assure you that our business operations will comply with such regulations in all respects and we
may be ordered to terminate certain of our business operations that are deemed illegal by the regulatory authorities and become subject to
fines and/or other sanctions.
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You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in Chinese
Mainland against us or our management named in the annual report based on foreign laws.
We are a company incorporated under the laws of the Cayman Islands, we conduct substantially all of our operations in Chinese
Mainland, and substantially all of our assets are located in Chinese Mainland. In addition, all our senior executive officers reside within
Chinese Mainland for a significant portion of the time and most are Chinese Mainland nationals. As a result, it may be difficult for our
shareholders to effect service of process upon us or those persons inside Chinese Mainland. In addition, Chinese Mainland does not have
treaties providing for the reciprocal recognition and enforcement of judgments of courts with the Cayman Islands and many other
countries and regions. Therefore, recognition and enforcement in Chinese Mainland of judgments of a court in any of these non-Chinese
Mainland jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.
Shareholder claims that are common in the United States, including securities law class actions and fraud claims, generally are
difficult to pursue as a matter of law or practicality in Chinese Mainland. For example, in Chinese Mainland, there are significant legal
and other obstacles to obtaining information needed for shareholder investigations or litigation outside Chinese Mainland or otherwise
with respect to foreign entities. Although the local authorities in Chinese Mainland may establish a regulatory cooperation mechanism
with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such
regulatory cooperation with the securities regulatory authorities in the Unities States have not been efficient in the absence of mutual and
practical cooperation mechanism. No organization or individual may provide the documents and materials relating to securities business
activities to overseas parties arbitrarily without the consent of the competent securities regulatory authority in Chinese Mainland
according to the PRC Securities Law. See also “You may face difficulties in protecting your interests, and your ability to protect your
rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law” for risks associated with investing in
us as a Cayman Islands company.
According to Article 177 of the PRC Securities Law which became effective in March 2020, no overseas securities regulator is
allowed to directly conduct investigation or evidence collection activities within the territory of the Chinese Mainland. Accordingly,
without the consent of the competent Chinese Mainland securities regulators and relevant authorities, no organization or individual may
provide the documents and materials relating to securities business activities to overseas parties.
Chinese Mainland regulations relating to investments in offshore companies by Chinese Mainland residents may subject our
Chinese Mainland-resident beneficial owners or our Chinese Mainland subsidiary to liability or penalties, limit our ability to
inject capital into our Chinese Mainland subsidiary or limit our Chinese Mainland subsidiary’s ability to increase their registered
capital or distribute profits.
The SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore
Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which
replaced the former circular commonly known as “SAFE Circular 75” promulgated by the SAFE on October 21, 2005. SAFE Circular 37
requires Chinese Mainland residents to register with local branches of the SAFE in connection with their direct establishment or indirect
control of an offshore entity, for the purpose of overseas investment and financing, with such Chinese Mainland residents’ legally owned
assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose
vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the
special purpose vehicle, such as increase or decrease of capital contributed by Chinese Mainland individuals, share transfer or exchange,
merger, division or other material event. In the event that a Chinese Mainland shareholder holding interests in a special purpose vehicle
fails to fulfill the required SAFE registration, the Chinese Mainland subsidiaries of that special purpose vehicle may be prohibited from
making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the
special purpose vehicle may be restricted in its ability to contribute additional capital into its Chinese Mainland subsidiary. Moreover,
failure to comply with the various SAFE registration requirements described above could result in liability under Chinese Mainland law
for evasion of foreign exchange controls. According to the Notice on Further Simplifying and Improving Policies for the Foreign
Exchange Administration of Direct Investment released on February 13, 2015 and amended on June 1, 2015 by the SAFE, local banks
will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration
and amendment registration, under SAFE Circular 37 from June 1, 2015.
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We have notified substantial beneficial owners of ordinary shares who we know are Chinese Mainland residents of their filing
obligations. Nevertheless, we may not be aware of the identities of all of our beneficial owners who are Chinese Mainland residents. We
do not have control over our beneficial owners and there can be no assurance that all of our Chinese Mainland-resident beneficial owners
will comply with SAFE Circular 37 and subsequent implementation rules, and there is no assurance that the registration under SAFE
Circular 37 and any amendment will be completed in a timely manner, or will be completed at all. The failure of our beneficial owners
who are Chinese Mainland residents to register or amend their foreign exchange registrations in a timely manner pursuant to SAFE
Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of the Company who are Chinese Mainland
residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject
such beneficial owners or our Chinese Mainland subsidiary to fines and legal sanctions. Such failure to register or comply with relevant
requirements may also limit our ability to contribute additional capital to our Chinese Mainland subsidiary and limit our Chinese
Mainland subsidiary’s ability to distribute dividends to the Company. These risks may have a material adverse effect on our business,
financial condition and results of operations.
Chinese Mainland regulation of loans to, and direct investment in, Chinese Mainland entities by offshore holding companies and
governmental control of currency conversion may restrict or prevent us from using the proceeds of our initial public offering to
make loans to our Chinese Mainland subsidiary and our consolidated VIEs, or to make additional capital contributions to our
Chinese Mainland subsidiary.
Under Chinese Mainland laws and regulations, we, as an offshore holding company, are permitted to provide funding to our Chinese
Mainland subsidiary, which are treated as foreign-invested enterprises under Chinese Mainland laws, through loans or capital
contributions. This ability to provide funding, which may include proceeds from our initial public offering and other sources, is subject to
certain regulations. However, loans by us to our Chinese Mainland subsidiaries to finance their activities cannot exceed statutory limits
and must be registered with the local counterpart of SAFE and capital contributions to our Chinese Mainland subsidiary are subject to the
requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System, and registration
with other governmental authorities in Chinese Mainland.
SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign
Exchange Settlement of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015 and amended on March 23,
2023, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the
Payment and Settlement of Foreign Currency Capital of Foreign- Invested Enterprises, or SAFE Circular 142, the Notice from the State
Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses,
or Circular 59, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital
Account Foreign Exchange Businesses, or Circular 45. According to Circular 19, the flow and use of the RMB capital converted from
foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for
the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of bank loans that have been transferred to
a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign
invested enterprise to be used for equity investments within the Chinese Mainland, it also reiterates the principle that RMB converted
from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond
its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in the Chinese Mainland
in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the
Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective on June 9, 2016 and amended on
December 4, 2023, which reiterates some of the rules set forth in Circular 19, but changes the prohibition against using RMB capital
converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a
prohibition against using such capital to grant loans to non-associated enterprises. Violations of SAFE Circular 19 and Circular 16 could
result in administrative penalties. Circular 19 and Circular 16 may significantly limit our ability to transfer any foreign currency we hold,
including the net proceeds from our initial public offering, to our Chinese Mainland subsidiary, which may adversely affect our liquidity
and our ability to fund and expand our business in the Chinese Mainland.
Due to the restrictions imposed on loans in foreign currencies extended to any Chinese Mainland domestic companies, we are not
likely to make such loans to any of our consolidated VIEs and their subsidiaries, each a Chinese Mainland domestic company.
Meanwhile, we are not likely to finance the activities of our consolidated VIEs and their subsidiaries by means of capital contributions
given the restrictions on foreign investment in the businesses that are currently conducted by our consolidated VIEs and their
subsidiaries.
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In light of the various requirements imposed by Chinese Mainland regulations on loans to, and direct investment in, Chinese
Mainland entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government
registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our Chinese
Mainland subsidiary or any consolidated variable interest entity or future capital contributions by us to our Chinese Mainland subsidiary.
As a result, uncertainties exist as to our ability to provide prompt financial support to our Chinese Mainland subsidiary or consolidated
VIEs and their subsidiaries when needed. If we fail to complete such registrations or obtain such approvals, our ability to use foreign
currency, including the proceeds we received from our initial public offering, and to capitalize or otherwise fund our Chinese Mainland
operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our
business.
Any failure to comply with Chinese Mainland regulations regarding employee share incentive plans may subject the Chinese
Mainland plan participants or us to fines and other legal or administrative sanctions.
Pursuant to SAFE Circular 37, Chinese Mainland residents who participate in share incentive plans in overseas non-publicly-listed
companies due to their positions as director, senior management or employees of the Chinese Mainland subsidiaries of the overseas
companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special
purpose companies. Our directors, executive officers and other employees who are Chinese Mainland residents and who have been
granted options may follow SAFE Circular 37 to apply for the foreign exchange registration before the Company becomes an overseas
listed company. In February 2012, SAFE promulgated the Notice on Issues Concerning the Foreign Exchange Administration for
Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, according to which, employees,
directors, supervisors and other management members who are Chinese Mainland residents and non-Chinese Mainland citizens who
reside in Chinese Mainland for a continuous period of not less than one year participating in any stock incentive plan of an overseas
publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could
be a Chinese Mainland subsidiary of such overseas listed company, and complete certain other procedures. We and our directors,
executive officers and other employees who are Chinese Mainland citizens or who reside in the Chinese Mainland for a continuous
period of not less than one year and who have been granted options are subject to these regulations. Failure to complete the SAFE
registrations may subject them to fines and legal sanctions and may also limit the ability to make payment under our share incentive
plans or receive dividends or sales proceeds related thereto, or our ability to contribute additional capital into our wholly-foreign owned
enterprises in Chinese Mainland and limit our wholly-foreign owned enterprises’ ability to distribute dividends to us. We also face
regulatory uncertainties that could restrict our ability to adopt additional share incentive plans for our directors and employees under
Chinese Mainland law.
In addition, the State Administration of Taxation, or the SAT, has issued certain circulars concerning employee share options and
restricted shares. Under these circulars, our employees working in Chinese Mainland who exercise share options or are granted restricted
shares will be subject to Chinese Mainland individual income tax. Our Chinese Mainland subsidiary has obligations to file documents
related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those
employees who exercise their share options. If our employees fail to pay or we fail to withhold their income taxes according to relevant
laws and regulations, we may face sanctions imposed by the tax authorities or other Chinese Mainland government authorities.
We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries to fund
offshore cash and financing requirements.
We are a holding company and rely to a significant extent on dividends and other distributions on equity paid by our principal
operating subsidiaries, including our wholly-owned Chinese Mainland subsidiaries and the subsidiaries of the VIEs and on remittances
from the consolidated VIEs, for our offshore cash and financing requirements, including the funds necessary to pay dividends and other
cash distributions to our shareholders, fund intercompany loans, service any debt we may incur outside of Chinese Mainland and pay our
expenses. When our principal operating subsidiaries or the consolidated VIEs incur additional debt, the instruments governing the debt
may restrict their ability to pay dividends or make other distributions or remittances to us. Furthermore, the laws, rules and regulations
applicable to our Chinese Mainland subsidiary and certain other subsidiaries permit payments of dividends only from part of their
retained earnings, if any, determined in accordance with applicable Chinese Mainland accounting standards and regulations.
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Under Chinese Mainland laws, rules and regulations, each of our subsidiaries incorporated in Chinese Mainland is required to set
aside at least 10% of its net income each year to fund certain statutory reserves until the cumulative amount of such reserves reaches 50%
of its registered capital. These reserves, together with the registered capital, are not included in the retained earnings distributable as cash
dividends. Furthermore, under Chinese Mainland law, our wholly-owned Chinese Mainland subsidiary, which is a wholly foreign-owned
enterprise under Chinese Mainland law, cannot distribute any profits until all of its losses from prior fiscal years have been offset. In
accordance with the articles of association of our wholly-owned Chinese Mainland subsidiary, profit distributions also need to be
approved by its executive directors and shareholders before any distribution plan becomes effective. As a result, our subsidiaries
incorporated in Chinese Mainland are restricted in their ability to transfer a portion of their respective net assets to their shareholders as
dividends, loans or advances. In addition, registered share capital and statutory reserve accounts are also restricted from withdrawal in
the Chinese Mainland, up to the amount of net assets held in each operating subsidiary.
Limitations on the ability of our consolidated VIEs to make remittance to the wholly-foreign owned enterprise and on the ability
of our subsidiaries to pay dividends to us could limit our ability to access cash generated by the operations of those entities,
including to make investments or acquisitions that could be beneficial to our businesses, pay dividends to our shareholders or
otherwise fund and conduct our business. We may be treated as a resident enterprise for Chinese Mainland tax purposes under
the Chinese Mainland Enterprise Income Tax Law, and we may therefore be subject to Chinese Mainland income tax on our
global income.
Under the Chinese Mainland Enterprise Income Tax Law and its implementing rules, enterprises established under the laws of
jurisdictions outside of Chinese Mainland with “de facto management bodies” located in Chinese Mainland may be considered Chinese
Mainland tax resident enterprises for tax purposes and may be subject to the Chinese Mainland enterprise income tax at the rate of 25%
on their global income. “De facto management body” refers to a managing body that exercises substantive and overall management and
control over the production, personnel, accounting books and assets of an enterprise. The State Administration of Taxation issued the
Notice Regarding the Determination of Chinese- Controlled Offshore-Incorporated Enterprises as Chinese Mainland Tax Resident
Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009, and amended on December 29, 2017.
Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-
incorporated enterprise is located in Chinese Mainland. Although Circular 82 only applies to offshore enterprises controlled by Chinese
Mainland enterprises, not those controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may
reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in
determining the tax resident status of offshore enterprises, regardless of whether they are controlled by Chinese Mainland enterprises. If
we were to be considered a Chinese Mainland resident enterprise, we would be subject to Chinese Mainland enterprise income tax at the
rate of 25% on our global income. In such case, our profitability and cash flow may be materially reduced as a result of our global
income being taxed under the Enterprise Income Tax Law. We believe that none of our entities outside of Chinese Mainland is a Chinese
Mainland resident enterprise for Chinese Mainland tax purposes. However, the tax resident status of an enterprise is subject to
determination by the Chinese Mainland tax authorities and uncertainties remain with respect to the interpretation of the term “de facto
management body.”
Dividends paid to our foreign investors and gains on the sale of our ADSs or ordinary shares by our foreign investors may be
subject to Chinese Mainland tax.
Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council, a 10% Chinese Mainland
withholding tax is applicable to dividends paid to investors that are non-resident enterprises, which do not have an establishment or place
of business in the Chinese Mainland or which have such establishment or place of business but the dividends are not effectively
connected with such establishment or place of business, to the extent such dividends are derived from sources within the Chinese
Mainland. In addition, any gain realized on the transfer of shares by such investors is also subject to Chinese Mainland tax at a rate of
10%, if such gain is regarded as income derived from sources within the Chinese Mainland. If we are deemed a Chinese Mainland
resident enterprise, dividends paid on our ordinary shares or ADSs, and any gain realized from the transfer of our ordinary shares or
ADSs, may be treated as income derived from sources within the Chinese Mainland and may as a result be subject to Chinese Mainland
taxation. Furthermore, if we are deemed a Chinese Mainland resident enterprise, dividends paid to individual investors who are non-
Chinese Mainland residents and any gain realized on the transfer of ADSs or ordinary shares by such investors may be subject to Chinese
Mainland tax at a current rate of 20% (which in the case of dividends may be withheld at source). Any Chinese Mainland tax liability
may be reduced under applicable tax treaties or tax arrangements between Chinese Mainland and other jurisdictions. If we or any of our
subsidiaries established outside Chinese Mainland are considered a Chinese Mainland resident enterprise, it is unclear whether holders of
our ADSs or ordinary shares would be able to claim the benefit of income tax treaties or agreements entered into between Chinese
Mainland and other countries or areas. If dividends paid to our non-Chinese Mainland investors, or gains from the transfer of our ADSs
or ordinary shares by such investors, are deemed as income derived from sources within the Chinese Mainland and thus are subject to
Chinese Mainland tax, the value of your investment in our ADSs or ordinary shares may decline significantly.
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We and our existing shareholders face uncertainties with respect to indirect transfers of equity interests in Chinese Mainland
resident enterprises or other assets attributed to a Chinese establishment of a non-Chinese company, or immovable properties
located in Chinese Mainland owned by non-Chinese companies.
In October 2017, the State Administration of Taxation issued the Bulletin on Issues Concerning the Withholding of Non-Chinese
Mainland Resident Enterprise Income Tax at Source, or Bulletin 37, which replaced the Notice on Strengthening Administration of
Enterprise Income Tax for Share Transfers by Non-Chinese Mainland Resident Enterprises, or Circular 698, issued by the State
Administration of Taxation, on December 10, 2009, and partially replaced and supplemented rules under the Bulletin on Issues of
Enterprise Income Tax on Indirect Transfers of Assets by Non-Chinese Mainland Resident Enterprises or Bulletin 7, issued by the State
Administration of Taxation, on February 3, 2015 and amended in December 2017. Pursuant to Bulletin 7, an “indirect transfer” of
Chinese Mainland assets, including a transfer of equity interests in an unlisted non-Chinese Mainland holding company of a Chinese
Mainland resident enterprise, by non-Chinese Mainland resident enterprises may be re-characterized and treated as a direct transfer of the
underlying Chinese Mainland assets, if such arrangement does not have a reasonable commercial purpose and was established for the
purpose of avoiding payment of Chinese Mainland enterprise income tax. As a result, gains derived from such indirect transfer may be
subject to Chinese Mainland enterprise income tax. According to Bulletin 7, “Chinese Mainland taxable assets” include assets attributed
to an establishment in Chinese Mainland, immoveable properties located in Chinese Mainland, and equity investments in Chinese
Mainland resident enterprises and any gains from the transfer of such asset by a direct holder, who is a non-Chinese Mainland resident
enterprise, would be subject to Chinese Mainland enterprise income taxes. When determining whether there is a “reasonable commercial
purpose” of the transaction arrangement, features to be taken into consideration include: whether the main value of the equity interest of
the relevant offshore enterprise derives from Chinese Mainland taxable assets; whether the assets of the relevant offshore enterprise
mainly consists of direct or indirect investment in Chinese Mainland or if its income mainly derives from Chinese Mainland; whether the
offshore enterprise and its subsidiaries directly or indirectly holding Chinese Mainland taxable assets have real commercial nature which
is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the
replicability of the transaction by direct transfer of Chinese Mainland taxable assets; and the tax situation of such indirect transfer and
applicable tax treaties or similar arrangements. In the case of an indirect offshore transfer of assets of a Chinese Mainland establishment,
the resulting gain is to be included with the enterprise income tax filing of the Chinese Mainland establishment or place of business being
transferred, and may consequently be subject to Chinese Mainland enterprise income tax at a rate of 25%. Where the underlying transfer
relates to immoveable properties located in Chinese Mainland or to equity investments in a Chinese Mainland resident enterprise, which
is not related to a Chinese Mainland establishment or place of business of a non-resident enterprise, a Chinese Mainland enterprise
income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and
the party who is obligated to make the transfer payments has the withholding obligation. Pursuant to Bulletin 37, the withholding agent
shall declare and pay the withheld tax to the competent tax authority in the place where such withholding agent is located within 7 days
from the date of occurrence of the withholding obligation, while the transferor is required to declare and pay such tax to the competent
tax authority within the statutory time limit according to Bulletin 7. Late payment of applicable tax will subject the transferor to default
interest. Both Bulletin 37 and Bulletin 7 do not apply to transactions of sale of shares by investors through a public stock exchange where
such shares were acquired from a transaction through a public stock exchange.
There is uncertainty as to the application of Bulletin 37 or previous rules under Bulletin 7. We face uncertainties as to the reporting
and other implications of certain past and future transactions where Chinese Mainland taxable assets are involved, such as offshore
restructuring, sale of the shares in our offshore subsidiaries or investments. The Company may be subject to filing obligations or taxes if
the Company is transferor in such transactions, and may be subject to withholding obligations if the Company is transferee in such
transactions, under Bulletin 37 and Bulletin 7. For transfer of shares in the Company by investors that are non-Chinese Mainland resident
enterprises, our Chinese Mainland subsidiary may be requested to assist in the filing under Bulletin 37 and Bulletin 7. As a result, we
may be required to expend valuable resources to comply with Bulletin 37 and Bulletin 7 or to request the relevant transferors from whom
we purchase taxable assets to comply with these circulars, or to establish that the Company should not be taxed under these circulars,
which may have a material adverse effect on our financial condition and results of operations.
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We are subject to restrictions on currency exchange.
All of our net income is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which
includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign
direct investment and loans, including loans we may secure from our onshore subsidiaries or consolidated VIEs. Currently, certain of our
Chinese Mainland subsidiary, may purchase foreign currency for settlement of “current account transactions,” including payment of
dividends to us, without the approval of the SAFE by complying with certain procedural requirements. However, the relevant Chinese
Mainland governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account
transactions. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or
registration with, the SAFE and other relevant Chinese Mainland governmental authorities. Since a significant amount of our future net
income and cash flow will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability
to utilize cash generated in Renminbi to fund our business activities outside of the Chinese Mainland or pay dividends in foreign
currencies to our shareholders, including holders of our ADSs, and may limit our ability to obtain foreign currency through debt or equity
financing for our subsidiaries and consolidated VIEs.
Fluctuations in exchange rates could result in foreign currency exchange losses and could materially reduce the value of your
investment.
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes
in political and economic conditions and the foreign exchange policy adopted by the Chinese Mainland government. The Renminbi has
fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of Renminbi against the U.S. dollar and other
currencies is affected by changes in Chinese Mainland’s political and economic conditions and by Chinese Mainland’s foreign exchange
policies, among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the U.S.
dollar in the future. It is difficult to predict how market forces or Chinese Mainland or U.S. government policy may impact the exchange
rate between Renminbi and the U.S. dollar in the future.
All of our revenue and substantially all of our costs are denominated in Renminbi. We are a holding company and we rely on
dividends paid by our operating subsidiaries in Chinese Mainland for our cash needs. Any significant revaluation of Renminbi may
materially and adversely affect our results of operations and financial position reported in Renminbi when translated into U.S. dollars,
and the value of, and any dividends payable on, the ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars we receive
from our initial public offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an
adverse effect on the Renminbi amount we would receive. Conversely, if we decide to convert our Renminbi into U.S. dollars for the
purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar
against the Renminbi would have a negative effect on the U.S. dollar amount.
Proceedings brought by the SEC against the Big Four Chinese Mainland-based accounting firms, including our independent
registered public accounting firm, could result in our inability to file future financial statements in compliance with the
requirements of the Exchange Act.
In December 2012, the SEC instituted administrative proceedings under Rule 102(e)(1)(iii) of the SEC’s Rules of Practice against
the Big Four Chinese Mainland-based accounting firms, including our independent registered public accounting firm, alleging that these
firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ audit
work papers with respect to certain Chinese Mainland-based companies under the SEC’s investigation.
On January 22, 2014, the administrative law judge, or the ALJ, presiding over the matter rendered an initial decision that each of the
firms had violated the SEC’s rules of practice by failing to produce audit workpapers to the SEC. The initial decision censured each of
the firms and barred them from practicing before the SEC for a period of six months. On February 12, 2014, the Big Four Chinese
Mainland-based accounting firms appealed the ALJ’s initial decision to the SEC. On February 6, 2015, before a review by the
Commissioner had taken place, the Chinese accounting firms reached a settlement with the SEC whereby the proceedings were stayed.
Under the settlement, the SEC accepted that future requests by the SEC for the production of documents would normally be made to the
CSRC. The Chinese accounting firms would receive requests matching those under Section 106 of the Sarbanes-Oxley Act of 2002, and
would be required to abide by a detailed set of procedures with respect to such requests, which in substance would require them to
facilitate production via the CSRC. The CSRC for its part initiated a procedure whereby, under its supervision and subject to its approval,
requested classes of documents held by the accounting firms could be sanitized of problematic and sensitive content so as to render them
capable of being made available by the CSRC to US regulators.
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Under the terms of the settlement, the underlying proceeding against the four Chinese Mainland-based accounting firms was deemed
dismissed with prejudice at the end of four years starting from the settlement date, which was on February 6, 2019. Despite the final
ending of the proceedings, the presumption is that all parties will continue to apply the same procedures: i.e. the SEC will continue to
make its requests for the production of documents to the CSRC, and the CSRC will normally process those requests applying the
sanitisation procedure. We cannot predict whether, in cases where the CSRC does not authorize production of requested documents to the
SEC, the SEC will further challenge the four Chinese Mainland-based accounting firms’ compliance with U.S. law. If additional
challenges are imposed on the Chinese affiliates of the “big four” accounting firms, we could be unable to timely file future financial
statements in compliance with the requirements of the Exchange Act.
In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United
States with major Chinese Mainland operations may find it difficult or impossible to retain auditors in respect of their operations in the
Chinese Mainland, which could result in financial statements being determined to not be in compliance with the requirements of the
Exchange Act, including possible delisting. Moreover, any negative news about the proceedings against these audit firms may cause
investor uncertainty regarding Chinese Mainland-based, United States-listed companies and the market price of our ADSs may be
adversely affected.
If the accounting firms are subject to additional remedial measures, our ability to file our financial statements in compliance with
SEC requirements could be impacted. A determination that we have not timely filed financial statements in compliance with SEC
requirements would substantially reduce or effectively terminate the trading of our ADSs in the United States.
Our ADSs may be prohibited from trading in the United States under the HFCA Act in the future if the PCAOB is unable to
inspect or investigate completely auditors located in Chinese Mainland. The delisting of the ADSs, or the threat of their being
delisted, may materially and adversely affect the value of your investment.
The HFCA Act was signed into law on December 18, 2020 and amended pursuant to the Consolidated Appropriations Act, 2023 on
December 29, 2022. Under the HFCA Act and the rules issued by the SEC and the PCAOB thereunder, if we have retained a registered
public accounting firm to issue an audit report where the registered public accounting firm has a branch or office that is located in a
foreign jurisdiction and the PCAOB has determined that it is unable to inspect or investigate completely because of a position taken by
an authority in the foreign jurisdiction, the SEC will identify us as a “covered issuer”, or SEC-identified issuer, shortly after we file with
the SEC a report required under the Securities Exchange Act of 1934, or the Exchange Act (such as our annual report on Form 20-F) that
includes an audit report issued by such accounting firm; and if we were to be identified as an SEC-identified issuer for two consecutive
years, the SEC would prohibit our securities (including our shares or ADSs) from being traded on a national securities exchange or in the
over-the-counter trading market in the United States.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or
investigate completely registered public accounting firms headquartered in Chinese Mainland and Hong Kong and our auditor was
subject to that determination. On December 15, 2022, the PCAOB removed Chinese Mainland and Hong Kong from the list of
jurisdictions where it is unable to inspect or investigate completely registered public accounting firms.
Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in Chinese Mainland and Hong
Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate
completely accounting firms in Chinese Mainland and Hong Kong and we use an accounting firm headquartered in one of these
jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified
Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCA Act, our securities
would be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if
we are identified as a Commission-Identified Issuer for two consecutive years in the future. If our shares and ADSs are prohibited from
trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a market for our shares will
develop outside of the United States. A prohibition of being able to trade in the United States would substantially impair your ability to
sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact
on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at
all, which would have a material adverse impact on our business, financial condition, and prospects.
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The Chinese Mainland government exerts substantial influence over the manner in which we must conduct our business
activities. Any actions by Chinese government, including any decision to intervene or influence our operations or to exert control
over any offering of securities conducted overseas and/or foreign investment in Chinese Mainland-based issuers, may cause us to
make material changes to our operation, may limit or completely hinder our ability to offer or continue to offer securities to
investors, and may cause the value of such securities to significantly decline or be worthless.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese
economy through regulation and state ownership. Substantially all of our operations are located in Chinese Mainland. Our ability to
operate in Chinese Mainland may be harmed by changes in its laws and regulations, including those relating to taxation, data
information, environmental regulations, land use rights, property and other matters. The central or local governments of these
jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and
efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future,
including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional
or local variations in the implementation of economic policies, could have a significant effect on economic conditions in Chinese
Mainland or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Mainland Chinese
properties.
As such, our business segments may be subject to various government and regulatory interference in the provinces in which they
operate. We could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and
government sub-divisions. We may incur increased costs necessary to comply with existing and newly adopted laws and regulations or
penalties for any failure to comply.
Furthermore, it is uncertain when and whether we will be required to obtain permission from the Chinese Mainland government to
list on U.S. exchanges or enter into the VIE Agreements in the future, and even when such permission is obtained, whether we will be
denied or rescinded. Although we are currently not required to obtain permission from any of the Chinese Mainland federal or local
government to obtain such permission and has not received any denial to list on the U.S. exchange and/or enter into VIE Agreements, our
operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business or
industry.
Risks Relating to Our Ordinary Shares and ADSs
The trading price of the ADSs may be volatile, which could result in substantial losses to you.
The trading price of our ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen
because of broad market and industry factors, like the performance, and fluctuation in market prices, of other companies with business
operations located mainly in Chinese Mainland that have listed their securities in the United States. The securities of some of these
companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines
in the trading prices of their securities. The trading performances of other Chinese companies’ securities after their offerings, including
Internet companies, online retail and mobile commerce platforms and consumer finance service providers, may affect the attitudes of
investors towards Chinese companies listed in the United States, which consequently may impact the trading performance of the ADSs,
regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance
practices or fraudulent accounting, corporate structure or matters of other Chinese companies may also negatively affect the attitudes of
investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities.
Furthermore, securities markets may from time to time experience significant price and volume fluctuations that are not related to our
operating performance, such as the large decline in share prices in the United States, China and other jurisdictions in late 2008, early
2009, the second half of 2011 and in 2015, which may have a material and adverse effect on the trading price of the ADSs.
In addition to the above factors, the price and trading volume of the ADSs may be highly volatile due to multiple factors, including
the following:
●
regulatory developments affecting us or our industry;
●
announcements of studies and reports relating to the quality of our credit offerings or those of our competitors;
●
changes in the economic performance or market valuations of other consumer finance service providers;
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●
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 market for consumer finance services;
●
announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint
ventures, capital raisings or capital commitments;
●
additions to or departures of our senior management;
●
fluctuations of exchange rates between the Renminbi and the U.S. dollar;
●
allegations of a lack of effective internal control over financial reporting resulting in financial; inadequate corporate governance
policies, or allegations of fraud, among other things, involving China-based issuers;
●
release or expiry of lock-up or other transfer restrictions on our outstanding shares or ADSs; and
●
sales or perceived potential sales of additional ordinary shares or ADSs.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the
market price for the ADSs and trading volume could decline.
The trading market for the ADSs will depend in part on the research and reports that securities or industry analysts publish about us
or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who
covers us downgrades the ADSs or publishes inaccurate or unfavorable research about our business, the market price for our ADSs
would likely decline. If one or more of these analysts cease coverage of the Company or fail to publish reports on us regularly, we could
lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSs to decline.
Because the amount, timing, and whether or not we distribute dividends at all is entirely at the discretion of our board of
directors, you may mainly rely on price appreciation of the ADSs for return on your investment.
On August 28, 2023, we announced a special cash dividend of US$0.17 per ADS with a record date of September 19, 2023. On
March 26, 2024, our board of directors approved a semi-annual cash dividend policy. Under the dividend policy, starting from 2024, the
determination to declare and pay such semi-annual dividend and the amount of dividend in any particular half year will be made at the
discretion of the board and will be based upon the Company’s operations and earnings, cash flow, financial condition and other relevant
factors that the board may deem appropriate. On March 26, 2024, pursuant to the semi-annual dividend policy, the board has approved
the declaration and payment of a semi-annual dividend of US$0.17 per ADS for the second half of 2023. On August 21, 2024, pursuant
to the semi-annual dividend policy, our board has approved the declaration and payment of a semi-annual dividend of US$0.17 per ADS
for the first half of 2024. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend
Policy.” Based on our current policy, the amounts of dividends will vary based on the existence and amount of net profits that we can
generate. Our board of directors may revise our dividend policy, or it may choose to cancel our dividend policy entirely. 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 out of either profit or share premium account, provided that
in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the
ordinary course of business. Even if our board of directors decides to 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. Accordingly, the return on your investment in the ADSs will likely depend
mainly upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate in value or even maintain the
price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs and you may even lose your entire
investment in the ADSs.
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Substantial future sales or perceived potential sales of the ADSs in the public market could cause the price of the ADSs
to decline.
Sales of the ADSs in the public market, or the perception that these sales could occur, could cause the market price of the ADSs to
decline significantly. The total number of ordinary shares outstanding as of March 31, 2025 was 253,256,363 ordinary shares, comprised
of 155,656,363 Class A ordinary shares and 97,600,000 Class B ordinary shares. All ADSs representing our ordinary shares will be
freely transferable by persons other than our “affiliates” without restriction or additional registration under the U.S. Securities Act of
1933, as amended, or the Securities Act. All of the other ordinary shares outstanding will be available for sale, subject to volume and
other restrictions as applicable under Rules 144 and 701 under the Securities Act. Any or all of these ordinary shares may be released
prior to the expiration of the applicable lock-up period at the discretion of the designated representatives. To the extent shares are
released before the expiration of the applicable lock-up period and sold into the market, the market price of the ADSs could decline
significantly.
Certain major holders of our ordinary shares will have the right to cause us to register under the Securities Act the sale of their
shares, subject to the applicable lock-up periods in connection with our initial public offering. Registration of these shares under the
Securities Act would result in ADSs representing these shares becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of the registration. Sales of these ADSs in the public market could cause the price of the ADSs to
decline significantly.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your
right to direct the voting of your Class A ordinary shares underlying your ADSs.
Holders of ADSs do not have the same rights as our registered shareholders. As a holder of our ADSs, you will not have any direct
right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting
rights which attach to the Class A ordinary shares underlying your ADSs indirectly by giving voting instructions to the depositary in
accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions
to the depositary, as holder of the Class A ordinary shares underlying your ADSs. Upon receipt of your voting instructions, the depositary
may try to vote the Class A ordinary shares underlying your ADSs in accordance with your instructions. If we ask for your instructions,
then upon receipt of your voting instructions, the depositary will try to vote the underlying Class A ordinary shares in accordance with
those instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in accordance with
instructions you give, but it is not required to do so. You will not be able to directly exercise any right to vote with respect to the
underlying Class A ordinary shares unless you withdraw the shares and become the registered holder of such shares prior to the record
date for the general meeting. When a general meeting is convened, you may not receive sufficient advance notice of the meeting to
enable you to withdraw the shares underlying your ADSs and become the registered holder of such shares prior to the record date for the
general meeting to allow you to attend the general meeting and to vote directly with respect to any specific matter or resolution to be
considered and voted upon at the general meeting. In addition, under our second amended and restated articles of association, for the
purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our
register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of
such a record date may prevent you from withdrawing the Class A ordinary shares underlying your ADSs and becoming the registered
holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. Where any
matter is to be put to a vote at a general meeting, the depositary will notify you of the upcoming vote and to deliver our voting materials
to you. We cannot assure you that you will receive the voting material in time to ensure you can direct the depositary to vote your shares.
In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out
your voting instructions. This means that you may not be able to exercise your right to direct how the shares underlying your ADSs are
voted and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.
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Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make
rights available to you in the 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 in the future and may experience dilution in your holdings.
You may not receive non-cash distributions if the depositary decides it is impractical to make them available to you.
To the extent that there is a distribution, the depositary has agreed to distribute to you the securities or other property it or the
custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these
distributions in proportion to the number of 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.
ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in
less favorable outcomes to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, to the fullest extent permitted by
law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our
shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.
If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was
enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge,
the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not
been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver
provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal
or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In
determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party
knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit
agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the
deposit agreement.
If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters
arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial
owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits
against us and / or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard
only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result
in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such
action.
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Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the
deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any
holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities
laws and the rules and regulations promulgated thereunder.
Certain judgments obtained against us by our shareholders may not be enforceable.
We are an exempted company incorporated under the laws of the Cayman Islands. We conduct our operations outside the United
States and substantially all of our assets are located outside the United States. In addition, substantially all of our directors and executive
officers and the experts named in this annual report reside outside the United States, and most of their assets are located outside the
United States. As a result, it may be difficult or impossible for you to bring an action against us or against them in the United States in
the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are
successful in bringing an action of this kind, the laws of the Cayman Islands, Chinese Mainland or other relevant jurisdiction may render
you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the
relevant laws of the Cayman Islands and Chinese Mainland.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited,
because we are incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our
memorandum and articles of association, the Cayman Companies Act and the common law of the Cayman Islands. The rights of our
shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under
Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands
is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the
decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our
shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under
statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands have a less developed body of
securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies
of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder
derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate
records (other than copies of our memorandum and articles of association, our register of mortgages and charges, and copies of any
special resolutions passed by the shareholders) or to obtain copies of lists of shareholders of these companies. Our directors will have
discretion under our second amended and restated memorandum and articles of association, to determine whether or not, and under what
conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders.
This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder resolution or
to solicit proxies from other shareholders in connection with a proxy contest.
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions
taken by our management, members of our board of directors or our controlling shareholders than they would as public shareholders of a
company incorporated in the United States. For a discussion of significant differences between the provisions of the Cayman Companies
Act and the laws applicable to companies incorporated in the United States and their shareholders.
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Our second amended and restated memorandum and articles of association contain anti-takeover provisions that could
discourage a third party from acquiring us, which could limit our shareholders’ opportunity to sell their shares, including
ordinary share represented by ADSs, at a premium.
We have adopted the second amended and restated memorandum and articles of association which became effective immediately
prior to the completion of our initial public offering that contain provisions to limit the ability of others to acquire control of the
Company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders
of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain
control of the Company in a tender offer or similar transaction. For example, our board of directors has the authority, without further
action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges,
and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights,
conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights
associated with our ordinary shares, including ordinary shares represented by ADS. Preferred shares could be issued quickly with terms
calculated to delay or prevent a change in control of the Company or make removal of management more difficult. If our board of
directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our ordinary
shares and the ADSs may be materially and adversely affected. In addition, our amended and restated memorandum and articles of
association contain other provisions that could limit the ability of third parties to acquire control of the Company or cause us to engage in
a transaction resulting in a change of control.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain
provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities
rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
●
the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on
Form 8-K;
●
the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security
registered under the Exchange Act;
●
the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and
liability for insiders who profit from trades made in a short period of time; and
●
the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to
publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NYSE. Press releases
relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required
to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by
U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you
were you investing in a U.S. domestic issuer.
As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters
that differ significantly from the NYSE corporate governance listing standards; these practices may afford less protection to
shareholders than they would enjoy if we complied fully with the NYSE corporate governance listing standards.
We are an exempted company incorporated in the Cayman Islands, and our ADSs are listed on the NYSE. The NYSE market rules
permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance
practices in the Cayman Islands, which is our home country, differ significantly from the NYSE corporate governance listing standards.
Among other things, we are not required under the NYSE corporate governance listing standards to: (i) have a majority of the board
be independent; (ii) obtain shareholders’ approval for issuance of securities in certain situations; or (iii) have regularly scheduled
executive sessions with only independent directors each year.
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We intend to rely on the exemptions described above unless otherwise required under the applicable laws and regulations or
disclosed in this annual report. As a result, you may not be provided with the benefits of certain corporate governance requirements of
the NYSE.
There is a significant risk that we were a passive foreign investment company, or PFIC, for 2020 and we may be a PFIC for the
current or subsequent taxable years, which could result in adverse U.S. federal income tax consequences to U.S. investors in our
ADSs or our ordinary shares.
In general, a non-U.S. corporation is a PFIC for any taxable year in which (i) 75% or more of its gross income consists of passive
income or (ii) 50% or more of the quarterly value of its assets (generally determined on a quarterly basis) consists of assets that produce,
or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that owns at least 25%
by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and
received directly its proportionate share of the income of the other corporation. Passive income generally includes interest (and income
equivalent to interest), dividends, rents, royalties and gains from financial investments. Cash is generally a passive asset for these
purposes. Goodwill (which may be determined by reference to the excess of the sum of the corporation’s market capitalization and
liabilities over the value of its assets) is an active asset to the extent attributable to business activities that produce active income.
Due to the decrease in our market capitalization and uncertainties as to the proper classification of certain items of our income and
assets for purposes of the PFIC rules, there is a significant risk that we were a PFIC for our 2020 taxable year. The proper application of
the PFIC rules to us is not clear. For example, it is uncertain whether for purposes of the PFIC rules we should be treated as the owner of
the Consolidated Trusts’ assets. Although such trusts are consolidated on our financial statements for accounting purposes, based on the
manner in which we and the trusts currently operate and the nature of our rights and obligations with respect to the trusts, we believe it is
reasonable to treat the trusts’ assets (to the extent not attributable to any investment by us in the trusts) as not owned by us for purposes
of the PFIC rules, but there can be no assurance in this regard. If the trusts’ assets were treated as owned by us for PFIC purposes, we
would be a PFIC for our 2020 taxable year. Moreover, the value of our goodwill for 2020 was not a positive amount and it is not entirely
clear how the percentage of our active assets should be calculated in such circumstances, and to what extent certain assets shown on our
balance sheet should be treated as active for purposes of determining our PFIC status. In addition, it is not entirely clear how the
contractual arrangements between us and our VIEs will be treated for purposes of the PFIC rules. Because we exercise effective control
over the operation of our VIEs and are entitled to substantially all of their income, we believe it is appropriate to treat the VIEs as owned
by us for purposes of the PFIC rules. However, there can be no assurance in this regard and we may be a PFIC for any taxable year if our
VIEs are not treated as owned by us for such purposes. For these reasons, there is a significant risk that we were a PFIC for our taxable
2020 year and that we will be a PFIC for our current and future taxable years.
If we are a PFIC for any taxable year during which a U.S. investor owns ADSs or ordinary shares, certain adverse U.S. federal
income tax consequences could apply to such U.S. investor. For example, a U.S. investor may be subject to increased tax liabilities and
generally will be subject to certain reporting requirements. See “Item 10. Additional Information—10.E. Taxation—U.S. Federal Income
Taxation—Passive Foreign Investment Company.”
We will continue to incur increased costs as a result of being a public company, particularly after we ceased to qualify as an
“emerging growth company.”
Since the completion of our initial public offering, we have incurred and expect to continue to incur significant legal, accounting and
other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented
by the SEC and the NYSE, imposes various requirements on the corporate governance practices of public companies.
These rules and regulations increase our legal and financial compliance costs and make some corporate activities more time-
consuming and costly. As we are no longer an “emerging growth company”, we have incurred and expect to continue to incur significant
expenses and devote substantial management effort towards ensuring compliance with the requirements of Section 404 of the Sarbanes-
Oxley Act of 2002 and the other rules and regulations of the SEC. For example, we have incurred and will continue to incur additional
costs associated with our public company reporting requirements.
In the past, shareholders of a public company often brought securities class action suits against the company following periods of
instability in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount
of our management’s attention and other resources from our business and operations, which could harm our results of operations and
require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our
reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required
to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
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Risks Relating to Our Investment
We make investments using our own capital and do not expect to realize any profits from these investments for a considerable
period of time.
We make investments using our own capital in certain limited partnership interests of private partnerships. We believe that those
investments can bring an opportunity of exploring innovative technologies and the potential for improved profitability in long term,
which is in line with our business strategies, and currently have no plans to dispose of our current investments. We may make unsound
investment decisions for this reason or due to fraudulent and concealed, inaccurate or misleading statements from a target partnership in
the course of our due diligence, which could lead us to mistakenly estimate the value of the target company and affect our ability to
derive profit from such investments. In addition, our understanding and judgment of the investments that those partnerships make may be
mistaken and result in unwise investment decisions.
Certain of our investments in partnerships focus on the blockchain industry and digital assets and are subject to certain risks of the
blockchain industry and digital assets. Digital assets built on blockchain technology remain in the early stages of development. Digital
assets are a new asset class that, as of yet, have not been widely adopted. Any significant decline in the value of our investment portfolio
may therefore adversely impact our business, results of operations, and financial condition.
In addition, as a limited partner, we do not have ability to take in the control or management of the affairs or the conduct of the
business of those partnerships. We do not have the necessary power to mandate or block material partnership actions. If these
partnerships fail to carry out business in a compliant manner, incur overly excessive amount of debt or go bankrupt, or the business
operations decline, the fair value of our investment in these companies may deteriorate or, in extreme cases, decrease to zero. The
partnerships that focus on the high-tech industry or emerging companies normally put the funds raised from limited partners in small or
mid-size banks that are more likely subject to financial instability and liquidity risks. If these small or mid-size banks fail or go bankrupt,
we may suffer the loss of our investments in the partnerships. We are subject to the risk that the general partners or the management of
these partnerships may act in a manner that does not serve our interests. The general operational risks, such as inadequate or failing
internal control of these partnerships, may also expose our investments to risks. Furthermore, these partnerships may fail to abide by their
agreements with us, for which we may have limited or no recourse. Our investees may not issue distributions, or even if they do, we may
not be able to secure liquidity conveniently until we receive such distributions. Failure of our investees to perform their obligations or to
achieve their expected results, or any negative publicity, whether or not substantiated, may adversely affect our reputation and brand. If
any of the foregoing were to occur, our business, reputation, financial condition and results of operations could be materially and
adversely affected.
Poor performance of our investments could cause a decline in our revenue and could negatively impact our ability to raise
capital.
Poor performance of our investments may deter future investment in us and thereby decrease our revenue and thus have a material
adverse effect on our results of operations, financial condition and cash flow. If an investee performs poorly, we will receive little or no
income, or possibly losses, from any principal investment, which could adversely affect our financial position.
Our strategic investing business is subject to liquidity risks.
Certain of our investments are in the form of limited partnership interests that are not publicly traded and are subject to liquidity
risks. In many cases, there may be prohibition by contract or by applicable laws from selling such limited partnership interests for a
period of time or there may not be a public market for such securities. Accordingly, under certain conditions, we may be forced to either
sell limited partnership interests at lower prices than we had expected to realize or defer, potentially for a considerable period of time,
sales that we had planned to make. Investing in these securities can involve a high degree of risk, and we may lose some or all of the
principal amount of such investments. In addition, market conditions and regulatory environment can also delay our exit and realization
of investments.
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The investigation process that we undertake in connection with our investments may not reveal all facts that may be relevant in
connection with an investment.
Before making our investments, we conduct investigation that we deem reasonable and appropriate based on the facts and
circumstances applicable to each investment opportunity. The objective of the investigation process is to identify both the attractive
attributes of and risks associated with an investment. When conducting investigation, we may need to evaluate important and complex
business, financial, regulatory, tax, accounting, environmental and legal issues. Outside consultants, legal advisors, and accountants may
be involved in the process in varying degrees depending on the type of investment.
When conducting investigation and assessing an investment, we rely on the resources available to us, including information from the
target and, in some circumstances, third-party investigations and analysis. The information available to us in conducting investigation of
our investment may be limited. Accordingly, the investigation that we carry out with respect to an investment opportunity may not reveal
or highlight all relevant facts that may be necessary or helpful in evaluating it.
In addition, investment opportunities may involve companies that have historic and/or unresolved regulatory, tax-, fraud or
accounting-related investigations, audits or inquiries and/or have been subject to accusations of improper behavior (including bribery and
corruption). Even specific, enhanced investigations with respect to such matters may not reveal or highlight all facts and circumstances
that may be relevant to evaluating the investment opportunity and/or accurately identifying and assessing settlements, enforcement
actions and judgments that could arise and have a material adverse effect on the portfolio company’s operations, financial condition, cash
flow, reputation and prospects. Our investigations may not result in us making successful investments. Failure to identify risks associated
with our investments could have a material adverse effect on our results of operations, financial condition and cash flow.
Volatility in the price of digital assets could cause significant fluctuation in the value of our investment and adversely affect our
financial position.
Certain private partnerships we invested in focus on the blockchain industry investment. The prices of digital assets have historically
been subject to dramatic fluctuations and are highly volatile. A decrease in the price of a single digital asset may cause volatility in the
entire digital asset industry. Certain digital assets may become more volatile and less liquid in a very short period of time, resulting in
market prices being subject to erratic and abrupt market movement, which could harm our investments. In 2022, market volatility in the
prices of digital assets has been elevated due to a variety of factors, including, but not limited to, the macroeconomic environment (high
inflation and rising interest rates) as well as the ”crypto credit crisis” brought on by the collapse and bankruptcy of a small number of key
players in the sector (cryptocurrency Luna collapse, hedge fund Three Arrows Capital default on loans and filing for bankruptcy, crypto-
lending platform Celsius freezing all withdraws, cryptocurrency lender Voyager Digital filing for bankruptcy, Crypto exchange FTX
filing for bankruptcy among others). In response to the market volatility experienced in 2022, we have provided additional impairment
and loss for the investments that have been affected. In 2024, the overall improved performance in digital asset market did not necessitate
any further impairment or loss recognition for those investments. However, there are still uncertainties of the volatility in the price of
digital assets in the future, which depend on a number of factors beyond the Company’s control and are difficult to predict. As a result,
the market volatility in the prices of digital assets in the future could cause significant fluctuation in the value of our investment and
adversely affect our financial position.
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ITEM 4. INFORMATION ON THE COMPANY
4.A. History and Development of the Company
Shenzhen Ying Zhong Tong Financial Information Service Co., Ltd., or Shenzhen Ying Zhong Tong (VIE), was incorporated in
March 2014 and controlled by Mr. Yue (Justin) Tang. In October 2016, entities controlled by Mr. Yue (Justin) Tang, Mr. Baoguo Zhu and
other investors incorporated Shenzhen Xiaoying Technology Co., Ltd., or Shenzhen Xiaoying (VIE). In December 2016, Shenzhen
Xiaoying (VIE) acquired all of the equity interest in Shenzhen Ying Zhong Tong (VIE). In December 2017, we underwent a restructuring
in contemplation of our initial public offering. After such restructuring, the shareholders of Shenzhen Xiaoying (VIE) were changed to
Mr. Yue (Justin) Tang, entities controlled by Mr. Yue (Justin) Tang and Mr. Baoguo Zhu.
In March 2015, our co-founders, Mr. Yue (Justin) Tang and Mr. Baoguo Zhu, incorporated Beijing Ying Zhong Tong Rongxun
Technology Service Co., Ltd, or Beijing Ying Zhong Tong (VIE), which is controlled by Mr. Yue (Justin) Tang.
In December 2016, Xi’an Bailu Enterprise Management Co., Ltd., or Xi’an Bailu, incorporated Shenzhen Xintang Information
Consulting Co., Ltd., or Shenzhen Xintang (VIE), which used Shenzhen Tangren Financing Guarantee Co., Ltd as its name at that time.
Xi’an Bailu, which held 100% equity interest in Shenzhen Xintang (VIE), is ultimately controlled by Mr. Yue (Justin) Tang and two other
individuals who are his business partners, while the capital contribution of Shenzhen Xintang (VIE) paid by Xi’an Bailu was borrowed
from Shenzhen Xiaoying (VIE). We control Shenzhen Xintang (VIE) and receive the economic benefits of Shenzhen Xintang (VIE)’s
business operation through the VIE Agreements entered with Xi’an Bailu.
In January 2015, we incorporated Winning Financial Service Inc. under the laws of the Cayman Islands as our offshore holding
company, which later changed its name to X Financial in August 2017. Subsequently, we incorporated YZT (HK) Limited as X
Financial’s wholly-owned subsidiary and our intermediate holding company to facilitate financing. In October 2015, YZT (HK) Limited
incorporated Xiaoying (Beijing) Information Technology Co., Ltd. (currently named as Xiaoying (Beijing) Information Technology
Group Co., Ltd.), or Beijing WFOE, as its wholly-owned subsidiary in the Chinese Mainland, through which we obtained control over
Shenzhen Xintang (VIE) on a series of contractual arrangements entered into on December 9, 2022 and Beijing Ying Zhong Tong (VIE)
and Shenzhen Xiaoying (VIE) (together with Shenzhen Xintang (VIE), on a series of contractual arrangements entered into on December
22, 2017, respectively. Such contractual arrangements consist of equity pledge agreements, shareholders’ voting rights proxy agreement,
spousal consent letter, and exclusive business cooperation agreements, exclusive call option agreements. See “Item 4. Information on the
Company—4.C. Organizational Structure—Contractual Arrangements with Consolidated VIEs and their Shareholders (“VIE
Agreements”)” for details. In September 2018, we completed an initial public offering of 11,763,478 ADSs (including the ADSs sold
upon the exercise of the over-allotment option granted to the underwriters), representing 23,526,956 Class A ordinary shares. On
September 19, 2018, our ADSs were listed on the NYSE under the symbol “XYF.”
On May 31, 2021, Shenzhen Xiaoying Microcredit Co., Ltd., or Xiaoying Microcredit (VIE), was incorporated in the Chinese
Mainland with online microcredit business operating license by Shenzhen Xiaoying (VIE). Shenzhen Xiaoying (VIE) had completed the
capital contributions of RMB1 billion to Xiaoying Microcredit (VIE) by the end of November, 2021.
On December 6, 2021, as Mr. Baoguo Zhu transferred all shares of Beijing Ying Zhong Tong (VIE) to Mrs. Jing Sun and exited
Beijing Ying Zhong Tong (VIE), the shareholders of Beijing Ying Zhong Tong (VIE) were changed to Mr. Yue (Justin) Tang and Mrs.
Sun Jing. We continue to control Beijing Ying Zhong Tong (VIE) by entering new VIE Agreements with Mr. Yue (Justin) Tang and Mrs.
Sun Jing.
On May 20, 2022, Tianjin Yuexin Financing Guarantee Co., Ltd., or Tianjin Yuexin was incorporated in the Chinese Mainland with
financing guarantee license by Shenzhen Puhui. Shenzhen Puhui had completed the capital contributions of RMB50 million to Tianjin
Yuexin. In June 2022, Shenzhen Xintang did not renew its financing guarantee license. In February 2023, the registered capital of
Shenzhen Xintang was decreased to RMB l million.
In December 2022, with our permission, Xi’an Bailu transferred 100% equity interest in Shenzhen Xintang (VIE) to Shenzhen
Lelebu Information Consulting Co., Ltd, or Shenzhen Lelebu. We continue to control Shenzhen Xintang (VIE) by entering new VIE
Agreements with Shenzhen Lelebu on December 9, 2022.
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On October 10, 2023, as Mr. Baoguo Zhu transferred all shares of Shenzhen Xiaoying (VIE) to an entity controlled by Mr. Yue
(Justin) Tang and exited Shenzhen Xiaoying (VIE), the shareholders of Shenzhen Xiaoying (VIE) were changed to Mr. Yue (Justin) Tang
and entities controlled by Mr. Yue (Justin) Tang. We continue to control Shenzhen Xiaoying (VIE) by entering new VIE Agreements
with Mr. Yue (Justin) Tang and entities controlled by Mr. Yue (Justin) Tang.
In December 2023, the registered capital of Tianjin Yuexin was increased to RMB1 billion.
On December 25, 2024, Chongqing Xiaoying Information Technology Co., Ltd. was incorporated in the Chinese Mainland as a
wholly-owned subsidiary of Shenzhen Xiaoying Puhui Technology Co., Ltd., which plans to commence operations in 2025.
Our corporate headquarters is located at 7 - 8F, Block A, Aerospace Science and Technology Plaza, No. 168, Haide Third Avenue,
Nanshan District, Shenzhen, 518067, the PRC. Our telephone number at this address is +86 - 0755 - 86282977. Our registered office in
the Cayman Islands is located at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1 -
1104, Cayman Islands. We maintain a website at http://ir.xiaoyinggroup.com/ that contains information about our company group, but
that information is not part of this report or incorporated by reference herein.
4.B. Business Overview
Overview
X financial is a leading online personal finance company in China. We are committed to connecting borrowers on our platform with
institutional funding partners. With proprietary big data-driven technology, we have established strategic partnerships with financial
institutions across multiple areas of its business operations, enabling us to facilitate loans to prime borrowers under a robust risk
assessment and control system.
We offer differentiated products specifically catered to the financing needs of individuals in Chinese Mainland. Our main category of
loan products is Xiaoying Credit Loan, a category of online personal credit loan products facilitated through our platform, including
Xiaoying Card Loan and other unsecured loan products that we introduce from time to time. Xiaoying Card Loan is our flagship product
under Xiaoying Credit Loan, which offers borrowers a combination of small credit line and attractive APR in Chinese Mainland.
Our business model is light in labor commitment, and we believe we manage our transaction and operating costs in an effective way.
Benefiting from our loan product offerings, coupled with strong credit performance and accompanying insurance/guarantee protection,
we continue to expand our user base. Furthermore, our highly automated risk management system and technology infrastructure enable
us to automatically facilitate a large number of transactions simultaneously. In 2022, 2023 and 2024, our net revenue per employee was
RMB7,728,742, RMB9,241,620 and 10,429,453, respectively, and our general and administrative expenses as a percentage of our total
net revenues was 4.0%, 3.2% and 3.0% respectively.
We utilize data-driven and technology-empowered credit analysis. Our proprietary risk control system, WinSAFE, builds risk
profiles of our prospective borrowers upon data from reputable credit information providers employed by traditional financial
institutions, augmented by a variety of social and behavioral data from internet and mobile platforms not typically utilized by traditional
financial institutions. Leveraging data analysis and machine learning in assessing a borrower’s value, repayment capability, and
propensity to repay, we are able to offer differentiated credit limits to borrowers based on individual credit assessment result. Our
rigorous data-driven credit assessment methodology has helped us to achieve a strategic balance between borrower expansion and asset
quality control. In 2022, 2023 and 2024, the total loans we facilitated amounted to RMB73,655 million, RMB105,557million and
RMB104,889 million, respectively, while the delinquency rate for all outstanding loans that were 31-60 days past due decreased from
1.57% as of December 31, 2023 to 1.17% as of December 31, 2024.
We benefit from our strategic partnership with various licensed financial institutional cooperators. The protection offered by their
credit insurance or financing guarantee on the loans that we facilitate significantly enhances our intuitional funding partners’ trust in our
business. Our risk management system is also strengthened by those financial institutional cooperators’ insurance or guarantee decision
opinion. Our financial institutional cooperators’ credit assessment models are based on information from various databases, including
information from PBOC CRC which is only available to licensed financial institutions. Our financial institutional cooperators’ insurance
or guarantee decision opinion serves as one of the inputs of our comprehensive credit risk management system, along with other behavior
and credit information.
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We generate revenues primarily from (i) the fees that we charge for our service of matching institutional funding partners with
borrowers (i.e., our loan facilitation service) and for other services we provide over the lifetime of the loan (i.e., our post-origination
service and guarantee service); (ii) interests from borrowers from our microcredit business and the financing fees we charges for the
loans facilitated through the Consolidated Trusts and Partnerships (i.e., our financing income). We charge a service fee to the borrower
indirectly through financial institutional cooperators or to certain institutional funding partners directly. The financing guarantee
companies charge borrowers a guarantee fee, a portion of which will be subsequently paid to us as the service fee. We cooperated with
Shenzhen Xintang (VIE) to provide guarantees for certain loan products that we facilitate in the past. Shenzhen Xintang (VIE) did not
renew its financing guarantee license in 2022. We settled the remaining business of Shenzhen Xintang (VIE) in the first quarter of 2023.
Shenzhen Xintang (VIE) no longer guarantees any loan products. In 2023, one of our Chinese Mainland subsidiaries, Tianjin Yuexin that
holds the financing guarantee license, started the financing guarantee business. See “Item 4. Information on the Company—4.B.
Business Overview—Our Partnership with Financial Institutional Cooperators.” In 2022, our service fee rate (annualized based on
original amount of loan principal) of our major loan products ranged from 0.8% to 12.9% and the service fees we charged for loan
facilitation services, post-origination services and guarantee services accounted for 57.4%, 10.5%, and 0.1%, respectively, of our total net
revenues. In 2023, our service fee rate (annualized based on original amount of loan principal) of our major loan products ranged from
0.8%~11.3% and the service fees we charged for loan facilitation services, post-origination services and guarantee services accounted for
56.9%, 12.4%, and 0.5%, respectively, of our total net revenues. In 2024, our service fee rate (annualized based on original amount of
loan principal) of our major loan products ranged from 0.82% to 11.35% and the service fees we charged for loan facilitation services,
post-origination services and guarantee services accounted for 52.8%, 12.9%, and 3.4%, respectively, of our total net revenues. In 2022,
2023 and 2024, our financing income accounted for 27.1%%, 23.6% and 23.5%, respectively, of our total net revenues.
The total borrowing cost is expressed as APR, the actual annualized cost of borrowing over the term of a loan. The following table
sets forth the APR range of our major loan product for the periods indicated.
Year Ended December 31,
Loan Product
2022
2023
2024
Xiaoying Credit Loan (1)
12.95%~24.23 % 12.82%~24.23 % 10.02%-24.23 %
Note:
(1) Xiaoying Credit Loan is a category of online personal credit loan products facilitated through our platform, including Xiaoying Card
Loan and other unsecured loan products that we introduce from time to time.
Our total net revenue was RMB3,563.0 million in 2022, RMB4,814.9 million in 2023 and RMB5,871.8 million (US$804.4 million)
in 2024. We had a net income of RMB812.0 million in 2022, RMB1,186.8 million in 2023 and RMB1,540.0 million (US$211.0 million)
in 2024.
Our Borrowers and Loan Products
Overview
We strategically target the prime borrowers underserved by traditional financial institutions. We believe we set a high standard of
credit quality by defining our borrowers as prime borrowers, who we define as an individual having sound credit history, who have credit
records with PBOC CRC and usually no late payment record of over 60 days in the previous six months. For the determination of a
prime borrower, we review their credit history, along with our risk management review system.
Xiaoying Credit Loan is our main category of loan products, which consists of Xiaoying Card Loan catering to the young consumers
and other unsecured loan products that we introduce from time to time. Xiaoying Housing Loan caters to the property owners. Our
Xiaoying Credit Loan is an unsecured loan product and our Xiaoying Housing Loan is a secured loan product. We ceased facilitation of
Xiaoying Housing Loan in 2019. In 2022, 2023 and 2024, we focus on our flagship product, Xiaoying Card Loan, which offers
borrowers a combination of small credit line and attractive APR in Chinese Mainland.
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We facilitated loans to 16,309,242 active borrowers, each of whom made at least one transaction on our platform during the period
from the commencement of our loan facilitation business to December 31, 2024. The number of our active borrowers increased from
3,326,774 in 2022 to 4,495,997 in 2023 and then further increased to 5,231,887 in 2024. The amount of loans we facilitated to borrowers
increased from RMB73,655 million in 2022 to RMB105,557 million in 2023 and then slightly decreased to 104,889 million in 2024. The
table below sets forth the breakdown of loan facilitation amount by product for the periods indicated.
Year Ended December 31,
Year Ended December 31,
Year Ended December 31,
2022
2023
2024
RMB in
RMB in
RMB in
Loan Product
millions
%
millions
%
millions
%
Xiaoying Credit Loan (1)
73,526
99.8 % 105,550
100.0 % 104,889
100 %
Others
129
0.2 %
7
0.0 %
—
—
Total
73,655
100.0 % 105,557
100.0 % 104,889
100 %
Notes:
(1) The data set forth herein includes Xiaoying Card Loan and other unsecured loan products that we operated. Xiaoying Card Loan was
launched in December 2016.
Loans that are delinquent for more than 60 days are charged-off and excluded in the outstanding balance, except for Xiaoying
Housing Loan. As Xiaoying Housing Loan is a secured loan product and we are entitled to payment by exercising our rights to the
collaterals, we do not exclude Xiaoying Housing loan delinquent for more 60 days in the outstanding loan balance. The outstanding
balance of loans we facilitated to borrowers increased from RMB38.0 billion as of December 31, 2022 to RMB48.8 billion as of
December 31, 2023 and then further increased to 52.3 billion as of December 31, 2024. The table below sets forth the breakdown of
outstanding loan balance by product as of the dates indicated.
As of December 31,
As of December 31,
As of December 31,
2022
2023
2024
RMB
RMB
RMB
Loan Product
in millions
%
in millions
%
in millions
%
Xiaoying Credit Loan
37,892
99.7 %
48,813
99.9 %
52,302
100 %
Xiaoying Housing Loan
40
0.1 %
34
0.1 %
26
0.0 %
Others
60
0.2 %
—
—
—
—
Total
37,992
100 % 48,847
100 % 52,327
100 %
To make the outstanding loan balance comparable to our peers, we also present the outstanding loan balance excluding loans
overdue more than 180 days, except for Xiaoying Housing Loan. The outstanding balance of loans we facilitated to borrowers increased
from RMB39.1 billion as of December 31, 2022 to RMB51.1 billion as of December 31, 2023 and then further increased to RMB54.2
billion as of December 31, 2024. The table below sets forth the breakdown of outstanding loan balance by product as of the dates
indicated.
As of December 31,
As of December 31,
As of December 31,
2022
2023
2024
RMB
RMB
RMB
Loan Product
in millions
%
in millions
%
in millions
%
Xiaoying Credit Loan
38,958
99.7 % 51,077
99.9 %
54,166
100 %
Xiaoying Housing Loan
40
0.1 %
34
0.1 %
26
0.0 %
Others
62
0.2 %
—
—
—
—
Total
39,060
100 % 51,111
100 % 54,192
100 %
Xiaoying Credit Loan
Xiaoying Credit Loan is our category of unsecured loan products, which currently includes our flagship Xiaoying Card Loan and
may include other unsecured loan products introduced in the future.
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Xiaoying Card Loan
Launched in December 2016, Xiaoying Card Loan, primarily an online personal credit loan product, is our flagship product targeting
prime borrowers.
Borrowers
Xiaoying Card Loan’s target borrowers are primarily young consumers who are in the early stages of their careers with insufficient
credit lines granted by traditional credit card issuers, and they choose Xiaoying Card Loan to supplement their credit lines to fulfill their
consumption needs.
Products
We offer Xiaoying Card Loan in amounts ranging from RMB500 to RMB50,000 with terms of three, six, nine and twelve
installments. Borrowers usually repay the principal and interest accrued based on the original principal amount in equal monthly
installments, provided that, prior to December 7, 2017, we deducted part of the service fees from the loan principal in advance and
received the remaining service fees paid by borrowers in equal monthly installments.
We facilitated 6,217,145 loans, 8,338,928 loans and 9,444,204 loans for Xiaoying Card Loans in 2022, 2023 and 2024, respectively.
The total loan amount of Xiaoying Card Loan we facilitated increased from RMB73,526 million in 2022 to RMB105,550 million in 2023
and then slightly decreased to 104,889 million in 2024. The average loan amount per transaction was RMB11,826 in 2022, RMB12,658
in 2023 and RMB11,106 in 2024. The outstanding balance of Xiaoying Card Loan we facilitated to borrowers increased from
RMB37,892 million as of December 31, 2022 to RMB48,813 million as of December 31, 2023 and further increased to RMB52,302
million as of December 31, 2024.
Transaction Process
We facilitate most of Xiaoying Card Loan through mobile application which is a simple, secure and convenient loan application
process. The following diagram illustrates a simplified transaction process of Xiaoying Card Loan:
Stage 1: Application
Applicants of Xiaoying Card Loan must first register a user account by providing requested personal details, including mobile phone
number and identity card information. With the applicant’s authorization, the identity card will be automatically captured and recognized
by our authentication module through Optical Character Recognition, or OCR technology. Applicants are also required to do specific
poses facing the front camera of their phones to complete automatic biometric recognition. When the registered users choose their
desired loan amount and term of a loan product, they are required to further provide additional information including current residential
addresses, contacts and debit card information used for monthly repayment.
Stage 2: Verification
Upon submission of a completed application, we verify each applicant’s information using multiple authentication technologies and
internal and external databases, including, among others, face scanning and OCR technology, the internal and industry blacklist provided
by third party database and the mobile activities of the applicant, to identify and screen for fraudulent applications. See “—Risk
Management” for details.
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Stage 3: Credit Assessment
Once an applicant’s information is input into our proprietary risk control system, WinSAFE, we will conduct credit assessment based
on our database. We will also send the identity information of the applicant to our financial institutional cooperators and receive their
credit opinion on insurance or guarantee based on their credit analysis model. We will, in accordance with our own risk management
strategies, embed such credit opinion on insurance or guarantee into our risk management model for determining and assigning each
applicant a credit grade. Such credit grade is a comprehensive credit level reflecting our prediction of the applicant’s likelihood of future
delinquency, considering multiple factors, among others, the applicant’s ability to fund repayment obligations. We continue to optimize
our risk management model as we modify and identify more effective proxies to estimate an applicant’s income level. We constantly
incorporate new information into our credit assessment process with our own accumulated data as well as external third party
collaboration such as other online lending platforms to better evaluate the overall indebtedness of the applicant and his or her likelihood
to repay our loans with loans from other platforms. Credit grade will not be adjusted until the same applicant applies for another loan,
when the repayment history of all the existing loans will be added into the risk model to determine the credit grade for the new loan
application. See “—Risk Management” for a detailed description of WinSAFE and other aspects of our risk management.
Stage 4: Approval and Funding
Following the credit assessment, we may (i) approve the loan application, (ii) approve the loan subject to modification of the loan
amount, or (iii) decline the loan application. Applicants are notified of the results.
Once the applicant’s loan application is approved, we may send the application to institutional funding partners for their credit
assessment. Once a loan is fully subscribed after the credit assessment of our institutional funding’s risk control model, funds are
transferred to the borrower’s account. The borrower will enter into related agreements for funding.
Stage 5: Servicing and Collection
We provide repayment reminder services through in-app notifications, SMSs or phone calls by our service representatives before the
due date for each scheduled repayment. We collect a penalty fee from a defaulting borrower on a daily basis for past due loan principal.
We establish a score model to differentiate the risk level of a defaulting borrower based on the type of loan products, outstanding
amount, delinquent days and historical repayment pattern. We adopt various approaches, including text messages, phone calls and other
legitimate actions to request repayment of the delinquent loan balance and accrued interests and default charges.
We outsource most of our collection services to third party collection agencies and we require them to use our serving and collection
system and comply with our guidelines and standards. We also monitor the performance of such third party collection agencies to ensure
appropriate collection methods and practices through KPI monitoring, phone call recording playback, site visits, complaint call playback,
internal training, as well as assessments.
Borrower Acquisition and Retention
Xiaoying Card Loan is very attractive to prime borrowers looking for a combination of small credit line and attractive
APR. Supported by our advanced credit analytics, we are able to deliver a superior user experience through user-friendly loan application
process, efficient credit decision, and speedy remittance, which in turn enables us to expand our borrower base. We also advertise our
loan products and loan facilitation services through online channels, including our website and mobile application and cooperation with
search engines, app stores, third party apps and WeChat self-media public accounts.
We continue to provide existing borrowers with convenient lending services to enhance borrower stickiness. For borrowers with
good transaction history, we may raise their loan limit, offer discounted service fees and a better referral program.
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Xiaoying Housing Loan
In July 2015, we started to facilitate Xiaoying Housing Loan, a home equity loan product secured by properties owned by borrowers.
Xiaoying Housing Loan’s target borrowers are primarily small business owners holding properties with short-term liquidity and capital
needs for daily operations and consumption. Since February 2019, we have strategically ceased the facilitation of Xiaoying Housing
Loan due to the time-consuming foreclosure process of underlying collateral for defaulted loans. We do not charged-off and exclude
Xiaoying Housing loan delinquent for more 60 days in the outstanding loan balance, as Xiaoying Housing Loan is a secured loan product
and we are entitled to payment by exercising our rights to the collaterals. The outstanding balance of Xiaoying Housing Loan we
facilitated to borrowers decreased from RMB40 million as of December 31, 2022 to RMB34 million as of December 31, 2023 and
further decreased to RMB26 million as of December 31, 2024. Borrowers of Xiaoying Housing Loan entered into an entrusted guarantee
agreement and a security agreement with Shenzhen Xintang (VIE) under which the borrower payed fees to Shenzhen Xintang (VIE) for
providing guarantee to the investor or institutional funding partners of Xiaoying Housing Loan and established mortgage in its real
properties as a security for Shenzhen Xintang (VIE)’s guarantee services. The guarantee related to the default of the outstanding balance
of Xiaoying Housing Loan were all settled by the end of the first quarter of 2020.
Our Investors and Institutional Funding Partners
In May 2021, we obtained a network microcredit license from the Local Financial Regulatory Bureau of Shenzhen Municipality and
started online microcredit business in July 2021. In 2022, 97.3% of the total funding for loans we facilitated were provided by
institutional funding partners and 2.7% were provided by our own capital. In 2023, 97.2% of the total funding for loans we facilitated
were provided by institutional funding partners and 2.8% were provided by our own capital. In 2024, 95.9% of the total funding for loans
we facilitated were provided by institutional funding partners and 4.1% were provided by our own capital.
As part of our efforts to expand our cooperation with institutional funding partners, we established a business relationship with
certain trusts which were administered by third party trust companies. The trusts were set up to invest solely in the loans facilitated by us
on our platform to provide returns to the beneficiaries of the trusts through interest payments made by the borrowers. In 2021, we further
developed a new business model with certain trust partners. We and certain trusts jointly established several limited partnership
enterprises, or LPs, to invest solely in the loans facilitated by us on our platform to provide returns to us through interest payments made
by the borrowers. In terms of the partnership agreements, we, as the general partner, are responsible for the business operations of the
LPs and authored to execute contracts on behalf of the LPs. We determine to consolidate these trusts and LPs as we have the power to
direct the operating activities and absorb or enjoys the potential residual losses or returns of the trusts and LPs.
In connection with our collaboration with institutional funding partners, we have jointly established effective risk control
management system. We work with various financial institutional cooperators, such as insurance companies and financing guarantee
companies to provide insurance or guarantee covering loans funded by institutional funding partners, which enhances the funding
partners’ confidence and enables us to obtain funding sources at favorable terms. In July 2023, Tianjin Yuexin started to provide for
certain loans that we facilitated and were provided by institutional funding partners. Tianjin Yuexin entered into deposit arrangements
with those institutional funding partners to compensate them when it fails to fulfill its obligation. The amount of deposit is separately
agreed with each institutional funding partner.
Our Partnership with Financial Institutional Cooperators
We have established in-depth cooperation with financial institutional cooperators, such as insurance companies and financial
guarantee companies, who provide credit insurance/financial guarantee services to protect funding providers against default for both the
principal and interest. We monitor their financial conditions and credit rating periodically. Substantially all of them have at least AA+
credit rating issued by renowned rating companies. Our institutional cooperators provide services covering both the North China and
South China areas, most of which have a registered capital of more than RMB1 billion. 91.5% of our outstanding loans were covered by
the credit insurance/ financial guarantee services provided by external financial institutional cooperators as of December 31, 2024.
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Credit Insurance and Guarantee Services
We cooperated with Shenzhen Xintang (VIE) to provide guarantees for certain loan products that we facilitate in the past. Shenzhen
Xintang (VIE) did not renew its financing guarantee license in 2022. We settled the remaining business of Shenzhen Xintang (VIE)in the
first quarter of 2023. Shenzhen Xintang (VIE) no longer guarantees any loan products. In June 2023, one of our Chinese Mainland
subsidiaries, Tianjin Yuexin that holds the financing guarantee license, started the financing guarantee business for certain loans funded
by Xiaoying Microcredit (VIE). In July 2023, Tianjin Yuexin started to provide for certain loans that we facilitated and were provided by
institutional funding partners. Tianjin Yuexin also built a new business model by collaboration with external financing guarantee
companies, where Tianjin Yuexin assumes 20% of the guarantee liability, and the external financing guarantee company assumes 80% of
the guarantee liability. Under this business model, Tianjin Yuexin has the obligation to pay 20% of the defaulted principal and interest to
our institutional funding partners and no obligation to pay to the external financing guarantee company. In 2024, Tianjin Yuexin
introduced a new business model involving collaborations with external financing guarantee companies. This new arrangement
specifically requires Tianjin Yuexin to make payments, up to a pre-agreed cap, to reimburse external financing guarantee companies for a
pre-determined portion of borrower payment defaults and the guarantee fee amount that was not collected due to prepayments. Under
this business model, Tianjin Yuexin has no obligation to pay to the institutional funding partners. In 2025, we expect to deepen our
cooperation with other financial institutional cooperators to provide guarantees for the loans that we facilitate in the future.
We have expanded our cooperation with high-quality external financial institutional cooperators that provide services to protect
institutional funding partners from losses incurred from borrowers’ defaults and charge fees to borrowers. A portion of the fees will be
subsequently paid to us by the external financial institutional cooperators as the service fee.
Deposit Arrangement
Starting from November 2019, we enter into a series of deposit arrangements with financial institutional cooperators. We are
required to pay deposits to those financial institutional cooperators monthly or in accordance with an agreed payment schedule. The
amount of deposit is separately agreed with each institutional cooperator, usually calculated by multiplying the outstanding loan balance
on the reconciliation date by an agreed percent rate (“the standard amount”). The agreed percent rate may be adjusted from time to time.
If the balance of the deposits exceeds the standard amount or supplementary payment of deposit is needed, the financial institutional
cooperators shall refund the excess part to us or we shall make supplementary payment of deposit in accordance with an agreed payment
schedule.
Cooperation on Technology
We cooperate with financial institutional cooperators in technology development. The risk decision system established by our
financial institutional cooperators which is based on their credit analysis model, leveraging its resources and access to various databases,
including PBOC CRC that is only available to licensed financial institutions. provide assistant services to our risk decision process. Such
services include product management, business monitoring and management risk policies. In addition to our financial institutional
cooperators’ decision and input, we also incorporate other credit and fraud related data and models to complete our full credit evaluation.
Third Party Payment Service Providers
We cooperate with third party payment service providers for the payment, settlement and clearance of the proceeds of the loans for
our borrowers and investors. In choosing the third party payment agent, we take into consideration numerous criteria, including network
infrastructure, security measures, reliability, information technology capabilities and experience.
Risk Management
We have adhered to the principal of “Respect Risk” in our operations since our establishment. Leveraging its extensive knowledge
and in-depth insights in risk management from years of working experiences with large and reputable financial institutions, our risk
management team has developed comprehensive risk management system, policies and measures covering data collection and reprocess,
development and upgrading of risk control system, fraud detection and credit scoring and pricing.
The three core elements of our risk management are data, technology and management. We base our credit assessment on rigorous
quantitative analysis. We have developed our proprietary risk control system, WinSAFE, on the foundations of traditional consumer
banking risk management modules with reputable credit information and big data generated from mobile internet to manage the risk in
our daily operation.
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Data Collection and Reprocessing
Sufficient and high-quality data is the foundation for effective risk management. We collect data that is directly provided and
authorized for our use by the user and from multiple third party data providers. We cooperate with third party credit agencies for credit
data of borrowers. Moreover, we accumulate data from social activities, including but not limited to, social circles, website activities,
mobile behavior and contact information. All the data collected by our internal team enables us to build up a comprehensive credit
database to analyze user data from both traditional consumer finance data and the big data generated from mobile internet relating to
users’ social behavior and spending pattern that are typically ignored by traditional financial institutions.
We take advantage of our accumulated massive data and have established a comprehensive profile of each user containing over
10,000 variables covering traditional consumer banking data and the big data generated from mobile internet, providing the solid base for
our credit assessment and decision-making and differentiating us from other consumer finance companies who may only have data in
certain areas. We utilize various data reprocessing technology such as data smoothing algorithm and social network graphic to ensure the
reliability and accuracy of data and perform in-depth data analysis.
Risk Control System and Models
We have independently developed our proprietary risk control system, WinSAFE, which is our decision center and is able to carry
out thousands of testing simultaneously. Based on data collection, processing and analytics, through our WinSAFE system, we continue
to fine-tune mobile lending credit policy through numerous tests each month to achieve best risk returns. The two major components of
our risk management procedures are risk assessment model optimization and credit policy adjustments.
The risk assessment model optimization maintains over 20 models primarily including logistics regression and machine learning
models that are employed at different stages for different products. Each model performs the function independently but operates in close
synchronization with each other, enabling WinSAFE to effectively analyze a borrower’s value, payment capability and payment attitude
to accurately evaluate the borrower’s credit worthiness. Apart from the traditional numerical variables, we also convert unorthodox
inputs, such as human behavior, social relationships and mobile activities, into numerical covariates through complex algorithms. The
credit policy adjustments is established through lifetime value of the users and rigorous stress tests to achieve a balance between business
volume and profitability with an emphasis on business resiliency. We continuously modify and incorporate new information into our
credit policy, such as economic environment, user clientele change and new testing results. The models are updated daily or regularly to
match the business development through machine learning with traditional modeling, providing an increasingly accurate indicator of
default risk with the increasing availability of data.
Currently, through our continuous optimization, WinSAFE is able to process data through the processes from loan application to
approval and is able to make decisions within ten minutes for over 90% of Xiaoying Card Loan, providing instant feedback that the
mobile users are in desire of and strengthening our risk control and fully automatic decision-making capability.
Fraud Detection
We utilize internal and third party databases and authentication technologies, including face scanning and OCR verification of
identity cards and bank cards, to verify and authenticate the identity of the applicant and the submitted application information. We
effectively implement over 300 anti-fraud rules and use our multiple-source database containing various internal and industry blacklists
and multiple-dimension tagging system to detect the probability of individual and group fraud.
Leveraging our in-depth data analysis of the comprehensive data we have collected, we assess the applicant’s payment capability and
payment attitude. We adopt over 10,000 variables in credit assessment and crosscheck with a blacklist of over 1,000,000 fraud data.
Utilizing big data, we apply various analytical processes, such as machine learning, deep learning, graphical analysis, to identify credit
risks and potential fraudulent behavior of each applicant and build and optimize our credit assessment model.
When our risk control system receives an application, we will send the applicant’s insurance or guarantee application to our financial
institutional cooperators and will receive the insurance or guarantee decision opinion from those financial institutional cooperators based
on their credit analysis. We will, in accordance with our own risk management strategies, embed such assessment results into our risk
management models for decision making.
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Credit Scoring and Pricing
We offer differentiated credit pricing and credit limits to prime borrowers based on individual credit grades. Based on our prediction
of the applicant’s likelihood of future delinquency and his/her profile, our risk management system assigns a credit grade to each
remaining Xiaoying Card Loan applicant, with risk level A representing the lowest risk, risk level D representing the highest risk. Such
credit grade is a comprehensive credit level generally determined based on the grouping of an applicant’s basic information, credit
history and behavior data, including personal identity information, education background, consumption and social network behavior, and
insurance or guarantee decision opinion from our financial institutional cooperators. Credit grade is determined at the time of a loan
application and will not be adjusted until the borrower applies for another loan, when the repayment history of all the existing loans will
be added into the risk model to determine the credit grade for the new loan application. In addition to the individual specification
attaching to the credit grade for each applicant, from time to time, we adjust the overall standard of each credit risk level based on market
conditions and our risk management policies when we believe necessary.
We review and modify our segmented pricing from time to time, taking into consideration not only the borrower credit risk but also
other factors, such as market interest rates, adequacy of investor protection mechanism and competition in the market.
Our Technology and IT Infrastructure
Technology System
We believe our technology and IT infrastructure are a competitive advantage and an important reason that borrowers and
institutional funding partners utilize our platform. Key features of our technology and IT infrastructure include:
Abundant Mobile Internet Data
We collected a large amount of borrowers’ credit and behavioral data. The substantial volume of data in the system enables us to
build a comprehensive credit profile for each borrower.
Advanced Computing Technology
We adopt innovative risk pricing models for the accumulation of credit data for loan facilitation platform.
User-friendly Mobile Applications
We have independently developed the mobile applications for borrowers of Xiaoying Card Loan, Xiaoying Revolving Loan and
investors of Xiaoying Wealth Management, respectively. The mobile applications enable users to access our platform at any time and at
any location to make transactions in a convenient way.
The mobile application of Xiaoying Card Loan adopts the OCR identity verification technology (ID card, face, bank card) for
borrowers to complete the verification. We also incentivize the borrowers to recommend the application to their friends by issuing
coupons as discounts to the service fee.
The mobile application “Yaoqianhua”, previously named as Xiaoying Wallet, was developed for our borrowers to apply for Xiaoying
Revolving Loan. We have ceased the operation of Xiaoying Revolving Loan in 2020, while the mobile application “Yaoqianhua” is still
in operation for existing users to access and check their history transaction details. For newly registered users and existing users, they can
apply for Xiaoying Card Loan via “Yaoqianhua” application. This is done through redirection links and jumping to Xiaoying Card Loan
application page.
We have completely ceased the investment in loans on our Xiaoying Wealth Management platform, while Xiaoying Wealth
Management platform showcases to a limited number of whitelist users selected money market banking products, funds, and insurance
provided by certain qualified business partners pursuant to the Administrative Measures on Supervision of Money Market Funds. This is
done through redirection links or jumping to mini-programs, generating a relatively small volume of business for certain qualified
business partners. We do not carry out any of the sale, subscription or redemption of any money market products on our Xiaoying Wealth
Management platform by ourselves. As of the date of this annual report, we have removed the Xiaoying Wealth Management platform
app from all major app stores.
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Data and Transaction Security and Stability
We collect and store a large amount of user data, including mobile phone numbers, identification card numbers, bank card numbers
and borrowing information in our database. We take the privacy of our users and security of their information seriously, and have
implemented a strict internal user data security management policy and to protect our users’ confidential information. The policy
establishes user’s authorization to data usage, data and information classification, approval procedures and access rights for confidential
information and data. We require written records of each of our employee’s access and retrieval of the data and monitor the process.
We adopt remote backup technology and have built up a disaster recovery structure of “two locations, three centers.” In addition, we
back up our core business database daily on dedicated backup servers. We have implemented a data-backup policy to ensure the safety of
our data.
Research and Development
Our technology development personnel have extensive experience with leading internet, online consumer finance and mobile
commerce and financial technology companies, and focuses on the following that support our long-term business growth:
●
Maintaining and strengthening all of our platform and application system, including but not limited to: main website, mobile
applications, back-stage system, proprietary data and credit analysis systems, payment system and big data system;
●
Ensuring our technology system is well established, reviewed, tested and continuously strengthened; and
●
Organizing and participating in the industry seminars, exploring relevant cutting-edge technologies.
AI-Powered Innovation and Digital Transformation
We are significantly increasing our investments in AI-driven solutions to stay at the forefront of technological innovation, leveraging
cutting-edge advancements such as DeepSeek. AI has been seamlessly integrated across multiple business functions, delivering
measurable efficiencies and enhanced capabilities:
●
Customer Service: Deployed next-generation generative AI-powered chatbots, alongside intelligent agent assistance tools (e.g.,
Alibaba’s Tongyi Qianwen and ByteDance’s Doubao), enabling knowledge-based recommendations and real-time conversation
quality monitoring.
●
Content Moderation: Transitioned from manual to AI-automated review systems for promotional videos, improving speed and
consistency.
●
Development Efficiency: Enhanced code generation and system optimization through AI, accelerating project delivery.
●
Risk Management: Our multimodal AI risk control system achieves >95% accuracy in contextual environment analysis via
advanced pattern recognition, significantly boosting decision-making precision.
Brand, Sales and Marketing
Our general marketing efforts are designed to build brand awareness and reputation and to attract and retain borrowers and
institutional funding partners. We believe reputation and word-of-mouth marketing drive continued organic growth in borrower base. As
a supplement, we use offline network channel and online marketing initiatives to promote our brand and products. For example, we work
with several advertising companies to promote our mobile applications with internet companies through online advertisements. We also
cooperate with media and organize branding events to enhance our brand awareness.
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Users Service
To better serve our users, we have independently developed a comprehensive user service system. We provide user service from 9:00
a.m. to 9:00 p.m. every day through our user service hotline, 24/7 artificial intelligence customer service and human customer service
from 9:00 a.m. to 9:00 p.m. every day through our website, mobile applications and WeChat public account. Our user service personnel
are responsible for answering calls for our user service hotlines, responding to queries in emails, as well as providing online user service
support. To monitor the quality of our user services, each inquiry made by our users will be recorded and reviewed on a selective basis.
Intellectual Property
We regard our trademarks, domain names, copyrights, know-how, proprietary technologies and similar intellectual property as
critical to our success, and we rely on trademark and trade secret law and confidentiality, invention assignment and non-compete
agreements with our employees and others to protect our proprietary rights. We have registered 285 trademarks in the Chinese Mainland
and 9 trademarks under application in the Chinese Mainland. We are the registered holder of 189 domain names. We also have 86
copyrights for our proprietary techniques in connection with our systems. We have registered 13 patents in the Chinese Mainland and 6
patents under application in the Chinese Mainland.
Seasonality of Our Business
We experience seasonality in our business, reflecting seasonal fluctuations in internet usage and traditional personal consumption
patterns, as our individual borrowers typically use their borrowing proceeds to finance their personal consumption needs. For example,
we generally experience lower transaction volume during national holidays in Chinese Mainland, particularly during the Chinese New
Year holiday season in the first quarter of each year. As we facilitate loans to institutional funding partners, such as commercial banks,
our business may also be affected by liquidity seasonality in the banking system. For example, liquidity in Chinese Mainland’s banking
sector has historically had a tendency to be looser at the beginning of each calendar year and tighter towards the end of each calendar
year. Due to our limited operating history, the seasonal trends that we have experienced in the past may not apply to, or be indicative of,
our future operating results.
Competition
The online personal finance industry in China is an emerging industry in China. It provides a new means for consumers to obtain
financing. As a leading player in China’s online personal finance platform market, we face intensive competition from other online
marketplaces, online finance service providers, technology giant backed internet finance platforms, as well as traditional financial
institutions.
Online personal finance marketplaces which operate online platforms connecting borrowers and institutional funding partners
compete directly with us for both borrowers and institutional funding partners. We also compete with traditional financial institutions,
including credit card issuers, consumer finance business units in commercial banks and other consumer finance companies. Some of our
larger competitors have substantially broader product or service offerings and rich financial resources to support heavy spending on sales
and marketing. In light of the low barriers to entry in the online consumer finance industry, more players may enter this market and
increase the level of competition. We anticipate that more established internet, technology and financial services companies that possess
large, existing user bases, substantial financial resources and established distribution channels may enter the market in the future.
As evidenced by our market leadership, we believe that we are able to compete effectively for borrowers and institutional funding
partners by leveraging our competitive advantages including our strategic positioning to target the prime borrower segment, superior user
experience on our platform, effectiveness of our risk management, the return offered to institutional funding partners, our partnership
with various business partners, and the strength and reputation of our brands.
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Recent Investment
YZT (HK) Limited, a wholly-owned subsidiary of X Financial, entered into a subscription agreement dated March 2, 2021, for
subscribing certain limited partnership interests in Dragonfly Ventures II, L.P., a limited partnership governed under the laws of the
Cayman Islands and managed by Dragonfly GP II, LLC, focusing on the blockchain industry investment with its long-term value
investment strategy and research-driven process. Pursuant to the subscription agreement, we invested in an aggregate amount of US$10
million in the partnership. As a limited partner, we do not have ability to take in the control or management of the affairs or the conduct
of the business of the partnership. In connection with the restructuring of Dragonfly Ventures II, L.P., YZT (HK) Limited entered into
certain Withdrawal, Contribution and Adherence Agreement dated December 30, 2021 and entered into an amended and restated
exempted limited partnership agreement.
YZT (HK) Limited entered into a second amended and restated limited partnership agreement dated March 15, 2021, for subscribing
certain limited partnership interests in IOSG Fund II LP, a limited partnership governed under the laws of the Cayman Islands and
managed by IOSG Pte Ltd. focusing on the blockchain industry investment with its long-term value investment strategy and research-
driven process. Pursuant to the agreement, we invested US$3 million to the partnership. As a limited partner, we do not have ability to
take in the control or management of the affairs or the conduct of the business of the partnership.
YZT (HK) Limited entered into a subscription agreement dated January 28, 2022, and an amended and restated exempted limited
partnership agreement dated January 28, 2022, for subscribing certain limited partnership interests in Dragonfly Ventures III Feeder, L.P.,
a limited partnership governed under the laws of the Cayman Islands and managed by Dragonfly GP III, LLC. Pursuant to the agreement,
we invested US$10 million to the partnership. On July 3, 2023, YZT (HK) Limited entered into a capital commitment increase letter to
increase its capital commitment to Dragonfly Ventures ⅡI Feeder, L.P., which has been paid as of the date of this annual letter. As a
limited partner, we do not have ability to take in the control or management of the affairs or the conduct of the business of the
partnership.
YZT (HK) Limited entered into a subscription agreement dated February 23, 2022, and an amended and restated exempted limited
partnership agreement dated January 28, 2022, for subscribing certain limited partnership interests in Dragonfly HF (Parallel) L.P., a
limited partnership governed under the laws of the Cayman Islands and managed by Dragonfly GP III, LLC. Pursuant to the agreement,
we invested US$3 million to the partnership. As a limited partner, we do not have ability to take in the control or management of the
affairs or the conduct of the business of the partnership. On January 23, 2023, YZT (HK) Limited entered into a withdrawal letter to
withdraw all of its limited partnership interest in Dragonfly HF (Parallel) L.P. On March 28, 2023, YZT (HK) Limited entered into a
switch request agreement to switch its net withdrawal proceeds to Nova Digital Opportunities Fund Limited.
YZT (HK) Limited entered into a subscription agreement dated May 15, 2022, for subscribing US$5 million convertible notes in C
Squared Ventures, a company governed under the laws of the Cayman Islands. The notes are convertible into class B ordinary shares of
C Squared Ventures.
In 2021, Shenzhen Ying Ai Gou Trading Co., Ltd. (“Shenzhen Ying Ai Gou (VIE)”), a wholly-owned subsidiary of Beijing Ying
Zhong Tong Rongxun Technology Service Co., Ltd. (“Beijing Ying Zhong Tong (VIE)”), one of our VIEs, entered into a share purchase
agreement with Shenzhen SUNHOPE Investment Development Co., Ltd, a Chinese Mainland company (“SUNHOPE”), and Shenyang
Tianxinhao Technology Limited, a Chinese Mainland company (“Tianxinhao”) which is a wholly-owned subsidiary of SUNHOPE.
Pursuant to the agreement, Shenzhen Ying Ai Gou (VIE) acquired 45% issued and outstanding shares of Tianxinhao from SUNHOPE for
approximately RMB315 million. After the closing of this acquisition, Shenzhen Ying Ai Gou (VIE) owned 12.6% of issued and
outstanding shares of Newup Bank of Liaoning, a Chinese Mainland company and non-state-owned bank (“Newup Bank”), through
Tianxinhao. As an indirect minority shareholder of Newup Bank, we do not have ability to take in the control or management of the
affairs or the conduct of the business of Newup Bank.
Insurance
We provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance and
medical insurance for our employees. We also provide additional commercial medical insurance coverage for our key management. We
do not maintain business interruption insurance, general third party liability insurance, product liability insurance or key-man insurance.
We consider our insurance coverage to be sufficient for our business operations in China and in line with market practice.
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Regulation
This section sets forth a summary of the most significant laws, rules and regulations that affect our business activities in the Chinese
Mainland or our shareholders’ rights to receive dividends and other distributions from us.
Regulations Relating to Foreign Investment
On March 15, 2019, the National People’s Congress promulgated the PRC Foreign Investment Law, which became effective on
January 1, 2020 and replaced the existing laws regulating foreign investment in Chinese Mainland, namely, the PRC Equity Joint Venture
Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their implementation
rules and ancillary regulations. Meanwhile, the Regulations for the Implementation of the PRC Foreign Investment Law came into effect
on January 1, 2020, which clarified and elaborated the relevant provisions of the PRC Foreign Investment Law. The organization form,
organization and activities of foreign-invested enterprises shall be governed, among others, by the PRC Company Law and the PRC
Partnership Enterprise Law. Foreign-invested enterprises established before the implementation of the PRC Foreign Investment Law may
retain the original business organization and so on within five years after the implementation of this Law. The Foreign Investment Law
and the Implementation Regulations do not mention the relevant concept and regulatory regime of VIE structures.
The PRC Foreign Investment Law is formulated to further expand opening-up, vigorously promote foreign investment and protect
the legitimate rights and interests of foreign investors. According to the PRC Foreign Investment Law, “foreign investment” refers to
investment activities directly or indirectly conducted by one or more natural persons, business entities, or otherwise organizations of a
foreign country (collectively referred to as “foreign investor”) within Chinese Mainland, and the investment activities include the
following situations: (i) a foreign investor, individually or collectively with other investors, establishes a foreign-invested enterprise
within Chinese Mainland; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other similar rights and interests
of an enterprise within Chinese Mainland; (iii) a foreign investor, individually or collectively with other investors, invests in a new
project within Chinese Mainland; and (iv) investments in other means as provided by laws, administrative regulations, or the State
Council.
According to the PRC Foreign Investment Law, foreign investments are entitled to pre-entry national treatment and subject to
negative list management system. The pre-entry national treatment means that the treatment given to foreign investors and their
investments at the stage of investment access is no lower than that of domestic investors and their investments. The negative list
management system means that the state implements special administrative measures for foreign investment in specific fields. Foreign
investors shall not invest in any forbidden fields stipulated in the negative list and shall meet the conditions stipulated in the negative list
before investing in any restricted fields. Foreign investors’ investment, earnings and other legitimate rights and interests within the
territory of Chinese Mainland shall be protected in accordance with the law, and all national policies on supporting the development of
enterprises shall equally apply to foreign-invested enterprises.
Investment activities in the Chinese Mainland by foreign investors are governed by the Catalog of Industries for Encouraging
Foreign Investment, or the Catalog, which became effective on January 27, 2021, and the Special Administrative Measures (Negative
List) for Foreign Investment Access, or the Negative List promulgated by the MOC, which became effective on July 23, 2020 and has
been amended from time to time by the MOC and the National Development and Reform Commission. It sets out the industries in which
foreign investments are prohibited or restricted. Foreign investors will not make investments in prohibited industries, while must satisfy
certain conditions stipulated in the Negative List for investment in restricted industries. According to the Negative List, the proportion of
foreign investment in entities engaged in value-added telecommunication services (excluding e-commerce, domestic multi-party
communications services, store-and-forward services, and call center services) shall not exceed 50%. The most updated Negative List,
issued on December 27, 2021 and became effective on January 1, 2022, stipulates that any Chinese Mainland domestic enterprise
engaging in the fields prohibited by the Negative List shall obtain the consent of the relevant competent Chinese Mainland authorities for
overseas listing, and the foreign investors shall not participate in the operation and management of such enterprise, and the shareholding
percentage of the foreign investors in such enterprise shall be subject to the relevant administrative provisions of Chinese Mainland
domestic securities investment by foreign investors. Such Negative List does not further elaborate whether existing overseas listed
enterprise will be subject to such requirements. The staff of the NDRC addressed in an interview on December 27, 2021 that certain
existing overseas listed enterprises whose foreign investors’ shareholding percentage exceed the aforementioned threshold are not
required to make adjustment or deduction.
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Among others, the state guarantees that foreign invested enterprises participate in the formulation of standards in an equal manner
and that foreign-invested enterprises participate in government procurement activities through fair competition in accordance with the
law. Further, the state shall not expropriate any foreign investment except under special circumstances. In special circumstances, the state
may levy or expropriate the investment of foreign investors in accordance with the law for the needs of the public interest. The
expropriation and requisition shall be conducted in accordance with legal procedures and timely and reasonable compensation shall be
given.
The Regulations for the Administration of Foreign-Invested Telecommunications Enterprises (2016 Revision), which was
promulgated by the State Council on December 11, 2001 and amended on September 10, 2008 and February 6, 2016, require foreign-
invested value-added telecommunications enterprises in Chinese Mainland to be established as Sino-foreign equity joint ventures with
the foreign investors owning no more than 50% of the equity interests of such enterprise. In addition, the main foreign investor who
invests in a foreign-invested value-added telecommunications enterprises operating the value-added telecommunications business in
Chinese Mainland must demonstrate a good track record and sound experience in operating a value-added telecommunications business,
provided that qualified foreign investors must obtain prior approvals from the MIIT and the MOFCOM or their authorized local
counterparts, for its commencement of value-added telecommunication business in Chinese Mainland. However, on March 29, 2022, the
Decision of the State Council on Revising and Repealing Certain Administrative Regulations, which took effect on May 1, 2022, was
promulgated to amend certain provisions of regulations including the Provisions on the Administration of Foreign-Invested
Telecommunications Enterprises (2016 Revision), the requirement for major foreign investor to demonstrate a good track record and
experience in operating value-added telecommunications businesses is deleted.
Circular of the Ministry of Industry and Information Technology on Removing the Restrictions on Shareholding Ratio Held by
Foreign Investors in Online Data Processing and Transaction Processing (Operating E-commerce) Business, or Circular 196, which was
promulgated on June 19, 2015, provides that foreign investors are permitted to invest up to 100% of the registered capital in a foreign-
invested telecommunication enterprise engaging in the operation of online data processing and transaction processing (E-commerce).
However, foreign investors are only permitted to invest up to 50% of the registered capital in a foreign-invested telecommunication
enterprise that engages in the operation of Internet information services. While Circular 196 permits foreign ownership, in whole or in
part, of online data and deal processing businesses (E-commerce), a sub-set of value-added telecommunications services, it is not clear
whether our marketplace lending platform will be deemed as online data and deal processing.
In July 2006, the MIIT issued the Notice on Strengthening the Administration of Foreign Investment in and Operation of Value-
added Telecommunications Business, or the MIIT Notice, pursuant to which, for foreign investor invest in telecommunications service
business in Chinese Mainland, a foreign-invested telecommunications enterprise must be established, and such enterprise must hold a
telecommunications businesses operation license. Furthermore, under the MIIT Notice, domestic telecommunications enterprises may
not rent, transfer or sell a telecommunications business operation license to foreign investors in any form, nor may they provide any
resources, premises, facilities or other assistance in any form to foreign investors for their illegal operation of any telecommunications
business in Chinese Mainland. In addition, under the MIIT Notice, a foreign-invested value-added telecommunication service operator
(or its shareholders) shall legally own the Internet domain names and registered trademarks used for its business operation.
We conduct our value-added telecommunications businesses through Shenzhen Xiaoying Technology Co., Ltd., one of our
consolidated VIEs, and Shenzhen Ying Ai Gou Trading Co., Ltd., one of the subsidiaries of our consolidated VIEs, which hold
telecommunications businesses operation licenses. However, there is uncertainty as to how the requirements in the above rules will be
interpreted and implemented and whether there will be new rules issued which would establish further requirements and restrictions on
our contractual arrangements.
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Regulations Relating to Value-Added Telecommunication Services
The Telecommunications Regulations of the PRC, or the Telecommunications Regulations, promulgated by the State Council on
September 25, 2000 and amended on July 29, 2014 and February 6, 2016, provide a regulatory framework for telecommunications
services providers in the Chinese Mainland. The Telecommunications Regulations require telecommunications services providers to
obtain an operating license prior to the commencement of their operations. The Telecommunications Regulations distinguish “basic
telecommunications services” from “value-added telecommunications services. The basic telecommunications services provider who
provides public network infrastructure, public data transmission and basic voice communications services shall obtain a Basic
Telecommunications Service Operating License, and the value-added service provider who provides telecommunications and information
services provided through the public network infrastructure shall obtain a VATS License. A catalogue was issued as an attachment to the
Telecommunications Regulations to categorize telecommunications services as either basic or value-added. The current catalogue, as
most recently updated on June 6, 2019, categorizes online information services and online data processing and transaction processing
services as value-added telecommunications services. Internet content provider may be required to obtain an Internet content provider
license, or ICP license, and e-commerce operator may be required to obtained an online data processing and transaction processing
license, or ODPTP license.
On July 3, 2017, the MIIT promulgated the Administrative Measures on Telecommunications Business Operating Licenses, under
which, a commercial operator of value-added telecommunications services must first obtain the VATS License, from the MIIT or its
provincial level counterparts, otherwise such operator might be subject to sanctions including corrective orders and warnings from the
competent administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites may
be ordered to close. One of our consolidated VIEs and one of the subsidiaries of our consolidated VIEs have obtained VATS Licenses.
On April 8, 2024, MIIT promulgated the Notice of the Ministry of Industry and Information Technology on the Pilot Program for
Expanding the Opening up of Value-added Telecommunications Services to the Outside World, providing that in regions approved to
carry out the pilot program, the restrictions on the foreign equity ratios for internet data centers (IDC), content delivery networks (CDN),
internet service providers (ISP), online data processing and transaction processing, information releasing platforms and delivery services
included in information services (excluding the operation of internet news information, online publishing, online audio and video, and
internet culture), as well as information protection and processing services, will be removed.
Regulations Relating to Microcredit Business
Chinese regulators also encourage Normal Marketplace under Circular 175 to transform into online microcredit companies. In late
December, 2019, the Head Office for Special Rectification of Online Finance Risk and the Head Office for Special Rectification of Peer-
to-Peer Online Lending jointly issued Guiding Opinions on Pilot Program of Transforming Peer-to-Peer Lending Information
Intermediaries to Microcredit Companies, or Circular 83, which provides detailed guidelines for the conversion of peer-to-peer online
lending information intermediaries into microcredit companies from the following aspects: (i) compliance requirement; (ii) qualified
shareholders and management team; (iii) the feasibility of the transforming plan; and (iv) with strong financial technology and be capable
to online operation requirement. However, uncertainties still exist in relation to the interpretation and implementation of Circular 83.
On September 7, 2020, the CBIRC issued the Circular on Strengthening the Supervision and Administration of Microcredit
Companies, or the Microcredit Circular. The Microcredit Circular provides that the microcredit companies shall mainly operate the
lending business and shall act in accordance with the requirements regarding the loan concentration, loan purposes, fund management,
debt collection and disclosure. Local authorities shall enhance supervision and administration of the establishment of the microcredit
companies and suspend newly-incorporated microcredit companies from engaging in the Internet microcredit business and other inter-
provincial business.
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On November 2, 2020, CBIRC and PBOC published the Interim Administrative Measures for Online Microcredit Business (Draft
for Comment), or the Draft Interim Administrative Measures, for public review and comments. Pursuant to the Draft Interim
Administrative Measures, “online microcredit business” refers to any microcredit business engaged in by a microcredit company through
using big data, cloud computing, mobile internet and other technical means, utilizing internally generated data and information on
customer operation, online consumption, online transaction, etc., accumulated via internet platforms as well as other data and
information obtained through legitimate channels to analyze and appraise the credit risk of borrowing customers, determine the mode and
quota of loans, and complete such processes as loan application, risk review, loan approval, loan granting and loan recovery online.
Online microcredit business engaged in by a microcredit company shall mainly be carried out in the provincial-level administrative
region to which its place of registration belongs. Without the approval of the banking regulator under the State Council, no microcredit
company may carry out online microcredit business across provincial-level administrative regions. The registered capital of a microcredit
company which engages in online microcredit business shall not be less than CNY1 billion and shall be one-off paid-up monetary
capital. The registered capital of a microcredit company which engages in online microcredit business across provincial-level
administrative regions shall not be less than CNY5 billion and shall be one-off paid-up monetary capital. In principle, the balance of
single-account online microcredit loans granted to a natural person shall not exceed CNY300,000 or one-third of its average annual
income in the last three years, between which the lower one shall be the maximum loan amount; and in principle, the balance of single-
account online microcredit loans granted to a legal person or any other organization and its related parties shall not exceed CNY1
million. The Draft Interim Administrative Measures was released for public comment only, there remains substantial uncertainty
regarding the Draft Interim Administrative Measures, including with respect to its final content, adoption timeline or effective date.
On December 31, 2021, PBOC published the Regulations on Local Financial Supervision and Administration (Draft for Public
Comments), or the Draft Local Financial Supervision and Administration Regulation, for public review and comments. Pursuant to the
Draft Local Financial Supervision and Administration Regulation, “Local Financial Organizations” refers to microcredit companies,
financing guarantee companies, regional equity markets, pawn shops, financial leasing companies, commercial factoring companies,
local asset management companies, and other institutions engaged in local financial business that are supervised and managed by laws,
administrative regulations, and provincial-level people’s governments authorized by the State Council. The Draft Local Financial
Supervision and Administration Regulation specify that provincial governments shall perform their duties of supervision, management,
and risk disposal of local financial organizations, and no individual or entity shall set up Local Financial Organizations without prior
approval. The merger, division, reduction of registered capital, change of the business scope or operating area, the change of the
shareholders holding more than 5% of its equity interests, as well as change of the actual controller of the Local Financial Organization
shall be subject to the approval of the provincial local financial supervision and management department. Also, Local Financial
Organization shall make filings to provincial local financial supervision and management department for setting up branches within the
provincial administrative region, changing the name or address of business, increasing the registered capital, changing the directors,
supervisors and senior management personnel. Penalties such as fines or criminal liability may be imposed if the Local Financial
Organizations fail to comply with the Draft Local Financial Supervision and Administration Regulation. The Draft Local Financial
Supervision and Administration Regulation was released for public comment only, there remains substantial uncertainty regarding the
Draft Local Financial Supervision and Administration Regulation, including with respect to its final content, adoption timeline or
effective date.
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On January 17, 2025, the State Financial Supervision and Administration Bureau published the Interim Measures for the Supervision
and Administration of Microcredit Companies, or the Interim Measures for Microcredit Companies, which took effective on January 17,
2025. The Interim Measures for Microcredit Companies further refine and enhance the regulatory framework, explicitly incorporating
online microcredit into its scope. The Interim Measures for Microcredit Companies introduce detailed provisions for online microcredit
companies, covering operational models, business regions, loan concentration limits, information system standards for internet-based
operations, risk management frameworks, disclosure requirements, and transition periods. The Interim Measures for Microcredit
Companies provides that: (i) permissible business activities for microcredit companies include: (1) issuance of micro-loans; (2)
acceptance and discounting of commercial bills; and (3) other activities as prescribed by laws, administrative regulations, and the
National Financial Regulatory Administration; (ii) the total outstanding loans to a single borrower shall not exceed 10% of the
company’s net assets, and the combined outstanding loans to a single borrower and its affiliates shall not exceed 15% of the company’s
net assets; (iii) for loans extended for consumption purposes, the outstanding balance for a single borrower shall not exceed RMB
200,000; for loans extended for production and operational purposes, the aggregate outstanding balance shall not exceed RMB 10
million; (iv) for microcredit companies that are categorized as “unreachable” or “shell” companies, provincial-level local financial
regulatory authorities shall make public announcements to inform the society. If no objections are raised upon the expiration of the
announcement period, the authorities shall guide such companies to proceed with name or business scope amendments or deregistration
with the market regulation department. The Interim Measures for Microcredit Companies impose a range of requirements for microcredit
companies engaging in cooperative lending arrangements with third-party institutions, including restrictions on business outsourcing,
cross-regional operations, and joint lending contribution ratios. Microcredit companies must achieve full compliance with the Interim
Measures for Microcredit Companies within the transition period stipulated by local financial regulatory authorities, which shall not
exceed two years.
Xiaoying Microcredit (VIE) has obtained the approval of the business qualification to operate microcredit businesses as issued by
the competent supervising authority, which allows Xiaoying Microcredit (VIE) to conduct microcredit businesses through the internet.
However, as the regulatory regime and practice with respect to online microcredit companies are evolving, there is uncertainty as to how
the requirements in the above rules will be interpreted and implemented and whether there will be new rules issued which would
establish further requirements and restrictions on online microcredit companies.
Regulations Relating to the Business of Loan Facilitation
Notice on Rectification of Cash Loan Business, or Circular 141, issued by the Special Rectification of Internet Financial Risks
Working Group and the P2P Credit Risks Rectification Working Group on December 1, 2017, introduces the regulating guidance on cash
loan businesses. According to Circular 141, activities offering cash loans, which are characterized by the lack of specific consumption
scenarios, designated purposes, targeted users or mortgages, are subject to inspections and rectifications to prohibit excessive borrowing
and granting credits repeatedly to individual borrowers, collecting interests at abnormally high interest rates and violating privacy.
Circular 141 clarifies that no organization or individual shall start a loan business without the required qualifications and approved
licenses. The synthetic fund cost charged by various institutions on borrowers in the form of interest rates and other fees must comply
with the requirements of private lending by the Supreme People’s Court. Circular 141 also sets out requirements and limitations for
various entities involved in internet finance services and banking financial institutions involved in cash loan operations.
The National Financial Regulatory Administration issued the Notice 9 on April 1, 2025, which will take effect on October 1,
2025, stipulating the following requirements: (i) commercial banks shall implement list-based management and public disclosure
for internet loan assistance institutions and credit enhancement institutions; (ii) Internet loan assistance fees should align with
the principal repayment progress; (iii) Commercial banks must prudently and reasonably set maximum cooperation fee limits,
ensuring that loan interest rates and credit enhancement service fees correspond with business risk profiles; (iv) Credit
enhancement institutions will be incorporated into credit management frameworks, with quarterly assessments of their
compensation and claim-paying capabilities; (v) Banks are required to upgrade internal controls, including management
systems, risk control indicators, and the content of cooperation agreements. The implementation of Notice 9 may impact our
cooperation with commercial banks, but as the Notice 9 has not yet come into force, it cannot be concluded on how it will be
interpreted, amended and implemented by the relevant PRC governmental authorities and to what extent they will affect our
operations. Regulation Relating to Money Market Funds
According to the Administrative Measures on Supervision of Money Market Funds issued by the CSRC and the PBOC on
December 17, 2015 and became effective on February 1, 2016, a fund manager or fund sales institution shall not carry out the sales of
money market funds in cooperation with any internet institution or other institution engaged in the promotion or the sale, subscription or
redemption of units of funds or other relevant business without adequate qualification for fund sales business registered with the CSRC.
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Xiaoying Wealth Management platform showcases to a limited number of whitelist users selected money market banking products,
funds, and insurance provided by certain qualified business partners pursuant to the Administrative Measures on Supervision of Money
Market Funds. This is done through redirection links or jumping to mini-programs, generating a relatively small volume of business for
certain qualified business partners. We do not carry out any of the sale, subscription or redemption of any money market products on our
Xiaoying Wealth Management platform by ourselves. As of the date of this annual report, we have removed the Xiaoying Wealth
Management platform app from all major app stores. Thus, we believe we are not subject to the above mentioned regulations in Chinese
Mainland.
Regulations Relating to Guarantee
On March 8, 2010, CBRC, NDRC, MIIT, MOFCOM, PBOC, SAIC and Ministry of Finance of PRC promulgated the Tentative
Administrative Measures for Financing Guarantee Companies, or the Tentative Administrative Measure. The Tentative Administrative
Measures require an entity or individual to obtain a prior approval from the relevant regulatory body to engage in the financing guarantee
business, and defines “financing guarantee” as an activity whereby the guarantor and the creditor, such as a financial institution in the
banking sector, agree that the guarantor shall bear the guarantee obligations in the event that the secured party fails to perform its
financing debt owed to the creditor.
On August 2, 2017, the State Council issued Regulations on the Supervision and Administration of Financing Guarantee Companies,
or the Financing Guarantee Rules, which came into effect on October 1, 2017. The Financing Guarantee Rules defines financing
guarantee as activities whereby guarantors provide guarantee for the borrowing of funds, issuance of bonds and other debt financing
activities of the guaranteed parties, and financing guarantee companies refer to limited liability companies or companies limited by
shares that are duly established and engage in financing guarantee business. Pursuant to the Financing Guarantee Rules, the
establishment of a financing guarantee company shall be subject to the approval of the relevant regulatory authority. In the event that a
company commences financing guarantee business without first obtaining relevant approval, the company will be ordered by the
regulatory authority to cease financing guarantee business, be imposed a fine from RMB500,000 up to RMB1,000,000, have its illegal
gains confiscated, and be investigated for criminal liabilities.
We might be deemed as providing guarantee on some of the loans formed offline between institutional funding partners and the
borrowers. We have cooperated with certain qualified institutional partners with the financing guarantee license and one of our Chinese
Mainland subsidiaries who has obtained the financing guarantee license, and therefore, we consider ourselves in compliance with the
regulations mentioned above. However, given the lack of further interpretations, the exact definition and scope of “operating financing
guarantee business” under the Financing Guarantee Rules is unclear, we cannot be certain that our existing practices will not be
determined to violate any existing or future rules, laws and regulations. See “Item 3. Key Information—3.D. Risk Factors—Risks Relating
to Our Business and Industry—Our cooperation model with Institutional Funding Partners may be deemed to operate financing
guarantee business by the Chinese Mainland regulatory authorities.”
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Regulations Relating to Anti-Money Laundering
The PRC Anti-Money Laundering Law, which was promulgated on January, 2007 and latest amended on November 8, 2024 and
became effective on January 1, 2025, sets forth the principal anti-money laundering requirements applicable to financial institutions as
well as non-financial institutions with anti-money laundering obligations, including the adoption of precautionary and supervisory
measures, establishment of various systems for client identification, retention of clients’ identification information, and transactions
records, and reports on large transactions and suspicious transactions. According to the PRC Anti-Money Laundering Law, financial
institutions subject to the PRC Anti-Money Laundering Law include institutions in the banking industry, the securities, fund and futures
industries, the insurance industry and the trust industry, non-banking payment institutions and other institutions engaged in financial
business as determined and announced by the anti-money laundering authority under the State Council. Furthermore, the latest amended
PRC Anti-Money Laundering Law specify the scope of specific non-financial institutions which shall also be subject to anti-money
laundering obligations, which includes: (1) real estate development enterprises or real estate intermediaries providing housing sales,
housing purchase and sale brokerage services; (2) accounting firms, law firms and notary organs that are entrusted to deal with the
purchase and sale of real estate for their customers, to manage funds, securities or other assets on a commission basis, to manage bank
accounts and securities accounts on a commission basis, to raise funds for the establishment and operation of enterprises, or to act as an
agent for the purchase and sale of business entities; (3) dealers that engage in the spot trading of precious metals or precious stones
whose value is above the prescribed amount; and (4) other institutions that shall perform the anti-money laundering obligations as
determined by the anti-money laundering authority under the State Council in conjunction with the relevant departments of the State
Council depending on money laundering risk profiles. Non-financial institution which fails to perform the anti-money laundering
obligations shall be subject to penalties including order to make corrections, warning or a fine of not more than RMB 50,000 yuan; if the
circumstance is serious or the specific non-financial institution fails to make corrections within the prescribed time limit, it shall be
imposed upon a fine of not less than RMB 50,000 yuan but not more than RMB 500,000 yuan; and the relevant person in charge may be
given a warning or imposed upon a fine of not more than RMB 50,000 yuan. Failure to take special prevention measures for anti-money
laundering could also result in penalties as order to make corrections within a prescribed time limit, warning or a fine of not more than
RMB 200,000 yuan. The responsible individual will be given a warning or be imposed upon a fine of not more than RMB 50,000 yuan.
The PBOC and other governmental authorities also issued a series of administrative rules and regulations to specify the anti-money
laundering obligations of financial institutions and certain non-financial institutions, such as payment institutions. However, the State
Council has not promulgated the list of the non-financial institutions with anti-money laundering obligations.
The Guidelines jointly released by ten Chinese Mainland regulatory agencies in July 2015, purport, among other things, to require
Internet finance service providers to comply with certain anti-money laundering requirements, including the establishment of a user
identification program, the monitoring and reporting of suspicious transactions, the preservation of user information and transaction
records, and the provision of assistance to the public security department and judicial authority in investigations and proceedings in
relation to anti-money laundering matters. The PBOC will formulate implementing rules to further specify the anti-money laundering
obligations of Internet finance service providers.
The Measures for the Anti-money Laundering and Anti-terrorist Finance of Internet Finance, promulgated on October 10, 2018,
further specified that, any Internet finance institutions (including online lending intermediary) incorporated upon approval or upon
record-filing by applicable regulatory authority, shall report any forms of cash receipts and payments whose transaction value reaches or
exceeds RMB50,000 or foreign currency equivalent of USD10,000 on a per-transaction or cumulative basis on a given day, within five
working days from the date when such transaction takes place.
We have adopted and implemented various policies and procedures, such as internal controls and “know-your-customer” procedures,
for anti-money laundering purposes. However, our policies and procedures may not be completely effective in preventing other parties
from using us for money laundering without our knowledge. See “Item 3. Key Information—3.D. Risk Factors—Risks Relating to Our
Business and Industry—Any failure by us, or institutional funding partners or payment service providers to comply with applicable anti-
money laundering and anti-terrorist financing laws and regulations could damage our reputation, expose us to significant penalties, and
decrease our revenues and profitability.”
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Regulations Relating to Illegal Fund-Raising
Raising funds by entities or individuals from the general public must be conducted in strict compliance with applicable Chinese
Mainland laws and regulations to avoid administrative and criminal liabilities. The Notice on Relevant Issues Concerning the Penalty on
Illegal Fund-Raising issued by the General Office of the State Council in July 2007 explicitly prohibit illegal public fund-raising. The
main features of illegal public fund-raising include: (i) illegally soliciting and raising funds from the general public by means of issuing
stocks, bonds, lotteries or other securities without obtaining the approval of relevant authorities, (ii) promising a return of interest or
profits or investment returns in cash, properties or other forms within a specified period of time, and (iii) using a legitimate form to
disguise the unlawful purpose.
To further clarify the criminal charges and punishments relating to illegal public fund-raising, the Supreme People’s Court
promulgated the Judicial Interpretations to Issues Concerning Applications of Laws for Trial of Criminal Cases on Illegal Fund-Raising,
or the Illegal Fund-Raising Judicial Interpretations, which came into force in January 2011 and was amended on March 1, 2022. The
Illegal Fund-Raising Judicial Interpretations provide that a public fund-raising will constitute a criminal offense related to “illegally
soliciting deposits from the public” under the PRC Criminal Law, if it meets all the following four criteria: (i) the fund-raising has not
been licensed by the relevant authorities or is concealed under the guise of legitimate acts; (ii) the fundraising carries out public
promotional activities via such channels as the Internet, media, promotion meetings, leafleting and phone message; (iii) the fundraiser
promises to repay, after a specified period of time, the capital and interests, or investment returns in cash, property in kind and other
forms; and (iv) the fund-raising targets the general public as opposed to specific individuals. Pursuant to the Illegal Fund-Raising Judicial
Interpretations, an offender that is an entity will be subject to criminal liabilities, if it illegally solicits deposits from the general public or
illegally solicits deposits in disguised form (i) with the amount of deposits involved exceeding RMB1,000,000, (ii) with over 150 fund-
raising targets involved, or (iii) with the direct economic loss caused to fund-raising targets exceeding RMB500,000, or if it illegally
solicits deposits from the general public or illegally solicits deposits in disguised form with the amount of deposits involved exceeding
RMB500,000, or with the direct economic loss caused to fund-raising targets exceeding RMB250,000 and falls under any of the
following circumstances: (I) where such entity has been criminally prosecuted due to illegal fund-raising; (II) where such entity has been
subject to any administrative penalty due to any illegal fund-raising within two years; and (III) where there is baneful influences to the
public or have led to other severe consequences.
In addition, an individual or an entity who has aided in illegal fund-raising from the general public and charges fees, including but
not limited to agent fees, rewards, rebates and commission, would constitute an accomplice of the crime of illegal fund-raising. In
accordance with the Opinions of the Supreme People’s Court, the Supreme People’s Procurator and the Ministry of Public Security on
Several Issues concerning the Application of Law in the Illegal Fund-Raising Criminal Cases, administrative proceedings for
determining the nature of illegal fund-raising activities is not a prerequisite procedure for the initiation of criminal proceeding concerning
the crime of illegal fund-raising, and the administrative departments’ failure in determining the nature of illegal fund-raising activities
does not affect the investigation, prosecution and trial of cases concerning the crime of illegal fund-raising.
On January 26, 2021, the State Council promulgated the Regulations for the Prevention and Handling of Illegal Fund-raising, or the
Illegal Fund-raising Regulations, which became effective as of May 1, 2021. The Illegal Fund-raising Regulations stipulates that Internet
information service providers shall strengthen the management of information published by users, and shall not produce, reproduce,
publish or spread information on suspected illegal fund-raising practices. If any information on suspected illegal fund-raising practices is
found, relevant records shall be kept and reported to the authority handling illegal fund-raising. Competent authorities in charge of
telecommunications shall shut down websites established and mobile applications developed for illegal fund-raising and other Internet
applications in accordance with the law.
We have taken measures to avoid conducting any activities that are prohibited under the illegal-funding related laws and regulations.
For example, we managed the funds of lenders, borrowers and the proprietary funds of us in separate accounts by entering into fund
depositary agreement with a qualified bank. We do believe our business would not offence the aforementioned laws and regulations
related to illegal-funding. However, we cannot assure you that our understanding of the regulations will always comply with the
interpretations of applicable regulatory authorities.
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Regulations on Mobile Internet Applications Information Services
Mobile Internet applications and the Internet application store are especially regulated by the Administrative Provisions on Mobile
Internet Applications Information Services, or the APP Provisions, which was promulgated by the Cyberspace Administration of China
or the CAC on June 28, 2016 and entered into force on August 1, 2016 and was amended on June 14, 2022. The APP Provisions regulate
the APP information service providers and the Internet application store service providers, while the CAC and local offices of cyberspace
administration shall be responsible for the supervision and administration of nationwide or local APP information respectively. The APP
information service providers shall acquire relevant qualifications required by laws and regulations and implement the information
security management responsibilities strictly and fulfill their obligations provided by the APP Provisions.
Pursuant to the APP Provisions, internet app providers shall comply with relevant provisions on the scope of necessary personal
information when engaging in personal information processing activities and shall not compel users to agree to non-essential personal
information collection or ban users from their basic functional services due to their refusal of providing unnecessary personal
information. Internet app providers shall not provide the relevant services to the users who fail to submit real identity information or use
fraudulent identity information of other organizations or persons for fake registration. Internet app providers shall also establish sound
information content review and management mechanism, take sound management measures such as user registration, account
management, information review, daily inspection and emergency disposal, and be staffed with professionals and technical ability
appropriate to the service scale. Furthermore, internet app providers who launch new technologies, applications or functions with the
attribute of public opinion or the capability of social mobilization shall conduct security assessment in accordance with the applicable
laws and regulations. If an internet app provider violates these regulations, internet app distribution platforms may issue warnings,
suspend the release of its applications, or terminate the sale of its applications, and/or report the violations to governmental authorities,
and the application provider may be imposed administrative penalty by the CAC and relevant competent authorities in accordance with
relevant laws and regulations. We have established necessary mechanisms and adopted data encryption and protection technology in our
mobile application to ensure the collection, protection and storage of user information are in compliance with the requirements of the
APP Provisions in all material aspects. However, we cannot assure you that our understanding of the regulations will always comply with
the interpretations of applicable regulatory authorities.
Regulations on Internet Information Security
In 1997, the Ministry of Public Security has promulgated measures that prohibit use of the internet in ways which, among other
things, result in a leakage of state secrets or a spread of socially destabilizing content. If an internet information service provider violates
these measures, the Ministry of Public Security and the local security bureaus may revoke its operating license and shut down
its websites.
Internet information in Chinese Mainland is regulated and restricted from a national security standpoint. The Standing Committee of
the National People’s Congress, or the SCNPC, has enacted the Decisions on Maintaining Internet Security on December 28, 2000 and
further amended on August 27, 2009, which may subject violators to criminal punishment in Chinese Mainland for any effort to: (i) gain
improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state
secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights.
The PRC Cybersecurity Law was promulgated by the SCNPC on November 7, 2016 and became effective on June 1, 2017. Under
this regulation, network operators, including online lending information service providers, shall comply with laws and regulations and
fulfill their obligations to safeguard security of the network when conducting business and providing services, and take all necessary
measures pursuant to laws, regulations and compulsory national requirements to safeguard the safe and stable operation of the networks,
respond to network security incidents effectively, prevent illegal and criminal activities, and maintain the integrity, confidentiality and
usability of network data.
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On 10 June 2021, the SCNPC promulgated the PRC Data Security Law, or the Data Security Law, which took effect on 1 September
2021. The Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and
introduces a data classification and hierarchical protection system. The Data Security Law also provides that the state shall establish a
data security review system, where data handling activities that affect or may affect the national security will undergo national security
review, and shall implement export controls on certain data, but does not provide for application obligation for cybersecurity review of an
internet platform operator holding personal information of more than one million users. In addition, Measures for Cybersecurity Review,
which became effective on June 1, 2020, as amended on December 28, 2021, and became effective on February 15, 2022, set forth the
cybersecurity review mechanism for critical information infrastructure operators, and provide that (i) critical information infrastructure
operators who intend to purchase internet products and services that affect or may affect national security shall be subject to a
cybersecurity review; (ii) online platform operators who are engaged in data processing are also subject to the regulatory scope; (iii) the
CSRC is included as one of the regulatory authorities for purposes of jointly establishing the state cybersecurity review working
mechanism; (iv) the internet platform operators holding more than one million users/users’ individual information shall file for
cybersecurity review before any public offering at a foreign stock exchange; (v) the risks of core data, material data or large amounts of
personal information being stolen, leaked, destroyed, damaged, illegally used or illegally transmitted to overseas parties and the risks of
critical information infrastructure, core data, material data or large amounts of personal information being influenced, controlled or used
maliciously shall be collectively taken into consideration during the cybersecurity review process.
We have, in accordance with relevant provisions on network security of the Chinese Mainland, established necessary mechanisms to
protect information security, including, among others, adopting necessary network security protection technologies such as anti-virus
firewalls, intrusion detection and data encryption, keeping record of network logs, and implementing information classification
framework. Although we do not believe we are a critical information infrastructure provider, the Chinese Mainland authorities could
interpret such term broadly to capture a leading online personal finance company like us. If we are deemed to be a critical information
infrastructure operator under such rules, we could be subject to cybersecurity review by Cyberspace Administration of China and other
relevant Chinese Mainland regulatory authorities and be required to change our existing practices in data privacy and cybersecurity
matters at substantial costs. During such cybersecurity review, we may be required to stop providing services to our customers, and such
review could also result in negative publicity to us and diversion of our managerial and financial resources.
Besides, pursuant to the Measures for Cybersecurity Review, which was amended on December 28, 2021 and became effective on
February 15, 2022, the internet platform operators that hold the personal information of over one million users shall apply for a
cybersecurity review before any public offering at a foreign stock exchange. Our ADSs have been listed on the NYSE since September
19, 2018, prior to the effective date of the amended Measures for Cybersecurity Review in 2021, and therefore, our IPO and listing on
NYSE were not deemed to be subject to the Measures for Cybersecurity Review. As of the date of this annual report, we have not
conducted cross-border transfer of personal information. However, given that the Measures for Cybersecurity Review were recently
promulgated, the Measures for Cybersecurity Review remain unclear on whether the relevant requirements will be applicable to further
equity or debt offerings or to maintain the listing status of our Class A ordinary shares and/or ADSs by companies that have completed
the initial public offering in the United States before the effectiveness of the Measures for Cybersecurity Review. Furthermore, the exact
scope of “internet platform operators” under the current regulatory regime remains unclear, and we may be deemed to be an internet
platform operator under Chinese Mainland law. If the Cyberspace Administration of China subsequently determine that prior
cybersecurity review is required for any of our future offerings of securities overseas or to maintain the listing status of our securities
overseas, we cannot guarantee that we will be able to complete such cybersecurity review in a timely manner, or at all. If not, the
Cyberspace Administration of China may take actions requiring us, or making it advisable for us, not to proceed with such offering or
maintain the listing status of our Class A ordinary shares and/or ADSs. Fines and penalties may be imposed on our operations in Chinese
Mainland, limit our ability to pay dividends outside of Chinese Mainland, limit our operating privileges in Chinese Mainland, delay or
restrict the repatriation of the proceeds from offering of securities overseas into Chinese Mainland or take other actions that could have a
material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of the Class A
ordinary shares and/or ADSs.
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On July 7, 2022, the CAC published the Outbound Data Transfer Security Assessment Measures that took effect on September 1,
2022 and outline the potential security assessment process for outbound data transfer. Under the Outbound Data Transfer Security
Assessment Measures, data processors that provide important data and personal information outbound that are collected or produced
through operations within the territory of the Chinese Mainland, where a security assessment shall be conducted according to the law,
shall apply to the provisions of these Measures. We believe we currently do not provide critical data and personal information collected
and generated by us in our business activities abroad. However, due to the relatively new nature of the Outbound Data Transfer Security
Assessment Measures as well as the lack of clarification in the statutory law itself as to the circumstances and standard under which the
law should apply and violations be found, there are great uncertainties as to the interpretation and application of the law. If we are found
to have violated the Outbound Data Transfer Security Assessment Measures, we may face severe penalties that may result in monetary
losses, losses of access to assets essential for daily operation of our business or for the continuance of service provision, and temporary
or total disruption of our business for an extended period of time. All of these consequences may have a material adverse impact on our
business, financial condition and results of operations. Under the Outbound Data Transfer Security Assessment Measures, data
processors providing outbound data shall apply for outbound data transfer security assessment with the CAC in any of the following
circumstances: (i) where a data processor provides important data abroad; (ii) where a critical information infrastructure operator or a
data processor processing the personal information of more than one million individuals provides personal information abroad; (iii)
where a data processor has provided personal information of 100,000 individuals or sensitive personal information of 10,000 individuals
in total abroad since January 1 of the previous year; and (iv) other circumstances prescribed by the CAC for which declaration for
security assessment for outbound data transfers is required. The Outbound Data Transfer Security Assessment Measures also provide
procedures for security assessment and submissions, important factors to be considered in conducting assessment, and legal liabilities of
a data processor for failure to apply for assessment.
On September 30, 2024, the State Council published the Regulations on Network Data Security Administration, or the Network Data
Regulation, which became effective on January 1, 2025. The Network Data Regulation restates and further specifies the legal
requirements for personal information, important data, cross-border data transfer, network platform services, and data security. Among
others, data processing operators engaging in data processing activities that affect or may affect national security must be subject to
network data security review by the relevant cyberspace administration of the PRC. Network data processing activities refers to the
collection, retention, use, processing, transmission, provision, disclosure, deletion, and other activities of network data.
We have disclosed the regulations over data security which may have a material effect on us, including the uncertainties of these
regulations, our compliance of these regulations and effect these regulations may have on us. See “Risk Factors - If we are unable to
protect the confidential information of our users and adapt to the relevant regulatory framework regarding protection of such
information, our business and operations may be adversely affected”.
Regulations on Privacy Protection
The Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in December 2011,
provide that, an internet information service provider may not collect any user personal information or provide any such information to
third parties without the consent of a user. An internet information service provider 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 internet information service provider is also required to properly maintain the user personal
information, and in case of any leak or likely leak of the user personal information, online lending service providers must take immediate
remedial measures and, in severe circumstances, 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.
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The Guidelines jointly released by ten Chinese Mainland regulatory agencies in July 2015 purport, among other things, to require
Internet finance service providers to improve technology security standards, and safeguard user and transaction information. The
Guidelines also prohibit Internet finance service providers from illegally selling or disclosing users’ personal information. Pursuant to the
Ninth Amendment to the Criminal Law issued by the SCNPC in August 2015, which became effective in November 2015, any Internet
service provider that fails to fulfill the obligations related to Internet information security administration as required by applicable laws
and refuses to rectify upon orders is subject to criminal penalty for the result of (i) any dissemination of illegal information in large scale;
(ii) any severe effect due to the leakage of the client’s information; (iii) any serious loss of criminal evidence; or (iv) other severe
situation, and any individual or entity that (i) sells or provides personal information to others in a way violating the applicable law, or
(ii) steals or illegally obtain any personal information is subject to criminal penalty in severe situation.
Pursuant to the PRC Civil Code, the personal information of a natural person shall be protected by the law. Any organization or
individual that needs to obtain personal information of others shall obtain such information legally and ensure the safety of such
information, and shall not illegally collect, use, process or transmit personal information of others, or illegally purchase or sell, provide
or make public personal information of others. Furthermore, information processors shall not divulge or tamper with personal
information collected or stored by them; without the consent of a natural person, information processors shall not illegally provide
personal information of such person to others, except for information that has been processed so that specific persons cannot be identified
and that cannot be restored. In addition, an information processor shall take technical measures and other necessary measures to ensure
the security of the personal information that is collected and stored and to prevent the information from being divulged, tampered with or
lost; where personal information has been or may be divulged, tampered with or lost, the information processor shall take remedial
measures in a timely manner, inform the natural person concerned in accordance with the provisions and report the case to the relevant
competent department.
On August 20, 2021, the SCNP Congress promulgated the PRC Personal Information Protection Law, or the Personal Information
Protection Law, which took effect on November 1, 2021. As the first systematic and comprehensive law specifically for the protection of
personal information in the Chinese Mainland, the Personal Information Protection Law provides, among others, that (i) an individual’s
consent shall be obtained to use sensitive personal information, (ii) personal information operators using sensitive personal information
shall notify individuals of the necessity of such use and impact on the individual’s rights, and (iii) where it is necessary for personal
information to be provided by a personal information processor to a recipient outside the territory of the Chinese Mainland due to any
business need or any other need, a security assessment organized by the national cyberspace authority shall be passed. In the event that
personal information is handled in violation of the provisions of this Law, or that personal information is handled without performing the
obligation of protecting personal information as stipulated in this Law, the authorities performing duties of personal information
protection shall order the party concerned to make corrections, give a warning to it and confiscate its illegal gains. Any application that
illegally handles personal information shall be ordered to suspend or terminate the provision of services; if it refuses to make corrections,
a fine of not more than 1 million yuan shall be imposed on it concurrently; and a fine of not less than RMB 10,000 yuan but not more
than RMB 100,000 yuan shall be imposed on the person directly in charge and other directly liable persons. For any illegal act specified
in the preceding paragraph with serious circumstances, the authorities performing duties of personal information protection at or above
the provincial level shall order the party concerned to make corrections, confiscate its illegal gains, and impose a fine of not more than
RMB 50 million yuan or not more than 5% of its turnover of the previous year on it, and may also order it to suspend relevant business
or suspend business for rectification, and inform the relevant competent authorities to revoke the relevant business permit or business
license; a fine of not less than RMB 100,000 yuan but not more than 1 million yuan shall be imposed on the person directly in charge and
other directly liable persons, and a decision may be made to prohibit the said persons from acting as directors, supervisors, senior
executives and persons-in-charge of personal information protection of relevant enterprises within a certain period of time. We have
taken considerate measures to comply with the PRC Personal Information Protection Law: (i) we obtain independent consent of
individuals while using their sensitive personal information, which is also set out in our privacy agreements with individuals at their
account registration; (ii) we notify relevant individuals of the necessity of such use and impact on the individual’s rights in our privacy
agreements with individuals; (iii) we do not engage in cross border business activities and therefore do not provide personal information
to any recipient outside the territory of the Chinese Mainland. However, uncertainties still exist in relation to the interpretation and
implementation of the PRC Personal Information Protection Law. Although we have taken such measures to comply with the laws and
regulations, we cannot assure you the authorities may hold the same view with us. and if we were punished, our business, financial
condition and results of operations may be materially and adversely affected.
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On February 13, 2020, the PBOC also issued the Personal Financial Information Protection Technical Specification, which is an
industry standard, to specify the security protection requirements for all aspects of personal financial information life cycle processing,
including collection, transmission, storage, use, deletion, and destruction. This standard is applicable for financial industry institutions to
provide financial products and services, and also provides a reference for security assessment agencies to conduct security inspections
and assessments. According to the potential impact caused by unauthorized viewing or unauthorized change of financial information, this
standard classifies personal financial information into three categories of C3, C2, and C1 from high to low sensitivity, and different
requirements are put forward for the whole life cycle processing of all kinds of information according to different categories.
We have obtained consent from users to collect and use their personal information in providing consumer finance service. While we
have taken measures to protect the personal information that we have access to, our security measures could be breached resulting in the
leak of such confidential personal information. Security breaches or unauthorized access to confidential information could also expose us
to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. We have disclosed the
regulations by CAC over data security which may have a material effect on us, including the uncertainties of these regulations, our
compliance of these regulations and effect these regulations may have on us. See “Item 3. Key Information—3.D. Risk Factors—Risks
Relating to Our Business and Industry—If we are unable to protect the confidential information of our users and adapt to the relevant
regulatory framework regarding protection of such information, our business and operations may be adversely affected.”
Regulations Related to Credit Information
On September 27, 2021, the PBOC promulgated the Administrative Measures for Credit Information Services, or the Credit
Information Services Measures, which took effect on January 1, 2022. Pursuant to the Credit Information Services Measures, Credit
Information Services, shall mean the collection, sorting, retention, and processing of credit information of enterprises and individuals,
and the provision of the foregoing information to information users. Credit information, shall mean the basic individual information,
lending information and other relevant information used for identification and determination of creditworthiness status of enterprises and
individuals, and collected pursuant to the law for the purpose of providing services for financial activities, as well as the analyzed and
evaluated information formed based on the foregoing information. Entities engaging in personal credit information services shall obtain
the personal credit information organization license pursuant to the Credit Information Services Measures. Financial institutions shall not
carry out commercial cooperation with entities who have not obtained business qualifications for engaging in credit information services
to obtain any credit information services.
We have not obtained personal credit information organization license, and our direct provision of our users’ personal information to
financial institutions may not be permitted. However, one of our consolidated VIEs and one of our subsidiaries have received notices
from the Shenzhen Center of Credit Reference Center of People’s Bank of China to be approved to connect to the credit reference system
and to report business information relating to individual credit loan services, and therefore, as of the date of this annual report, we
consider ourselves in compliant with the regulations mentioned above. Further, we have been collaborating closely with a licensed
personal credit information institution, to execute a plan that complies with the new regulation. Although we have made efforts and
adjustments to comply with the regulatory requirements, we cannot assure you that we are in full compliance with all of the relevant
requirements and regulations. See “Item 3. Key Information—3.D. Risk Factors—Risks Relating to Our Business and Industry—The
Administrative Measures for Credit Information Services may impose adverse effects on our business, financial condition and results of
operations.”
Regulations Related to Intellectual Property
The SCNPC and the State Council have promulgated comprehensive laws and regulations to protect trademarks. The Trademark
Law of the PRC, or the PRC Trademark Law, promulgated on August 23, 1982 and most recently amended on November 1, 2019 and the
Implementation Regulation of the PRC Trademark Law issued by the State Council on August 3, 2002 and amended on April 29, 2014
are the main regulations protecting registered trademarks. The Trademark Office under the State Administration of Industry and
Commerce administrates the registration of trademarks on a “first-to-file” basis, and grants a term of ten years to registered trademarks.
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The PRC Copyright Law, adopted in 1990 and most recently revised on June 1, 2021 respectively, with its implementation rules
adopted on August 8, 2002 and revised in 2011 and 2013 respectively, and the Regulations for the Protection of Computer Software as
promulgated on December 20, 2001 and amended in 2011 and 2013 provide protection for copyright of computer software in the Chinese
Mainland. Under these rules and regulations, software owners, licensees and transferees may register their rights in software with the
National Copyright Administration Center or its local branches to obtain software copyright registration certificates.
The MIIT, promulgated the Administrative Measures on Internet Domain Name, or the Domain Name Measure on August 24, 2017
to protect domain names. According to the Domain Name Measures, domain name applicants are required to duly register their domain
names with domain name registration service institutions. The applicants will become the holder of such domain names upon the
completion of the registration procedure.
We have adopted necessary mechanisms to register, maintain and enforce intellectual property rights in Chinese Mainland. However,
we cannot assure you that we can prevent our intellectual property from all the unauthorized use by any third party, neither can we
promise that none of our intellectual property rights would be challenged any third party. See “Item 3. Key Information—3.D. Risk
Factors—Risks Relating to Our Business and Industry—We may not be able to prevent unauthorized use of our intellectual property,
which could harm our business and competitive position.”
Regulation Relating to Insurance Brokers
The PRC Insurance Law and related regulations were amended in 2002, 2009, 2014 and 2015. The 2015 amendments involved a
number of significant changes to the regulatory regime, including eliminating the requirement for any insurance agent, broker or claims
adjusting practitioners to obtain a qualification certificate issued by the China Insurance Regulatory Commission (“CIRC”).
The principal regulation governing insurance brokers is the Provisions on the Supervision and Administration of Insurance Brokers,
or the POSAIB, promulgated by the CIRC on February 1, 2018 and effective May 1, 2018, replacing the Provisions on the Supervision of
Insurance Brokers issued on September 25, 2009, as amended on April 27, 2013 and October 19, 2015, and the Measures on the
Supervision and Administration of Insurance Brokers and Insurance Claims Adjustors issued by the CIRC on January 6, 2013.
The term of “insurance broker” refers to an entity which, representing the interests of insurance applicants, acts as an intermediary
between insurance applicants and insurance companies for entering into insurance contracts, and collects commissions for the provision
of such brokering services. The term of “insurance brokerage practitioner” refers to a person affiliated with an insurance broker who
drafts insurance application proposals or handle the insurance application formalities for insurance applicants or the insured or assists
insurance applicants or the insured in claiming compensation or who provides clients with disaster or loss prevention or risk assessment
or management consulting services or engages in reinsurance broker, among others.
To engage in insurance brokerage business within the territory of the Chinese Mainland, an insurance broker shall satisfy the
requirements prescribed by the CIRC and obtain an insurance brokerage business permit issued by the CIRC, after obtaining a business
license. An insurance broker may take any of the following forms: (i) a limited liability company; or (ii) a joint stock limited company.
The minimum registered capital of an insurance broker company whose business area is not limited to the province in which it is
registered is RMB50 million while the minimum registered capital of an insurance broker whose business area is limited to its place of
registration is RMB10 million. However, on October 28, 2021, CBIRC promulgated the Implementation Measures for Administrative
Licensing and Filing of Insurance Intermediaries, which took effect on February 1, 2022,according to which, the registered capital of
regional insurance brokers has been changed to RMB20 million yuan.
The name of an insurance broker shall include the words “insurance brokerage.” An insurance broker must register the information
of its affiliated insurance brokerage practitioners with Insurance Intermediary Supervision Information System (“IISIS”). One person can
only be registered with the IISIS through one insurance broker.
An insurance broker may conduct the following insurance brokering businesses:
●
making insurance proposals, selecting insurance companies and handling the insurance application procedures for the insurance
applicants;
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assisting the insured or the beneficiary to claim compensation;
●
reinsurance brokering business;
●
providing consulting services to clients with respect to disaster and damage prevention, risk assessment and risk management;
and
●
other business activities approved by the CIRC.
An insurance broker shall submit a written report to the CIRC through the IISIS and make public disclosure within five days from
the date of occurrence of any of the following matters: (i) change of name, domicile or business premises; (ii) change of shareholders,
registered capital or form of organization; (iii) change of names of shareholders or capital contributions; (iv) amendment to the articles of
association; (v) equity investment, establishment of offshore insurance related entities or nonoperational organizations; (vi) division,
merger and dissolution or termination of insurance brokering business activities of its branches; (vii) change of the primary person in
charge of its branches other than provincial branches; (viii) being a subject of administrative or criminal penalties, or under investigation
for suspected involvement in any violation of law or a crime; and (x) other reportable events prescribed by the CIRC.
The principal regulation governing insurance brokerage practitioners is the Provisions on the Supervision and Administration of
Insurance Brokers, or the POSAIB, promulgated by the CIRC on February 1, 2018 and effective May 1, 2018, replacing the Measures for
the Supervision and Administration of Insurance Brokerage Parishioners and Insurance Assessment Practitioners, which was issued by
the CIRC on January 6, 2013 and effective on July 1, 2013. Under this regulation, insurance brokerage practitioners shall have the
professional ability required for engaging in insurance brokerage business. Insurance brokers shall, in accordance with the relevant
provisions, obtain registrations with the CIRC for their insurance brokerage practitioners, who can only obtain his or her registration
through one insurance broker
Insurance broker and its practitioners are not allowed to sell non-insurance financial products, except for those products approved by
relevant financial regulatory institutions and the insurance broker and its practitioners shall obtain relevant qualification in order to sell
non-insurance related financial products that meets regulatory requirements.
Personnel of an insurance broker and its branches who engage in any of the insurance brokering businesses described above must
comply with the qualification requirements prescribed by the CIRC. The senior managers of an insurance broker must meet specific
qualification requirements set forth in the POSAIB.
We have acquired an insurance broker license for our insurance brokerage business.
Regulations Related to Employment
The PRC Labor Law, or the Labor Law, which was promulgated by the SCNPC in July 1994, became effective in January 1995, and
was most recently amended in December 2018. The PRC Labor Contract Law, or the Labor Law Contract Law, which took effect on
January 1, 2008 and was amended on December 28, 2012. Pursuant to the Labor Law and the Labor Contract Law, employers must
execute written employment contracts with full-time employees. All employers must compensate their employees with wages equal to at
least the local minimum wage standards. Violations of the PRC Labor Law and the Labor Contract Law may result in the imposition of
fines and other administrative sanctions, and serious violations may constitute criminal offences.
On December 28, 2012, the PRC Labor Contract Law was amended with effect on July 1, 2013 to impose more stringent
requirements on labor dispatch. Under such law, dispatched workers are entitled to pay equal to that of full-time employees for equal
work, but the number of dispatched workers that an employer hires may not exceed a certain percentage of its total number of employees
as determined by the Ministry of Human Resources and Social Security. Additionally, dispatched workers are only permitted to engage in
temporary, auxiliary or substitute work. According to the Interim Provisions on Labor Dispatch promulgated by the Ministry of Human
Resources and Social Security on January 24, 2014, which became effective on March 1, 2014, the number of dispatched workers hired
by an employer shall not exceed 10% of the total number of its employees (including both directly hired employees and dispatched
workers). The Interim Provisions on Labor Dispatch require employers not in compliance with the PRC Labor Contract Law in this
regard to reduce the number of its dispatched workers to below 10% of the total number of its employees prior to March 1, 2016.
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Enterprises in Chinese Mainland are required by Chinese Mainland 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. The enterprise may be ordered
to pay the full amount within a deadline if it fails to make adequate contributions to various employee benefit plans and may be subject
to fines and other administrative sanctions.
Regulations Relating to Foreign Exchange
Regulations on Foreign Currency Exchange
Under the PRC Foreign Currency Administration Rules promulgated on January 29, 1996 and last amended on August 5, 2008 and
various regulations issued by the State Administration of Foreign Exchange, or the SAFE, and other relevant Chinese Mainland
government authorities, payment of current account items in foreign currencies, such as trade and service payments, payment of interest
and dividends can be made without prior approval from SAFE by following the appropriate procedural requirements. By contrast, the
conversion of RMB into foreign currencies and remittance of the converted foreign currency outside the Chinese Mainland for the
purpose of capital account items, such as direct equity investments, loans and repatriation of investment, requires prior approval from
SAFE or its local office.
On February 13, 2015, SAFE promulgated the Circular on Simplifying and Improving the Foreign Currency Management Policy on
Direct Investment, or the SAFE Circular No. 13, effective from June 1, 2015 and amended on December 30, 2019, which cancels the
requirement for obtaining approvals of foreign exchange registration of foreign direct investment and overseas direct investment from
SAFE. The application for the registration of foreign exchange for the purpose of foreign direct investment and overseas direct
investment may be filed with qualified banks, which, under the supervision of SAFE, may review the application and process the
registration.
The Circular of the SAFE on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested
Enterprise, or the SAFE Circular No. 19, was promulgated on March 30, 2015, became effective on June 1, 2015 and was further
amended on December 30, 2019. According to the SAFE Circular No. 19, a foreign-invested enterprise may, according to its actual
business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign
exchange bureau has confirmed monetary contribution rights and interests (or for which the bank has registered the account-crediting of
monetary contribution). For the time being, foreign-invested enterprises are allowed to settle 100% of their foreign exchange capitals on
a discretionary basis; a foreign-invested enterprise shall truthfully use its capital for its own operational purposes within the scope of
business; where an ordinary foreign-invested enterprise makes domestic equity investment with the amount of foreign exchanges settled,
the invested enterprise shall first go through domestic re-investment registration and open a corresponding Account for Foreign
Exchange Settlement Pending Payment with the foreign exchange bureau (bank) at the place of registration. The Circular of the SAFE on
Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, the SAFE Circular No. 16
was promulgated and became effective on June 9, 2016 and was further amended on December 4, 2023. According to the SAFE Circular
No. 16, enterprises registered in Chinese Mainland may also convert their foreign debts from foreign currency into Renminbi on self-
discretionary basis. The SAFE Circular No. 16 provides an integrated standard for conversion of foreign exchange under capital account
items (including but not limited to foreign currency capital and foreign debts) on self—discretionary basis, which applies to all
enterprises registered in the Chinese Mainland. The SAFE Circular No. 16 reiterates the principle that Renminbi converted from foreign
currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope and may not be
used for investments in securities or other investment with the exception of financial products with risk assessment result no higher than
grade 2 and structural deposit unless otherwise specifically provided. Besides, the converted Renminbi shall not be used to make loans
for related enterprises unless it is within the business scope or to build or to purchase any real estate that is not for the enterprise own use
with the exception for the enterprise which operates real estate development business or real estate lease business.
On January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and
Optimizing Genuineness and Compliance Verification, or Circular No. 3, which stipulates several capital control measures with respect to
the outbound remittance of profits from domestic entities to offshore entities, including (i) banks must check whether the transaction is
genuine by reviewing board resolutions regarding profit distribution, original copies of tax filing records and audited financial
statements, and (ii) domestic entities must retain income to account for previous years’ losses before remitting any profits. Moreover,
pursuant to Circular 3, domestic entities must explain in detail the sources of capital and how the capital will be used, and provide board
resolutions, contracts and other proof as a part of the registration procedure for outbound investment.
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Regulations on Foreign Exchange Registration of Overseas Investment by Chinese Mainland Residents
SAFE issued the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment
through Special Purpose Vehicles, or the SAFE Circular 37, which became effective in July 2014, to replace the Circular of the State
Administration of Foreign Exchange on Issues Concerning the Regulation of Foreign Exchange in Equity Finance and Roundtrip
Investments by Domestic Residents through Offshore Special Purpose Vehicles, or the SAFE Circular 75 to regulate foreign exchange
matters in relation to the use of special purpose vehicles, or SPVs, by Chinese Mainland residents or entities to seek offshore investment
and financing or conduct round trip investment in Chinese Mainland. SAFE Circular 37 defines a SPV as an offshore entity established
or controlled, directly or indirectly, by Chinese Mainland residents or entities for the purpose of seeking offshore financing or making
offshore investment, using legitimate onshore or offshore assets or interests, while “round trip investment” is defined as direct investment
in Chinese Mainland by Chinese Mainland residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain
the ownership, control rights and management rights. SAFE Circular 37 stipulates that, prior to making contributions into an SPV,
Chinese Mainland residents or entities be required to complete foreign exchange registration with SAFE or its local branch. In addition,
SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct
Investment in February 2015, as amended in December 2019, which amended SAFE Circular 37 and became effective on June 1, 2015,
requiring Chinese Mainland residents or entities to register with qualified banks rather than SAFE in connection with their establishment
or control of an offshore entity established for the purpose of overseas investment or financing.
Chinese Mainland residents or entities who had contributed legitimate onshore or offshore interests or assets to SPVs but had not
obtained registration as required before the implementation of the SAFE Circular 37 must register their ownership interests or control in
the SPVs with qualified banks. An amendment to the registration is required if there is a material change with respect to the SPV
registered, such as any change of basic information (including change of the Chinese Mainland residents, name and operation term),
increases or decreases in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure to comply with the
registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose
controllers of the foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed
on the foreign exchange activities of the relevant foreign-invested enterprise, including payment of dividends and other distributions,
such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from
the offshore parent, and may also subject relevant Chinese Mainland residents or entities to penalties under Chinese Mainland foreign
exchange administration regulations. See “Item 3. Key Information—3.D. Risk Factors—Risks Relating to Doing Business in China—
Chinese Mainland regulations relating to investments in offshore companies by Chinese Mainland residents may subject our Chinese
Mainland-resident beneficial owners or our Chinese Mainland subsidiary to liability or penalties, limit our ability to inject capital into
our Chinese Mainland subsidiary or limit our Chinese Mainland subsidiary’s ability to increase their registered capital or distribute
profits.”
Regulations Relating to Stock Incentive Plans
SAFE promulgated the Notice 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 Notice, in February 2012, replacing the previous
rules issued by SAFE in March 2007. Pursuant to the Stock Incentive Plan Notice and other relevant rules and regulations, Chinese
Mainland residents participating in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its
local branches and follow certain other procedures. Participants of a stock incentive plan who are Chinese Mainland residents must
conduct the SAFE registration and other procedures with respect to the stock incentive plan through a qualified Chinese Mainland agent,
which could be a Chinese Mainland subsidiary of the overseas publicly listed company or another qualified institution appointed by the
Chinese Mainland subsidiary. In addition, the Chinese Mainland agent is required to update the relevant SAFE registration should there
be any material change to the stock incentive plan, the Chinese Mainland agent or other material changes. The Chinese Mainland agent
must, on behalf of the Chinese Mainland residents who have the right to exercise the employee stock options, apply to SAFE or its local
branches for an annual quota for the payment of foreign currencies in connection with the Chinese Mainland residents’ exercise of the
employee stock options. The foreign exchange proceeds received by the Chinese Mainland residents from the sale of shares under the
stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the
Chinese Mainland opened by the Chinese Mainland agents prior to distribution to such Chinese Mainland residents.
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We have adopted a share incentive plan, under which we have the discretion to award incentives and rewards to eligible participants.
See “Item 6. Directors, Senior Management and Employees—6.B. Compensation—Share Incentive Plan.” We have advised the
recipients of awards under our Share Incentive Plan to handle relevant foreign exchange matters in accordance with the Stock Incentive
Plan Notice. However, we cannot guarantee that all employee awarded equity-based incentives can successfully register with SAFE in
full compliance with the Stock Incentive Plan Notice. See “Item 3. Key Information—3.D. Risk Factors—Risks Relating to Doing
Business in China—Any failure to comply with Chinese Mainland regulations regarding employee share incentive plans may subject the
Chinese Mainland plan participants or us to fines and other legal or administrative sanctions.”
In addition, the State Administration for Taxation has issued circulars concerning employee share options, under which our
employees working in the PRC who exercise share options will be subject to PRC individual income tax. Our PRC subsidiary and VIE
have obligations to file documents related to employee share options with relevant tax authorities and to withhold individual income
taxes of those employees who exercise their share options. If our employees fail to pay or if we fail to withhold their income taxes as
required by relevant laws and regulations, we may face sanctions imposed by the PRC tax authorities or other PRC government
authorities.
Regulations Relating to Dividend Distribution
Distribution of dividends of foreign investment enterprises are mainly governed by the PRC Company Law promulgated in January
2006, last amended in December 2023 and came into effect in July 2024 and the Wholly Foreign-owned Enterprise Law promulgated in
April 1986 and amended in September 2016 and its implementation regulations. The Wholly Foreign-owned Enterprise Law was
replaced by the PRC Foreign Investment Law on January 1, 2020. Under these regulations, foreign investment enterprises in the Chinese
Mainland may distribute dividends only out of their accumulative profits, if any, determined in accordance with PRC accounting
standards and regulations. In addition, no less than 10% of the accumulated profits of the foreign investment enterprises in the Chinese
Mainland are required to be allocated to fund certain reserve funds each year unless these reserves have reached 50% of the registered
capital of the enterprises. A Chinese Mainland company is not permitted to distribute any profits until any losses from previous fiscal
years have been offset.
Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. Under our
current corporate structure, our Cayman Islands holding company may rely on dividend payments from Xiaoying (Beijing) Information
Technology Group Co., Ltd., which is a wholly foreign-owned enterprise incorporated in Chinese Mainland, to fund any cash and
financing requirements we may have. Limitation on the ability of our consolidated VIEs to make remittance to the wholly-foreign owned
enterprise and on the ability of our wholly-foreign owned enterprise to pay dividends to us could limit our ability to access cash
generated by the operations of those entities. See “Item 3. Key Information—3.D. Risk Factors—Risks Relating to Doing Business in
China—We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries to fund
offshore cash and financing requirements.”
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Regulations Related to Taxation
Dividend Withholding Tax
In March 2007, the National People’s Congress enacted the Law of the PRC on Enterprise Income Tax which became effective on
January 1, 2008 and last amended on December 29, 2018. According to Enterprise Income Tax Law, dividends generated after January 1,
2008 and payable by a foreign-invested enterprise in Chinese Mainland to its foreign enterprise investors are subject to a 10%
withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with Chinese Mainland that provides for
a preferential withholding arrangement. Pursuant to the Notice of the State Administration of Taxation on Negotiated Reduction of
Dividends and Interest Rates, issued on January 29, 2008 and supplemented and revised on February 29, 2008, and the Arrangement
between Chinese Mainland and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of
Fiscal Evasion with Respect to Taxes on Income, which became effective on December 8, 2006 and applicable to income derived in any
year of assessment commencing on or after April 1, 2007 in Hong Kong and in any year commencing on or after January 1, 2007 in the
Chinese Mainland, such withholding tax rate may be lowered to 5% if a Hong Kong enterprise is deemed the beneficial owner of any
dividend paid by a Chinese Mainland subsidiary by Chinese Mainland tax authorities and holds at least 25% of the equity interest in that
particular Chinese Mainland subsidiary at all times within the 12 - month period immediately prior to the distribution of the dividends.
Furthermore, pursuant to the Announcement on Issues concerning “Beneficial Owners” in Tax Treaties issued on February 3, 2018 by the
SAT, when determining the status of “beneficial owners”, a comprehensive analysis may be conducted through materials such as articles
of association, financial statements, records of capital flows, minutes of board of directors, resolutions of board of directors, allocation of
manpower and material resources, the relevant expenses, functions and risk assumption, loan contracts, royalty contracts or transfer
contracts, patent registration certificates and copyright certificates, etc. However, even if an applicant has the status as a “beneficiary
owner”, if the competent tax authority finds necessity to apply the principal purpose test clause in the tax treaties or the general anti-tax
avoidance rules stipulated in domestic tax laws, the general anti-tax avoidance provisions shall apply. On October 14, 2019, SAT
promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatment under Treaties, or SAT Circular 35, which
became effective on January 1, 2020. SAT Circular 35 provides that non-PRC resident enterprises are not required to obtain pre-approval
from the relevant tax authorities in order to enjoy the reduced withholding tax. Instead, non-PRC resident enterprises and their
withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met,
directly apply the reduced withholding tax rate, and include necessary forms and supporting documents in the tax filings, which will be
subject to post-tax filing examinations by the relevant tax authorities.
Enterprise Income Tax
In December 2007, the State Council promulgated the Implementing Rules of the Enterprise Income Tax Law, or the Implementing
Rules, which became effective on January 1, 2008 and amended on April 23, 2019. The Enterprise Income Tax Law and its relevant
Implementing Rules (i) impose a uniform 25% enterprise income tax rate, which is applicable to both foreign invested enterprises and
domestic enterprises (ii) permits companies to continue to enjoy their existing tax incentives, subject to certain transitional phase-out
rules and (iii) introduces new tax incentives, subject to various qualification criteria.
The Enterprise Income Tax Law also provides that enterprises organized under the laws of jurisdictions outside Chinese Mainland
with their “de facto management bodies” located within Chinese Mainland may be considered PRC resident enterprises and therefore be
subject to PRC enterprise income tax at the rate of 25% on their worldwide income. The Implementing Rules further define the term “de
facto management body” as the management body that exercises substantial and overall management and control over the production and
operations, personnel, accounts and properties of an enterprise. If an enterprise organized under the laws of jurisdiction outside Chinese
Mainland is considered a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax
consequences could follow. First, it would be subject to the PRC enterprise income tax at the rate of 25% on its worldwide income.
Second, a 10% withholding tax would be imposed on dividends it pays to its non-PRC enterprise shareholders and with respect to gains
derived by its non-PRC enterprise shareholders from transfer of its shares.
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On October 17, 2017, the State Administration of Taxation issued the Bulletin on Issues Concerning the Withholding of Non-PRC
Resident Enterprise Income Tax at Source, or the Bulletin 37, as amended in June 2018, which replaced the Notice on Strengthening
Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698, issued by the State
Administration of Taxation, on December 10, 2009, and partially replaced and supplemented rules under the Bulletin on Issues of
Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or the Bulletin 7, issued by the State
Administration of Taxation, on February 3, 2015 and last amended in December 2017. Under Bulletin 7, an “indirect transfer” of assets,
including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct
transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose
of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC
enterprise income tax. In respect of an indirect offshore transfer of assets of a Chinese Mainland establishment, the relevant gain is to be
regarded as effectively connected with the Chinese Mainland establishment and therefore included in its enterprise income tax filing, and
would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immoveable
properties in Chinese Mainland or to equity investments in a PRC resident enterprise, which is not effectively connected to a Chinese
Mainland establishment of a non-resident enterprise, a PRC enterprise income tax at 10% would apply, subject to available preferential
tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the
withholding obligation. Pursuant to Bulletin 37, the withholding party shall declare and pay the withheld tax to the competent tax
authority in the place where such withholding party is located within 7 days from the date of occurrence of the withholding obligation.
Both Bulletin 37 and Bulletin 7 do not apply to transactions of sale of shares by investors through a public stock exchange where such
shares were acquired from a transaction through a public stock exchange. See “Item 3. Key Information—3.D. Risk Factors—Risks
Relating to Doing Business in China—We and our existing shareholders face uncertainties with respect to indirect transfers of equity
interests in PRC resident enterprises or other assets attributed to a Chinese establishment of a non-Chinese company, or immovable
properties located in China owned by non-Chinese companies.”
Value-Added Tax
According to the Provisional Regulations on Value Added Tax of the PRC promulgated by the State Council on December 13, 1993,
effective since January 1, 1994, most recently amended in November 2017, and the Detailed Implementing Rules of the Temporary
Regulations on Value-added Tax of the PRC promulgated by the Ministry of Finance of the PRC on December 15, 2008, effective since
January 1, 2009, and amended on October 28, 2011, all taxpayers selling goods, providing processing, repair and replacement services,
sales of services, intangible assets and immovable assets, and importation of goods within the PRC shall pay value-added tax. On
December 25, 2024, the SCNPC promulgated the Value-Added Tax Law of the PRC, which will become effective on January 1, 2026.
In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of
Value-Added Tax to Replace Business Tax, or the Pilot Plan. In March 2016, the Ministry of Finance and the State Administration of
Taxation further promulgated the Notice on Fully Promoting the Pilot Plan for Replacing Business Tax by Value-Added Tax, as amended
from time to time. Pursuant to the Pilot Plan and the relevant notice, VAT at a rate of 6% is generally imposed, on a nationwide basis, on
the revenue generated from the provision of service in lieu of business tax in the modern service industries. VAT of a rate of 6% applies
to revenue derived from the provision of some modern services. Unlike business tax, a taxpayer is allowed to offset the qualified input
VAT paid on taxable purchases against the output VAT chargeable on the modern services provided.
Regulations Relating to Overseas Listing
On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State
Council jointly issued a document to crack down on illegal activities in the securities market and promote the high-quality development
of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of
law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and
improve the system of extraterritorial application of the Chinese Mainland securities laws.
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On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of the Overseas Securities Offering and Listing by
Domestic Companies, or the Trial Measures, and five supporting guidelines, together with five supporting guidelines, which took effect
on March 31, 2023. Pursuant to the Trial Measures, Chinese Mainland domestic companies that directly or indirectly seek to offer or list
their securities overseas are required to fulfil the filing procedure with the CSRC and report relevant information to the CSRC.
Specifically, the overseas securities offering and listing of any issuer will be deemed as indirect overseas offering by Chinese Mainland
domestic companies if the following conditions are met: (i) 50% or more of any of the issuer’s operating revenue, total profit, total assets
or net assets as documented in its audited consolidated financial statements for the most recent fiscal year is accounted for by Chinese
Mainland domestic companies; and (ii) the main parts of the issuer’s business activities are conducted in Chinese Mainland, or its main
place(s) of business are located in Chinese Mainland, or the majority of senior management staff in charge of its business operations and
management are Chinese Mainland citizens or have their usual place(s) of residence located in Chinese Mainland. Where a Chinese
Mainland domestic company fails to fulfill the filing procedure or conceals any material fact or falsifies any major content in its filing
documents, such Chinese Mainland domestic company may be subject to administrative penalties such as order to rectify, warnings and
fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be
subject to administrative penalties such as warnings and fines. In addition, pursuant to the Trial Measures, an overseas offering and
listing of the securities of a Chinese Mainland domestic company is prohibited under any of the following circumstances, if (i) such
securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (ii) the
intended securities offering and listing may endanger national security as reviewed and determined by competent authorities under the
State Council in accordance with law; (iii) the Chinese Mainland domestic companies intending to make the securities offering and
listing, or its controlling shareholder(s) and the actual controller, have committed crimes such as corruption, bribery, embezzlement,
misappropriation of property or undermining the order of the socialist market economy during the latest three years; (iv) the Chinese
Mainland domestic companies intending to make the securities offering and listing is currently under investigations for suspicion of
criminal offenses or major violations of laws and regulations, and no clear conclusion has yet been made thereof; or (v) there are material
ownership disputes over equity interests held by the Chinese Mainland domestic companies’ controlling shareholder(s) or by other
shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.
On February 24, 2023, the CSRC, Ministry of Finance of the PRC, National Administration of State Secrets Protection and National
Archives Administration of China promulgated the Provisions on Strengthening Confidentiality and Archives Administration of
Overseas Securities Offering and Listing by Domestic Companies, or the Archives Rules, which took effect on March 31, 2023. Pursuant
to the Archives Rules, Chinese Mainland domestic companies that seek overseas offering and listing shall strictly abide by applicable
laws and regulations of the Chinese Mainland and the Archives Rules, enhance legal awareness of keeping state secrets and
strengthening archives administration, institute a sound confidentiality and archives administration system, and take necessary measures
to fulfill confidentiality and archives administration obligations. Such domestic companies shall not leak any state secret and working
secret of government agencies, or harm national security and public interest. Furthermore, a Chinese Mainland domestic company that
plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including
securities companies, securities service providers and overseas regulators, any document and materials that contain state secrets or
working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy
administrative department at the same level. Moreover, a Chinese Mainland domestic company that plans to, either directly or through its
overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service
providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public
interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. The Archives Rules also stipulate that a
Chinese Mainland domestic company that provides accounting archives or copies of accounting archives to any entities including
securities companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in compliance with
applicable national regulations.
Regulations Related to Anti-Monopoly
The Anti-Monopoly Law took effect on August 1, 2008. Before the institutional reform plan of the State Council approved by the
National People’s Congress on March 17, 2018, or the 2018 Institutional Reform Plan, the National Development and Reform
Commission, or the NDRC, the SAIC, and the MOFCOM were the three Chinese Mainland anti-monopoly enforcement authorities and
the NDRC and the SAIC, had in recent years strengthened enforcement actions, including levying significant fines, with respect to cartel
activity as well as abusive behavior of companies having market dominance. According to the 2018 Institutional Reform Plan, the anti-
monopoly functions performed by the NDRC, the SAIC, and the MOFCOM were consolidated into the SAMR, which may place a
profound impact on the Chinese Mainland anti-monopoly law enforcement practice.
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In addition, on February 3, 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review
System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or Circular 6, which officially established a security
review system for mergers and acquisitions of domestic enterprises by foreign investors. Further, on August 25, 2011, MOFCOM
promulgated the Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by
Foreign Investors, or the MOFCOM Security Review Regulations, which became effective on September 1, 2011, to implement Circular
6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having “national defense and
security” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises
with “national security” concerns. Under the MOFCOM Security Review Regulations, MOFCOM will focus on the substance and actual
impact of the transaction when deciding whether a specific merger or acquisition is subject to security review. If MOFCOM decides that
a specific merger or acquisition is subject to security review, it will submit it to the Inter-Ministerial Panel, an authority established under
the Circular 6 led by the NDRC, and MOFCOM under the leadership of the State Council, to carry out the security review. The
regulations prohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect investments,
leases, loans, control through contractual arrangements or offshore transactions.
The Anti-Monopoly Law also provides a private right of action for competitors or users to bring anti-monopoly claims against
companies. In recent years, an increased number of companies have been exercising their right to seek relief under the Anti-Monopoly
Law. As public awareness of the rights under the Anti-Monopoly Law increases, more companies, including our competitors, business
partners and customers, may resort to the remedies under the law to improve their competitive position, regardless of the merits of their
claims. On June 24, 2022, the Decision of the Standing Committee of the National People’s Congress to Amend the Anti-Monopoly Law
of the People’s Republic of China, or the Decision to Amend the Anti-Monopoly Law, was adopted and became effective on August 1,
2022. The Decision to Amend the Anti-Monopoly Law strengthens the regulation on the internet platforms, requiring that undertakings
shall not use data and algorithms, technologies, capital advantages, platform rules, and other means to engage in monopolistic conduct;
and also escalates in full scale the administrative penalties for monopolistic conducts, for the failure to notify the anti-monopoly agencies
on the proposed concentration of undertakings, the State Council Anti-Monopoly Enforcement Agency may order to reinstate the
original status prior to the concentration and impose a fine up to ten percent of the operator’s last year’s sales revenue, provided that the
concentration of undertakings has or may have an effect on excluding or limiting competition; if the concentration does not have the
effect on excluding or limiting competition, a fine up to RMB5,000,000 may be imposed on operators. Since such provisions are
relatively new, uncertain still remains as to the interpretation and implementation of such laws and regulations.
On February 7, 2021, the Anti-Monopoly Committee of the State Council promulgated the Anti-monopoly Guidelines for the
Platform Economy Sector, or the Anti-monopoly Guideline, aiming to improve anti-monopoly administration on online platforms. The
Anti-monopoly Guideline, operating as the compliance guidance under the existing Chinese Mainland anti-monopoly regulatory regime
for platform economy operators, specifically prohibits certain acts of the platform economy operators that may have the effect of
eliminating or limiting market competition, such as concentration of undertakings.
Besides, the Provisions on the Threshold of Filings for Undertaking Concentrations issued by the State Council in 2008, with its
latest amendment on January 22, 2024, further adjusts the filing threshold for concentration of undertaking as, during the previous fiscal
year, (i) the total global turnover of all operators participating in the transaction exceeded RMB12 billion in the preceding fiscal year and
at least two of these operators each had a turnover of more than RMB800 million within Chinese Mainland in the preceding fiscal year,
or (ii) the total turnover within Chinese Mainland of all the operators participating in the concentration exceeded RMB4 billion in the
preceding fiscal year, and at least two of these operators each had a turnover of more than RMB800 million within Chinese Mainland in
the preceding fiscal year.
On April 25, 2024, the SAMR promulgated the Anti-monopoly Compliance Guideline for Undertakings, also known as the Anti-
monopoly Guideline. The Anti-Monopoly Guideline introduces a compliance incentive mechanism, allowing anti-monopoly
enforcement agencies to consider the establishment and implementation of anti-monopoly compliance management systems by business
operators when addressing monopolistic practices. On June 6, 2024, the State Council promulgated the Regulation on Fair Competition
Review, which has strengthened the supervision of fair competition reviews by establishing a comprehensive oversight mechanism,
including fair competition review, random inspections, complaint handling, supervision, and other related processes.
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4.C. Organizational Structure
The following diagram illustrates our corporate structure as of the date of this annual report. It omits certain entities that are
immaterial to our results of operations, business and financial condition and also omits certain trusts and limited partnership enterprises
we consolidate. The relationships between, on the one hand, each of Beijing Ying Zhong Tong (VIE), Shenzhen Xintang (VIE), and
Shenzhen Xiaoying (VIE), and on the other, Beijing WFOE as illustrated in this diagram are governed by contractual arrangements and
do not constitute equity ownership. The dissolvement has been approved by Beijing WFOE pursuant to the relevant variable interest
entity agreements.
(1) In December 2017, Beijing WFOE acquired 100% of the equity interest held by Shenzhen Xiaoying (VIE) in Shenzhen Xiaoying
Puhui Technology Co., Ltd. and Shenzhen Xiaoying Information Technology Group Co., Ltd.
(2) Mr. Yue (Justin) Tang and entities controlled by Mr. Yue (Justin) Tang hold 42.9838% and 57.0162% of equity interest in Shenzhen
Xiaoying, respectively.
(3) Shenzhen Lelebu holds 100% equity interest in Shenzhen Xintang (VIE).
(4) Mr. Yue (Justin) Tang and Mrs. Jing Sun holds 51% and 49% of the equity interest in Beijing Ying Zhong Tong (VIE), respectively.
* Entities in which the shareholders of X Financial own the interests.
** Entities in which the shareholders of X Financial do not own any interests.
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X Financial is a holding company and does not conduct operations. YZT (HK) Limited, or YZT (HK), is X Financial’s wholly-
owned subsidiary incorporated in Hong Kong and is an intermediate holding company. Xiaoying (Beijing) Information Technology
Group Co., Ltd., or Beijing WFOE, is a wholly-owned subsidiary of YZT (HK) Limited. Beijing WFOE was incorporated in the Chinese
Mainland and conducts operations in the Chinese Mainland. Shenzhen Xiaoying Information Technology Group Co., Ltd., or Shenzhen
Xiaoying IT, is a wholly-owned subsidiary of Beijing WFOE. Shenzhen Xiaoying IT was incorporated in the Chinese Mainland and
conducts operations in the Chinese Mainland. Shenzhen Xiaoying Puhui Technology Co., Ltd., or Shenzhen Puhui, is a wholly owned
subsidiary of Beijing WFOE. Shenzhen Puhui was incorporated in the Chinese Mainland and conducts operations in the Chinese
Mainland. Tianjin Yuexin Financing Guarantee Co., Ltd., or Tianjin Yuexin, and Dingyue Digital and Information Technology
(Shenzhen) Group Co., Ltd., or Dingyue Digital, are wholly-owned subsidiaries of Shenzhen Puhui. Tianjin Yuexin and Dingyue Digital
were incorporated in the Chinese Mainland and conduct operations in the Chinese Mainland.
Furthermore, through Beijing WFOE, X Financial conducts its operation in Chinese Mainland through Shenzhen Xintang
Information Consulting Co., Ltd. or Shenzhen Xintang (VIE), Beijing Ying Zhong Tong Rongxun Technology Service Co., Ltd, or
Beijing Ying Zhong Tong (VIE), and Shenzhen Xiaoying Technology Co., Ltd., or Shenzhen Xiaoying (VIE) (collectively with
Shenzhen Xintang (VIE), Beijing Ying Zhong Tong (VIE), the “VIEs”) through a series of contractual arrangements. X Financial and its
subsidiaries do not have equity interests in Shenzhen Xiaoying (VIE), Shenzhen Xintang (VIE), or Beijing Ying Zhong Tong (VIE). X
Financial’s control over the VIEs and X Financial’s position of being the primary beneficiary of the VIEs for the accounting purposes are
limited to the conditions that X Financial met for consolidation of the VIEs under U.S. GAAP. Such conditions include that (i) X
Financial controls VIEs through power to govern the activities which most significantly impact the VIEs’ economic performance, (ii) X
Financial is contractually obligated to absorb losses of VIEs that could potentially be significant to VIEs, and (iii) X Financial is entitled
to receive benefits from VIEs that could potentially be significant to VIEs. Only if X Financial meets the aforementioned conditions for
consolidation of the VIEs under U.S. GAAP, X Financial will be deemed as the primary beneficiary of the VIEs, and the VIEs will be
treated as X Financial’s consolidated affiliated entities for accounting purposes. X Financial could face heightened risks and substantial
costs in enforcing these contractual arrangements, because, although contractual arrangements similar to the contractual arrangements
with the VIEs (the “VIE Agreements”) have been widely adopted by Chinese Mainland companies seeking for listing aboard, such
arrangements have not been tested in any of the Chinese Mainland courts. In addition, there are substantial uncertainties regarding the
interpretation and application of current and future Chinese Mainland laws, regulations, and rules relating to these contractual
arrangements.
Shenzhen Xiaoying (VIE), Shenzhen Xintang (VIE), or Beijing Ying Zhong Tong (VIE) were incorporated in the Chinese Mainland
and conduct operations in the Chinese Mainland. Shenzhen Ying Zhong Tong (VIE) and Xiaoying Microcredit (VIE) are wholly-owned
subsidiaries of Shenzhen Xiaoying (VIE). Shenzhen Ying Ai Gou (VIE) is a wholly-owned subsidiary of Beijing Ying Zhong Tong
(VIE). Shenzhen Ying Zhong Tong (VIE), Xiaoying Microcredit (VIE) and Shenzhen Ying Ai Gou (VIE) were incorporated in the
Chinese Mainland and conduct operations in the Chinese Mainland.
Contractual Arrangements with Consolidated VIEs and Their Shareholders (“VIE Agreements”)
Due to Chinese Mainland legal restrictions on foreign ownership and investment in, among other areas, valued-added
telecommunications, similar to all other entities with foreign incorporated holding company structures operating in our industry in
Chinese Mainland, currently conduct these activities mainly through our VIEs and its subsidiaries over which we exercise effective
control through contractual arrangements among our VIEs and its shareholders.
The contractual arrangements allow us to:
●
exercise effective control over our VIEs;
●
receive substantially all of the economic benefits of our VIEs; and
●
have an exclusive call option to purchase all or part of the equity interest in and/or assets of our VIEs when and to the extent
permitted by laws.
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As a result of these contractual arrangements, we are the primary beneficiary of the VIEs and their subsidiaries and, therefore, have
consolidated the financial results of the VIEs and their subsidiaries in our consolidated financial statements in accordance with
U.S. GAAP.
●
the VIE Agreements constitute valid, legal and binding obligations enforceable against each of the parties thereto in accordance
with the terms of each of the VIE Agreements, subject, as to enforceability, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general
equity principles; and
●
the due execution, delivery and performance of each of the VIE Documents by the parties thereto result in any violation of any
explicit requirements under any PRC Laws in all material aspects.
However, there are substantial uncertainties regarding the interpretation and application of PRC laws and future PRC laws and
regulations, and there can be no assurance that any governmental agency will not take a view that is contrary to or otherwise different
from our views stated herein.
The following is a summary of the currently effective contractual arrangements by and among our wholly-owned subsidiaries, the
VIEs and the shareholder(s) of the VIEs and their spouses.
Agreements that provide us with effective control over the VIEs
Shareholders’ Voting Rights Proxy Agreements. Pursuant to the Shareholders’ Voting Right Proxy Agreements among Beijing
WFOE, each of the VIEs and the shareholders of each of the VIEs. These shareholders irrevocably authorize Beijing WFOE or any
person(s) designated by Beijing WFOE to act as his or her attorney-in-fact to exercise all of his or her rights as a shareholder of the VIEs,
including, but not limited to, the right to convene shareholders’ meetings, vote and sign any resolution as a shareholder, appoint directors
and other senior executives to be appointed and removed by the shareholder, the right to sell, transfer, pledge and dispose of all or a
portion of the shares held by such shareholder, and other shareholders voting rights permitted by the Articles of Association of each VIE.
For the agreements among Beijing WFOE, each of the VIEs and their shareholders, the power of attorney will remain in force for
ten years. Unless a thirty-day notice is given by Beijing WFOE, these agreements shall be automatically renewed for another one year
upon the expiration.
Spousal Consent Letters. Spouse of each individual shareholder of each of the VIEs has each signed a spousal consent letter. Under
the spousal consent letters, each signing spouse unconditionally and irrevocably gives up his or her rights to such shares and any
associated economic rights or interests to which he or she may be entitled pursuant to applicable laws and undertakes not to make any
assertion of rights to such shares and the underlying assets. Each signing spouse agrees and undertakes that he or she will take all
necessary actions to ensure the proper perform of the contractual arrangements, and will be bound by the contractual arrangements in
case he or she obtains any equity of the VIEs due to any reason.
Equity Pledge Agreements. Pursuant to the Equity Pledge Agreements among Beijing WFOE, each of the VIEs and the shareholders
of each of the VIEs, those shareholders have pledged 100% equity interest in the VIEs to Beijing WFOE to guarantee the performance by
the VIEs and its shareholders of their obligations under the Shareholders’ Voting Rights Proxy Agreements, the Equity Pledge
Agreements and the Exclusive Business Corporation Agreements. If the VIEs or those shareholders breach their contractual obligations
under these agreements, Beijing WFOE, as pledgee, will have the right to dispose of the pledged equity interests in the VIEs and will
have priority in receiving the proceeds from such disposal. Those shareholders also agree that, unless the contractual obligations as
defined in the Equity Pledge Agreements are fully performed by them or the secured debts under the Equity Pledge Agreements are paid
in full (whichever later), they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity
interests. We have completed the registration of the pledge of equity interests in Beijing Ying Zhong Tong (VIE) and Shenzhen Xiaoying
(VIE) with the competent administration for market regulation. As of the date of this annual report, the pledge of equity interest in
Shenzhen Xintang (VIE) has not been registered with the competent administration for market regulation and we may not be able to
register the pledge of equity in Shenzhen Xintang (VIE).
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Agreements that allow us to receive economic benefits from the VIEs
Exclusive Business Cooperation Agreements. Pursuant to the Exclusive Business Cooperation Agreements among Beijing WFOE
and each of the VIEs, Beijing WFOE or its designated person has the exclusive right to provide the VIEs with technical support,
consulting and other services in return for fees based on 100% total consolidated profit of the VIEs after making up any cumulative loss
(if any) of the VIEs and its affiliated companies and setting of the working capital, operational costs, taxes and other statutory
contributions required. Without Beijing WFOE’s prior written consent, the VIEs may not accept any services subject to these agreements
from any third party. Beijing WFOE has the right to determine the service fee to be charged to the VIEs under these agreements by
considering, among other things, the complexity of the services, the time that may be spent for providing such services, as well as the
commercial value and specific content of the service provided. Beijing WFOE will have the exclusive ownership of all intellectual
property rights created as a result of the performance of these agreements. For the agreements between Beijing WFOE and each of the
VIEs, unless Beijing WFOE terminates these agreements in advance, these agreements will remain effective for ten years. Unless agreed
by both parties in writing, these agreements shall be automatically renewed for another ten years upon its expiration.
Agreements that provide us with the option to purchase the equity interests in the VIEs
Exclusive Call Option Agreements. Pursuant to the Exclusive Call Option Agreements among Beijing WFOE, each of the VIEs and
their shareholders, their shareholders irrevocably granted Beijing WFOE or any third party designated by Beijing WFOE an exclusive
option to purchase all or part of their equity interests in the VIEs at the lowest price permitted by applicable Chinese Mainland laws.
Those shareholders further undertake that they will neither create any pledge or encumbrance on their equity interests in the VIEs, nor
transfer, gift or otherwise dispose of their equity interests in the VIEs to any person other than Beijing WFOE or its designated third
party. Without Beijing WFOE or its designated third party’s prior written consent, those shareholders agree not to, among other things,
amend its articles of association, increase or decrease the registered capital, permit the VIEs to enter into transactions which materially
and adversely affect the VIEs’ assets, liabilities, business operations, equity interests and other legal interests, or merge with any other
entities or make any investments, or distribute dividends. For the agreements among Beijing WFOE, each of the VIEs and their
shareholders, these agreements will remain effective for ten years. Unless notified by Beijing WFOE, the parties to these agreements
shall extend the term of these agreements for another ten years.
4.D. Property, Plant and Equipment
Our corporate headquarters are located in Shenzhen, where we lease an area of approximately 5,106 square meters as of the date of
this annual report. We also lease office space of approximately 1,785 square meters in Beijing and office space of approximately 1,601
square meters in Shanghai. We lease our premises from third parties under operating lease agreements. We believe that we will be able to
obtain adequate facilities, principally through leasing, to accommodate our future expansion plans.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion together with our consolidated financial statements and the related notes included
elsewhere in this annual report. This discussion contains forward-looking statements about our business and operations. Our actual
results may differ materially from those we currently anticipate as a result of many factors, including those we describe under “Item 3.D.
Risk Factors” and elsewhere in this annual report on Form 20-F.
5.A. Operating Results
Key Factors Affecting Our Results of Operations
Economic Conditions and Regulatory Environment in China
The demand for personal finance services from prime borrowers depends on the overall economic conditions in Chinese Mainland.
General economic factors, including the interest rate environment and unemployment rates, may have impacts on borrowers’ willingness
to seek loans. For example, significant increases in interest rates could lead to prospective borrowers to defer obtaining loans as they wait
for interest rates to decrease. Additionally, a slowdown in the economy, resulting in a rise in unemployment rate and possibly a decrease
in real income, may affect individuals’ level of disposable income. This may affect borrowers’ repayment capability and their willingness
to seek loans, which may potentially affect the delinquency rates.
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The regulatory environment for the online personal finance industry in Chinese Mainland is developing and evolving, creating both
challenges and opportunities that could affect our financial performance. We continue to operate in close alignment with the evolving
regulatory framework. The recent notice issued by the National Financial Regulatory Administration regarding internet-based loan
facilitation reflects an ongoing policy trajectory rather than a major change in direction. While the specific implementation of certain
measures remains to be clarified, we believe the broader objective remains consistent: promoting responsible credit access while
ensuring financial stability. We view the growing inclusion of loan facilitation platforms like ours under formal regulatory supervision as
an indication of our increasing recognition within the financial system. This trend supports long-term sustainability and reinforces our
role in enabling efficient credit delivery.
Due to the relatively short history of online personal finance industry in Chinese Mainland, a comprehensive regulatory framework
governing our industry is under development by the Chinese Mainland government. See “Item 3. Key Information—3.D. Risk Factors—
Risks Relating to Our Business and Industry” for details. While new laws and regulations or changes to existing laws and regulations
could make facilitating loans to borrowers more difficult or expensive, or making such loan products more difficult for institutional
funding partners to accept or on terms favorable to us, these events could also provide new product and market opportunities. We remain
committed to full compliance with regulatory directives and continue to engage constructively with stakeholders. We will continue to
diversify our funding sources, expand our loan product and service mix, and enhance our risk management to support our business
growth.
Size of Borrower Base and Engagement
Our revenues are dependent on our ability to acquire new borrowers and retain existing borrowers. The size of our borrower base
directly affects the total amount of loans we facilitate and in turn the service fees that we collect. The number of active borrowers on our
platform increased from 3,326,774 borrowers in 2022 to 4,495,997 borrowers in 2023, and then further increased to 5,231,887 borrowers
in 2024, of which 2,100,641 or 63.1%, 2,853,149 or 63.5%, and 3,180,028 or 60.8% were new borrowers, respectively. In 2022, 2023
and 2024, we have facilitated RMB73,655 million, RMB105,557 million and RMB104,889 million of loans on our platform,
respectively. We are a leading player in the online personal finance industry. To date, we rely on attractive fee rates, products and services
to acquire new borrowers. We also utilize various marketing efforts to attract and retain borrowers. A change in our ability to attract or
retain borrowers, or a change in the acquisition cost of such borrowers, may potentially affect our revenue and profitability.
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106
Loan Pricing
Our revenue and profitability are subject to the terms of our loan products, including the rate of service fees or interest fees charged,
loan durations and the size of loan products. To cater our loan products to each prime borrower segment, within each product category,
we specify the amount of fees per transaction considering the type, size and duration of the loan product. Loan products of longer
duration and larger size generally correspond to higher fees. We assign a credit assessment result to each prospective borrower leveraging
on our proprietary credit scoring model, based on an applicant’s basic information, credit history and behavior data and assign a credit
line. Going forward, we also expect to assign differentiated fee rates based on the credit assessment result of an applicant. The fee rate
variation depends on various factors in the competitive market and our adjustment in pricing will impact our revenues and profitability,
as our revenues are generated from the service fees or interest fees.
Ability to Maintain Effective Risk Management
Our ability to effectively assess the credit risk of borrowers and classify borrowers into appropriate risk profiles impacts our ability
to attract and retain borrowers and institutional funding partners, both of which directly relate to users’ confidence in our platform. The
delinquency rate for all outstanding loans on our platform that were 31-60 days past due increased from 1.02% as of December 31, 2022
to 1.57% as of December 31, 2023, and then decreased to 1.17% as of December 31, 2024. The primary reasons for the decrease of the
delinquency rates in 2024 include (i) the proactive adjustment of our risk policies in response to the evolving environment; and (ii) our
improved ability to attract and retain more borrowers with better credit score. We intend to optimize our fraud detection capabilities,
improve accuracy of our credit scoring model and enhance our collection effectiveness on a continuing basis through the combination of
our big-data analytical capabilities and the increasing amount of data we accumulate through our operations. See “Item 4. Information on
the Company—4.B. Business Overview—Risk Management” for details.
Ability to Maintain Stable Funding Sources and Diversify and Expand Our Funding Channels
Our revenue is dependent on our ability to maintain stable funding sources and diversify and continuously expand our funding
sources. At the end of 2019, we ceased funding our loan products from our individual investors through Xiaoying Wealth Management
platform. We actively expanded institutional funding, such as banks, consumer finance companies, trust companies and other institutions,
and achieved 100% institutional funding for the new loans facilitated by the end of the second quarter of 2020. In May 2021, we obtained
a network microcredit license from the Local Financial Regulatory Bureau of Shenzhen Municipality and started online microcredit
business in July 2021. The availability of funds affects our liquidity and the amount of transactions that we will be able to facilitate. In
2022, 97.3% of the total funding for loans we facilitated were provided by institutional funding partners, 2.7% were provided by our own
funds. In 2023, 97.2% of the total funding for loans we facilitated were provided by institutional funding partners, 2.8% were provided
by our own funds. In 2024, 95.9% of the total funding for loans we facilitated were provided by institutional funding partners, 4.1% were
provided by our own funds.
Relationship with Financial Institutional cooperators
Our collaboration with financial institutional cooperators is an important factor affecting our results of operations. We benefit from
the protection of credit insurance or guarantee service which is provided by our financial institutional cooperators to investors or
institutional funding in the event of borrower’s default. Substantially all of our financial institutional cooperators have at least AA+ credit
rating issued by renowned rating companies. Our financial institutional cooperators provide services covering both the North China and
South China areas, most of which have a registered capital of more than RMB1 billion. Our financial institutional cooperators’ strong
brand recognition in China assists us in expanding our institutional funding base at reasonable expenses.
We also collaborate with those financial institutional cooperators to strengthen our capabilities on risk management, given that we
can get their insurance or guarantee decision opinion. Our financial institutional cooperators’ credit assessment models are based on
information from various databases, including PBOC CRC that is only available to licensed financial institutions. In addition to our
financial institutional cooperators’ decision and input, we also factor in many layers of other decision variables to create a more
comprehensive and accurate profile of the borrowers’ creditworthiness. See “Item 4. Information on the Company—4.B. Business
Overview—Our Partnership with Financial Institutional Cooperators “ for details. Changes to our arrangement with financial
institutional cooperators in credit insurance or guarantee services, credit assessment and other aspects of our business could affect our
investors’ confidence, the growth of our business and our profitability.
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In 2023, one of our Chinese Mainland subsidiaries, Tianjin Yuexin that holds the financing guarantee license, cooperated with
external financing guarantee companies, where Tianjin Yuexin assumes 20% of the guarantee liability, and the external financing
guarantee company assumes 80% of the guarantee liability. In 2024, Tianjin Yuexin introduced a new business model involving
collaborations with external financing guarantee companies. This new arrangement specifically requires Tianjin Yuexin to make
payments, up to a pre-agreed cap, to reimburse external financing guarantee companies for a pre-determined portion of borrower
payment defaults and the guarantee fee amount that was not collected due to prepayments. Under this business model, Tianjin Yuexin has
no obligation to pay to the institutional funding partners. See “Item 4. Information on the Company—4.B. Business Overview—Our
Partnership with Financial Institutional Cooperators “ for details. We have expanded our cooperation with high-quality external financing
guarantee companies that provide guarantee services to protect institutional funding partners from losses incurred from borrowers’
defaults and charge guarantee fees to borrowers. A portion of guarantee fees will be subsequently paid to us by the external financing
guarantee companies as the service fee. We may consider introducing other funding protection arrangements. We cannot assure you that
new arrangements would be perceived by our financial institutional cooperators or institutional funding partners, which may have
adverse impact on our business operations.
Loan Performance
Delinquency Rate by Balance of Xiaoying Credit Loan
We define delinquency rate as the balance of the outstanding principal and accrued outstanding interest for loans that were 31 to 60
days past due as a percentage of the total balance of outstanding principal and accrued outstanding interest for the loans we facilitated as
of a specific date. Loans that are delinquent for more than 60 days are charged-off and excluded in the calculation of delinquency rate by
balance. The following table provides the delinquency rates for Xiaoying Credit Loan as of the respective dates indicated.
December 31,
2022
2023
2024
Delinquent for 31-60 days
1.02 %
1.57 %
1.17 %
To make the delinquency rate by balance comparable to our peers, we also define the delinquency rate as the balance of the
outstanding principal and accrued outstanding interest for loans that were 31 to 90 and 91 to 180 days past due as a percentage of the
total balance of outstanding principal and accrued outstanding interest for the loans we facilitated as of a specific date. Loans that are
delinquent for more than 180 days are excluded in the calculation of delinquency rate by balance. The following table provides the
delinquency rates for Xiaoying Credit Loan as of the respective dates indicated.
Delinquent for
31 - 90 days
91 - 180 days
December 31, 2022
1.79 %
1.94 %
December 31, 2023
2.81 %
3.12 %
December 31, 2024
2.09 %
2.48 %
The delinquency rate for Xiaoying Credit Loan that were 31-60 days past due increased from 1.02% as of December 31, 2022 to
1.57% as of December 31, 2023, and then decreased to 1.17% as of December 31, 2024. The delinquency rate for Xiaoying Credit Loan
that were 31-90 days past due increased from 1.79% as of December 31, 2022 to 2.81% as of December 31, 2023, and then decreased to
2.09% as of December 31, 2024. The delinquency rate for Xiaoying Credit Loan that were 91-180 days past due increased from 1.94% as
of December 31, 2022 to 3.12% as of December 31, 2023, and then decreased to 2.48% as of December 31, 2024. The primary reasons
for the decrease of the delinquency rates in 2024 include (i) the proactive adjustment of our risk policies in response to the evolving
environment; and (ii) our improved ability to attract and retain more borrowers with better credit score.
Delinquency Rate by Vintage of Xiaoying Credit Loan
We refer to loans facilitated during a specified time period as vintage. We define vintage delinquency rate as (i) the total amount of
principal for all loans in vintage that becomes delinquent, less (ii) the total amount of recovered past due principal for all loans in the
same vintage, and divided by (iii) the total amount of initial principal for all loans in such vintage. Loans that have been charged-off are
included in the calculation of vintage delinquency rates.
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The following chart displays the historical cumulative 91-day plus past due delinquency rates by loan origination vintage for all
continuing Xiaoying Credit Loan facilitated through our platform up to December 31, 2024.
The change in such delinquency rate of Xiaoying Credit Loan was primarily due to (i) the proactive adjustment of our risk policies
in response to the evolving environment; and (ii) our improved ability to attract and retain more borrowers with better credit score.
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109
Results of Operations
The following table sets forth a summary of our consolidated results of operations for the periods presented. This information should
be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The results of
operations in any period are not necessarily indicative of our future trends.
For the Year Ended December 31,
2022
2023
2024
RMB
%
RMB
%
RMB
US$
%
(in thousands, except for percentages)
Net revenues
Loan facilitation service
2,044,344
57.4 % 2,740,974
56.9 % 3,102,345
425,020
52.8 %
Post-origination service
372,451
10.5 % 596,582
12.4 % 759,539
104,056
12.9 %
Financing income
966,277
27.1 % 1,137,336
23.6 % 1,372,004
187,964
23.5 %
Guarantee income
—
—
24,497
0.5 % 201,716
27,635
3.4 %
Other revenue
179,878
5.0 % 315,495
6.6 % 436,178
59,756
7.4 %
Total net revenue
3,562,950
100.0 % 4,814,884
100.0 % 5,871,782
804,431
100.0 %
Operating costs and expenses:
Origination and servicing
1,337,370
37.5 % 1,544,014
32.1 % 1,738,139
238,124
29.6 %
Borrower acquisitions and marketing
833,109
23.4 % 1,370,942
28.5 % 1,582,472
216,798
27.0 %
General and administrative
143,235
4.0 % 153,943
3.2 % 175,934
24,103
3.0 %
(Reversal of) provision for contingent guarantee
liabilities
(14,000)
(0.4)%
67,520
1.4 % 241,738
33,118
4.1 %
Provision for accounts receivable and contract
assets
21,836
0.6 %
12,234
0.3 %
35,732
4,895
0.6 %
Reversal of provision for loan receivable from
Xiaoying Housing Loans
(6,066)
(0.2)%
(4,213)
(0.1)%
(4,157)
(569)
(0.1)%
Provision for loans receivable from Xiaoying
Credit Loans and other loans
164,642
4.6 % 233,350
4.8 % 225,815
30,936
3.8 %
Change in fair value of financial guarantee
derivative
(137,654)
(3.9)%
(24,966)
(0.5)%
(1,038)
(142)
(0.0)%
Fair value adjustments related to Consolidated
Trusts
6,168
0.2 %
531
0.0 %
—
—
—
Provision for (reversal of) credit losses on deposits
to institutional cooperators
1,296
0.0 %
(674)
(0.0)%
3,223
441
0.1 %
(Reversal of) provision for credit losses for other
financial assets
(765)
(0.0)%
86
0.0 %
155
22
0.0 %
Total operating expenses
2,349,171
65.8 % 3,352,767
69.7 % 3,998,013
547,726
68.1 %
Income from operations
1,213,779
34.2 % 1,462,117
30.3 % 1,873,769
256,705
31.9 %
Interest income (expense), net
3,756
0.1 %
(20,365)
(0.4)%
(560)
(77)
(0.0)%
Foreign exchange loss
(19,963)
(0.6)%
(4,023)
(0.1)%
(9,533)
(1,306)
(0.2)%
(Loss) income from financial investments
(9,526)
(0.3)%
6,498
0.1 %
17,134
2,347
0.3 %
Impairment losses on financial investments
(8,875)
(0.2)%
—
—
—
—
—
Other income, net
40,724
1.1 %
24,351
0.5 %
13,521
1,852
0.2 %
Income before income taxes
1,219,895
34.3 % 1,468,578
30.4 % 1,894,331
259,521
32.2 %
Income tax expense
(396,074)
(11.0)% (261,130)
(5.4)%
(405,702)
(55,581)
(6.9)%
(Loss) gain from equity in affiliates, net of tax
(42,252)
(1.3)%
(1,931)
(0.0)%
10,159
1,392
0.2 %
Gain (loss) from financial investments at equity
method, net of tax
30,426
0.9 %
(18,723)
(0.4)%
41,118
5,633
0.7 %
Net income
811,995
22.9 % 1,186,794
24.6 % 1,539,906
210,965
26.2 %
Note: The presentation of consolidated statements of comprehensive income has been changed since 2024. As a result, certain line items
presented in the consolidated statements of comprehensive income for the previous fiscal years have been retrospectively adjusted to
conform to current presentation. For further information, see Note 2(al) “Summary of significant accounting policies - Revisions of prior
year”.
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110
The table below summarizes key financial ratios for the fiscal years ended 2022, 2023, and 2024. These ratios are calculated based
on the audited financial data presented within this Form 20-F and offer a concise overview of the Company’s financial performance and
position.
For the Year Ended December 31,
2022
2023
2024
Operating Margin (1)
34.1 %
30.4 %
31.9 %
Net Income Margin (2)
22.8 %
24.6 %
26.2 %
Return on Equity (3)
18.6 %
22.4 %
24.1 %
Return on Assets (4)
10.0 %
11.6 %
13.1 %
Note:
(1) Operating Margin: This ratio indicates the profitability of our core business operations. It shows the profit generated from our
main activities for each dollar of revenue. It is calculated as Income from Operations divided by Total Net Revenue for the fiscal year.
(2) Net Income Margin: This ratio reflects our overall profitability. It shows the profit remaining for each dollar of revenue after all
expenses, including interest and taxes, have been paid. It is calculated as Net Income divided by Total Net Revenue for the fiscal year.
(3) Return on Equity (ROE): This ratio measures how effectively we generate profit from shareholders’ investments. It shows the
profit we earn for each dollar of equity. It is calculated as Net Income divided by Average Total Equity for the fiscal year. Average
Total Equity is calculated using the opening and closing balances.
(4) Return on Assets (ROA): This ratio indicates how efficiently we use our total assets to generate profit. It shows the profit we
earn for each dollar of assets. It is calculated as Net Income divided by Average Total Assets for the fiscal year. Average Total Assets is
calculated using the opening and closing balances.
In 2024, net revenues increased meaningfully, while total facilitated loan volume remained stable at RMB104.9 billion,. This
revenue growth was driven by improved economics, including stronger borrower quality, lower prepayment rates, and pricing conditions
influenced by ongoing monetary policy support.
Asset quality also improved during the year. Delinquency rates declined across key risk categories, reflecting continued
enhancements to our credit risk controls and underwriting practices. These trends supported stronger unit-level profitability and
contributed to a more predictable revenue base.
Operating margins expanded despite higher customer acquisition costs. This reflects the benefits of scale and improved efficiency
across our platform. In addition, revenue from post-loan services grew at a healthy pace, supported by a larger base of outstanding loans.
We anticipate continued loan volume growth for 2025, though we remain attentive to evolving regulatory developments. We believe
our disciplined risk management and operational agility will continue to support profitable performance. We remain committed to
compliance with applicable laws and regulatory directives, consistent with our longstanding practice of strict compliance and
constructive engagement with regulatory authorities.
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111
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Net Revenues
The following table sets forth the breakdown of our net revenues, both in absolute amount and as a percentage of our total net
revenues, for the periods presented:
For the Year Ended December 31,
2023
2024
RMB
%
RMB
US$
%
(in thousands, except for percentages)
Net revenues
Loan facilitation service
2,740,974
56.9 % 3,102,345
425,020
52.8 %
Post-origination service
596,582
12.4 %
759,539
104,056
12.9 %
Financing income
1,137,336
23.6 % 1,372,004
187,964
23.5 %
Guarantee income
24,497
0.5 %
201,716
27,635
3.4 %
Other revenue
315,495
6.6 %
436,178
59,756
7.4 %
Total net revenue
4,814,884
100.0 % 5,871,782
804,431
100.0 %
While overall loan volumes remained flat year-over-year, several key factors contributed to the increase in net revenues:
1.
Improved credit performance, including lower delinquency rates, enhanced revenue per loan.
2.
Lower borrower prepayment rates improved revenue capture by reducing early loan terminations, allowing us to recognize a
greater portion of expected fees.
3.
Declining benchmark interest rates lowered our funding costs, which improved the overall profitability of our operations.
These dynamics reflect structural improvements in our risk management framework and the effects of accommodative policy
measures that have supported credit availability and borrower affordability.
Loan Facilitation Service
Loan facilitation service fees increased from RMB2,741.0 million in 2023 RMB3,102.3 million (US$425.0 million) in 2024,
primarily due to a decrease in the expected prepayment rates this year compared with 2023.
Post-origination Service
Post-origination service fees increased from RMB596.6 million in 2023 to RMB759.5 million (US$104.1 million) in 2024, primarily
due to the cumulative effect of increased volume of loans facilitated in the previous years. Revenues from post-origination services are
recognized on a straight-line basis over the term of the underlying loans as the services are being provided.
Financing Income
Financing income increased from RMB1,137.3 million in 2023 to RMB1,372.0 million (US$188.0 million) in 2024, primarily due to
an increase in average loan balances held by us compared with 2023.
Guarantee income
Guarantee income increased from RMB24.5 million in 2023 to RMB201.7 million (US$27.6 million) in 2024, due to the cumulative
effect of increased volume of loans facilitated covered by guarantee service compared with 2023. Revenues from guarantee service are
recognized systematically when we released from the underlying risk.
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112
Other Revenue
Other revenue increased from RMB315.5 million in 2023 to RMB436.2 million (US$59.8 million) in 2024, primarily due to an
increase in referral service fee for introducing borrowers to other platforms.
Operating Expenses
The following table sets forth our operating expenses, both in absolute amount and as a percentage of our total revenues, for the
periods presented.
For the Year Ended December 31,
2023
2024
RMB
%
RMB
US$
%
(in thousands, except for percentages)
Operating costs and expenses:
Origination and servicing
1,544,014
32.1 % 1,738,139
238,124
29.6 %
Borrower acquisitions and marketing
1,370,942
28.5 % 1,582,472
216,798
27.0 %
General and administrative
153,943
3.2 %
175,934
24,103
3.0 %
(Reversal of) provision for contingent guarantee liabilities
67,520
1.4 %
241,738
33,118
4.1 %
Provision for accounts receivable and contract assets
12,234
0.3 %
35,732
4,895
0.6 %
Reversal of provision for loan receivable from Xiaoying Housing
Loans
(4,213)
(0.1)%
(4,157)
(569)
(0.1)%
Provision for loans receivable from Xiaoying Credit Loans and
other loans
233,350
4.8 %
225,815
30,936
3.8 %
Change in fair value of financial guarantee derivative
(24,966)
(0.5)%
(1,038)
(142)
(0.0)
Fair value adjustments related to Consolidated Trusts
531
0.0 %
—
—
—
(Reversal of) provision for credit losses on deposits to institutional
cooperators
(674)
(0.0)%
3,223
441
0.1 %
Provision for credit losses for other financial assets
86
0.0 %
155
22
0.0 %
Total operating expenses
3,352,767
69.7 % 3,998,013
547,726
68.1 %
Operating expenses increased from RMB3,352.8 million in 2023 to RMB3,998.0 million (US$547.7 million) in 2024, reflecting
growth in the cumulative effect of increased loan volumes and intensified marketing investments. Borrower acquisition and marketing
expenses grew due to higher competitive pressures and targeted campaigns aimed at high-quality borrower segments. Provision for
contingent guarantee liabilities notably increased due to the expanded scale of loans facilitated under guarantee arrangements.
Despite these incremental expenses, operational efficiency improved, as evidenced by an operating margin expansion to
approximately 31.9% from 30.4% in the prior year. This improvement is attributable to operational leverage gained through increased
scale, optimized borrower acquisition strategies, and efficiencies derived from expanded use of AI technologies across collections.
Origination and Servicing Expenses
Origination and servicing expenses increased from RMB1,544.0 million in 2023 to RMB1,738.1 million (US$238.1 million) in
2024, primarily due to the increase in collection expenses resulting from the cumulative effect of increased volume of loans facilitated
and originated in the previous quarters compared with 2023.
Borrower Acquisitions and Marketing Expenses
Borrower acquisitions and marketing expenses increased from RMB1,370.9 million in 2023 to RMB1,582.5 million (US$216.8
million) in 2024, primarily due to intensified efforts in borrower acquisitions compared with 2023.
General and Administrative
General and administrative expenses increased from RMB153.9 million in 2023 to RMB175.9 million (US$24.1 million) in 2024,
primarily due to the increase in labor costs and share-based compensation expenses.
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Provision for Contingent Guarantee Liabilities
Provision for contingent guarantee liabilities in 2024 was RMB241.7 million (US$33.1 million), compared with RMB67.5 million in
2023, primarily due to an increase in guarantee liabilities held by us as a result of the increased volume of loans facilitated covered by the
guarantee service this year compared with 2023.
Provision for Accounts Receivable and Contract Assets
Provision for accounts receivable and contract assets increased from RMB12.2 million in 2023 to RMB35.7 million (US$4.90
million) in 2024, primarily due to an increase in accounts receivable and contract assets from guarantee income as a result of the
increased volume of loans facilitated covered by the guarantee service this year compared with 2023.
Provision for loans receivable from Xiaoying Credit Loans and other loans
Provision for loan receivables from Xiaoying Credit Loans and other loans decreased from RMB233.4 million in 2023 to RMB
225.8 million (US$30.9 million) in 2024, primarily due to a decrease in the average estimated loss rate compared with 2023.
Change in Fair Value of Financial Guarantee Derivative
We entered into a series of arrangements with various financial institutional cooperators for certain guarantee services, through
Shenzhen Xintang (VIE) before the first quarter of 2023 or through Tianjin Yuexin in and after 2023, to receive guarantee fees and to
reimburse, up to a pre-agreed cap, financial institutional cooperators for a pre-determined portion of borrower payment defaults and the
guarantee fee amount that was not collected due to prepayments. Gains from fair value of financial guarantee derivative decreased from
RMB25.0 million in 2023 to RMB1.0 million (US$0.1million) in 2024, primarily due to the release of obligation from such guarantee
services in 2023 as we settled the remaining business of Shenzhen Xintang (VIE) in the first quarter of 2023.
Income Tax Expense
Income tax expense increased from RMB261.1 million in 2023 to RMB405.7 million (US$55.6 million) in 2024, primarily due to
the increase of profit before tax and valuation allowance as a result of a change in judgment about the ability of we to utilize a beginning-
of-the-year deferred tax asset in future years.
Net Income
As a result of the foregoing, our net income increased from RMB1,186.8 million in 2023 to RMB1,539.9 million (US$211.0 million)
in 2024.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Net Revenues
The following table sets forth the breakdown of our net revenues, both in absolute amount and as a percentage of our total net
revenues, for the periods presented:
For the Year Ended December 31,
2022
2023
RMB
%
RMB
US$
%
(in thousands, except for percentages)
Net revenues
Loan facilitation service
2,044,344
57.4 % 2,740,974
386,058
56.9 %
Post-origination service
372,451
10.5 %
596,582
84,027
12.4 %
Financing income
966,277
27.1 % 1,137,336
160,190
23.6 %
Guarantee income
—
—
24,497
3,450
0.5 %
Other revenue
179,878
5.0 %
315,495
44,436
6.6 %
Total net revenue
3,562,950
100.0 % 4,814,884
678,161
100.0 %
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Loan Facilitation Service
Loan facilitation service fees increased from RMB2,044.3 million in 2022 to RMB2,741.0 million (US$386.1 million) in 2023,
primarily due to an increase in the total loan amount facilitated this year compared with 2022.
Post-origination Service
Post-origination service fees increased from RMB372.5 million in 2022 to RMB596.6 million (US$84.0 million) in 2023, primarily
due to the cumulative effect of increased volume of loans facilitated during the year. Revenues from post-origination services are
recognized on a straight-line basis over the term of the underlying loans as the services are being provided.
Financing Income
Financing income increased from RMB966.3 million in 2022 to RMB1,137.3 million (US$160.2 million) in 2023, primarily due to
an increase in average loan balances compared with 2022.
Guarantee income
Guarantee income increased from nil in 2022 to RMB24.5 million (US$3.5 million) in 2023. Guarantee income generated from
financing guarantee business operated by a subsidiary which holds the financing guarantee license and commenced the financing
guarantee business in 2023.
Other Revenue
Other revenue increased from RMB179.9 million in 2022 to RMB315.5 million (US$44.4 million) in 2023, primarily due to an
increase in referral service fee for introducing borrowers to other platforms.
Operating Expenses
The following table sets forth our operating expenses, both in absolute amount and as a percentage of our total revenues, for the
periods presented.
For the Year Ended December 31,
2022
2023
RMB
%
RMB
US$
%
(in thousands, except for percentages)
Operating costs and expenses:
Origination and servicing
1,337,370
37.5 % 1,544,014
217,470
32.1 %
Borrower acquisitions and marketing
833,109
23.4 % 1,370,942
193,093
28.5 %
General and administrative
143,235
4.0 % 153,943
21,682
3.2 %
(Reversal of) provision for contingent guarantee liabilities
(14,000)
(0.4)%
67,520
9,510
1.4 %
Provision for accounts receivable and contract assets
21,836
0.6 %
12,234
1,723
0.3 %
Reversal of provision for loan receivable from Xiaoying Housing
Loans
(6,066)
(0.2)%
(4,213)
(593)
(0.1)%
Provision for loans receivable from Xiaoying Credit Loans and
other loans
164,642
4.6 % 233,350
32,867
4.8 %
Change in fair value of financial guarantee derivative
(137,654)
(3.9)%
(24,966)
(3,516)
(0.5)%
Fair value adjustments related to Consolidated Trusts
6,168
0.2 %
531
75
0.0 %
Provision for (reversal of) credit losses on deposits to institutional
cooperators
1,296
0.0 %
(674)
(95)
(0.0)%
(Reversal of) provision for credit losses for other financial assets
(765)
(0.0)%
86
12
0.0 %
Total operating expenses
2,349,171
65.8 % 3,352,767
472,228
69.6 %
Origination and servicing expenses
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115
Origination and servicing expenses increased from RMB1,337,4 million in 2022 to RMB1,544.0 million (US$217.5 million) in
2023, primarily due to the following factors: (i) an increase in collection expenses resulting from the increase in total loan amount
facilitated and originated this year, and (ii) an increase in interest expenses as a result of an increase in payable to institutional funding
partners and investors.
Borrower acquisitions and marketing expenses
Borrower acquisitions and marketing expenses increased from RMB833.1 million in 2022 to RMB1,370.9 million (US$193.1
million) in 2023, primarily due to intensified efforts in borrower acquisitions compared with 2022.
General and administrative
General and administrative expenses increased from RMB143.2 million in 2022 to RMB153.9 million (US$21.7 million) in 2023,
primarily due to the increase in labor costs.
Provision for contingent guarantee liabilities
Provision for contingent guarantee liabilities in 2023 was RMB67.5 million (US$9.5 million) due to an increase in guarantee
liability arising from financing guarantee business operated by a subsidiary which holds the financing guarantee license and commenced
the financing guarantee business in 2023.
Provision for Accounts Receivable and Contract Assets
Provision for accounts receivable and contract assets decreased from RMB21.8 million in 2022 to RMB12.2 million (US$1.7
million) in 2023, primarily due to a decrease in accounts receivable and contract assets generated from business of Shenzhen Xintang
(VIE) as our company group settled the remaining business in the first quarter of 2023.
Provision for loans receivable from Xiaoying Credit Loans and other loans
Provision for loan receivables from Xiaoying Credit Loans and other loans increased from RMB164.6 million in 2022 to RMB233.4
million (US$32.9 million) in 2023, primarily due to an increase in loans receivable held by the Company as a result of the increase in the
total loan amount facilitated and originated this year and in estimated default rate compared with 2022.
Change in Fair Value of Financial Guarantee Derivative
From September 2017, our exposure for loans newly facilitated is limited to the contractual guarantee fee that we cannot collect
under the agreement from the borrower, through Shenzhen Xintang (VIE), as a result of default or prepayment but are still obligated to
compensate our financial institutional cooperators based on the contractual guarantee fee up to the pre-agreed cap. The financial
guarantee is accounted for as a derivative. Change in fair value of financial guarantee derivative decreased from RMB137.7 million in
2022 to RMB25.0 million (US$3.5 million) in 2023, primarily due to the decline in fair value gain realized as a result of the release of
obligation in 2023 as we settled the remaining business of Shenzhen Xintang (VIE) in the first quarter of 2023.
Fair Value Adjustment Related to Consolidated Trusts
Fair value adjustment related to the Consolidated Trusts consists of the net change in the fair value of loans and payables to investors
in the Consolidated Trusts. Our company group has elected the fair value option for the loan assets and liabilities of the Consolidated
Trusts that formed before December 31, 2021, which otherwise would not have been carried at fair value. The business of Consolidated
Trusts that formed before December 31, 2021 have been ceased by the end of 2023 and loss of fair value adjustments related to
Consolidated Trusts decreased from RMB6.2 million in 2022 to RMB0.5 million (US$0.1 million) in 2023.
Income Tax Expense
Income tax expense decreased from RMB396.1 million in 2022 to RMB261.1 million (US$36.8million) in 2023, primarily due to
the decrease of valuation allowance as a result of a change in judgment about the ability of our company group to utilize a beginning-of-
the-year deferred tax asset in future years.
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116
Net Income
As a result of the foregoing, our net income increased from RMB812.0 million in 2022 to RMB1,186.8 million (US$167.2 million)
in 2023.
Discussion of Key Balance Sheet Items
The following table sets forth selected information from our consolidated balance sheet as of December 31, 2022, 2023 and 2024.
This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual
report.
As of December 31,
2022
2023
2024
RMB
RMB
RMB
US$
(in thousands)
Assets
Cash and cash equivalents
602,271
1,195,352
984,611
134,891
Restricted cash, net
404,689
749,070
676,793
92,720
Accounts receivable and contract assets, net
1,161,912
1,659,588
2,029,550
278,047
Loans receivable from Xiaoying Credit Loans and other loans, net
3,810,393
4,947,833
4,828,317
661,477
Loan receivable from Xiaoying Housing Loans, net
10,061
8,657
—
—
Loans at fair value
120,280
—
—
—
Deposits to institutional cooperators, net
1,770,317
1,702,472
1,958,297
268,286
Prepaid expenses and other current assets
71,082
48,768
34,079
4,667
Financial guarantee derivative
—
—
1,038
142
Deferred tax assets, net
88,428
135,958
197,713
27,087
Long-term investments
495,995
493,411
498,038
68,231
Financial investments
192,620
608,198
513,476
70,346
Property and equipment, net
5,861
8,642
15,833
2,169
Intangible assets, net
36,550
36,810
36,592
5,013
Other non-current assets
67,204
55,265
44,951
6,158
Total Assets
8,837,663
11,650,024
11,819,288
1,619,234
Liabilities
Payable to investors and institutional funding partners at amortized cost
2,627,910
3,584,041
2,184,086
299,218
Payable to investors at fair value
141,289
—
—
—
Contingent guarantee liabilities
—
61,907
187,641
25,707
Financial guarantee derivative
107,890
—
—
—
Deferred guarantee income
—
46,597
164,725
22,567
Short-term borrowings
70,209
565,000
328,500
45,004
Accrued payroll and welfare
63,681
86,771
94,717
12,976
Other taxes payable
255,691
289,821
279,993
38,358
Income taxes payable
270,089
446,500
591,491
81,034
Deposit payable to channel cooperators
19,700
19,700
12,016
1,646
Dividend payable
—
59,226
—
—
Accrued expenses and other current liabilities
476,035
575,727
929,490
127,340
Other non-current liabilities
51,193
37,571
27,516
3,770
Deferred tax liabilities
722
30,040
65,959
9,036
Total Liabilities
4,084,409
5,802,901
4,866,134
666,656
Accounts receivable and contract assets, net. Accounts receivable and contract assets consist primarily of the service fees earned
from our customers. Our accounts receivable and contract assets increased from RMB1,659.6 million as of December 31, 2023 to
RMB2,029.6 million (US$278.0 million) as of December 31, 2024, primarily due to an increase in accounts receivable and contract
assets from guarantee income receivable as a result of the increased volume of loans facilitated covered by the guarantee service this year
compared with 2023. Our accounts receivable and contract assets increased from RMB1,161.9 million as of December 31, 2022 to
RMB1,659.6 million as of December 31, 2023.
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117
Loans receivable from Xiaoying Credit Loans and other loans, net. Loans receivable from Xiaoying Credit Loans and other loans
consist primarily of loans facilitated through the Consolidated Trusts and Partnerships and loans provided by Xiaoying Microcredit
(VIE). Our loans receivable from Xiaoying Credit Loans and other loans decreased from RMB4,947.8 million as of December 31, 2023
to RMB4,828.3 million (US$661.5 million) as of December 31, 2024, primarily due to a decrease in loans facilitated through
Consolidated Trusts and Partnerships, and partially offset by an increase in loans provided by our own fund from our microcredit
business. Our loans receivable from Xiaoying Credit Loans and other loans increased from RMB3,810.4 million as of December 31,
2022 to RMB4,947.8 million as of December 31, 2023.
Deposits to institutional cooperators, net. Deposits to cooperators relate to the pledged cash to our financial institutional cooperators
and the amount of deposit is separately agreed with each institutional cooperator. The deposits paid to our financial institutional
cooperators increased from RMB1,702.5 million as of December 31, 2023 to RMB1,958.3 million (US$268.3 million) as of December
31, 2024, primarily due to an increase in the total loan amount facilitated this year compared with 2023. The deposits paid to our
financial institutional cooperators decreased from RMB1,770.3 million as of December 31, 2022 to RMB1,702.5 million as of December
31, 2023.
Long-term investments. Long-term investments mainly consist of equity investments of Chinese Mainland private companies. Our
long-term investments increased from RMB493.4 million in 2023 to RMB498.0 million (US$68.2 million) in 2024, primarily due to the
increase in gain from equity in affiliates during the year.
Financial investment. Financial investment mainly consists of investments in Venture capital funds whose strategies are research
driven and long-term investment preference, and investments in several U.S. Treasury bills with original maturities over three months,
fund linked note, term deposit and wealth management products for the purposes of benefiting our financial position. Our financial
investments decreased from RMB608.2 million in 2023 to RMB513.5 million (US$70.3 million) in 2024, primarily due to the
redemption of wealth management products during the year.
Payable to investors and institutional funding partners at amortized cost. Payable to investors and institutional funding partners at
amortized cost consist primarily of the proceeds received from the trust partners and investors through consolidated trust and
partnerships. Our payable to investors and institutional funding partners at amortized cost was RMB3,584.0 million and RMB2,184.1
million (US$299.2 million) as of December 31, 2023 and 2024 respectively, primarily due to a decrease in the transaction volume in
2024. Our payable to investors and institutional funding partners at amortized cost was RMB2,627.9 million and RMB3,584.0 million as
of December 31, 2022 and 2023 respectively.
Contingent guarantee liabilities. Our contingent guarantee liabilities increased from RMB61.9 million in 2023 to RMB187.6 million
(US$25.7 million) in 2024, primarily due to the cumulative effect of increased volume of loans facilitated covered by guarantee service
compared with 2023.
Financial Guarantee Derivative. We entered into a series of arrangements with various financial institutional cooperators for certain
guarantee services, through Shenzhen Xintang (VIE) before the first quarter of 2023 or through Tianjin Yuexin in and after 2023. The
agreements entitle us a right to receive guarantee fees and require we to make payment, up to a pre-agreed cap, to reimburse financial
institutional cooperators for a pre-determined portion of borrower payment defaults and the guarantee fee amount that was not collected
due to prepayments. The financial guarantee is accounted for as a derivative. Since Shenzhen Xintang (VIE) did not renew its financing
guarantee license in 2022, our company group settled the remaining business of Shenzhen Xintang (VIE) in the first quarter of 2023 with
no outstanding balance of financial guarantee derivative as of December 2023. As of December 31, 2022, financial guarantee derivatives
has a liability position of RMB107.9 million. As of December 31, 2024, financial guarantee derivatives had an asset position of
RMB1.04 million, primarily due to an estimation of cumulative amount to be paid to those financial institutional cooperators was less
than the cumulative monthly guarantee service fees collected.
Deferred guarantee income. Deferred guarantee income increased from RMB46.6 million in 2023 to RMB164.7 million (US$22.6
million) in 2024, primarily due to the cumulative effect of increased volume of loans facilitated covered by guarantee service compared
with 2023.
Short-term borrowings. Short-term borrowings decreased from RMB565.0 million in 2023 to RMB328.5 million (US$45.0 million)
in 2024, primarily due to several loans maturities during 2024. Short-term borrowings increased from RMB70.2 million in 2022 to
RMB565.0 million in 2023.
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118
Accrued expenses and other current liabilities. Accrued expenses and other current liabilities increased from RMB575.7 million in
2023 to RMB929.5 million (US$127.3 million) in 2024, primarily due to the following factors: (i) an increase in commission fee payable
and transaction cost payable resulting from the increase in total operating costs, (ii) an increase in share repurchase payable to a major
shareholder regarding a share repurchase transaction incurred in December 2024. Accrued expenses and other current liabilities increased
from RMB476.0 million in 2022 to RMB575.7 million in 2023.
Hyperinflation
Since our inception, inflation in China has not materially affected our results of operations. According to the National Bureau of
Statistics of China, the year-over-year percent changes in the consumer price index were increases of 1.8% for December 2022, decrease
of 0.3% for December 2023, and increase of 0.1% for December 2024. Although we have not been materially affected by inflation in the
past, we may be affected if China experiences higher rates of inflation in the future. There was no hyperinflation that impacted the
operations of the company in the past three fiscal years.
Taxation
Cayman Islands
We are incorporated in the Cayman Islands. The Cayman Islands currently have no income, corporation or capital gains tax and no
estate duty, inheritance tax or gift tax. The Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.
Hong Kong
Our subsidiary incorporated in Hong Kong is subject to Hong Kong profit tax at a rate of 16.5%. No Hong Kong profit tax has been
levied as we did not have assessable profit that was earned in or derived from the Hong Kong subsidiary during the periods presented.
Hong Kong does not impose a withholding tax on dividends.
Chinese Mainland
Our subsidiaries, VIEs and subsidiaries of the VIEs established in the Chinese Mainland are subject to an income tax rate of 25% in
the years presented. A subsidiary was granted a 15% preferential income tax rate as a qualified enterprise under an incentive regime,
initially effective from 2020 to 2022, with the eligibility subsequently extended through 2025. Additionally, under a different incentive
regime, one VIE and another Group subsidiary operating in a specific preferential tax jurisdiction were eligible to be levied at a reduced
income tax rate of 15%. The VIE has been eligible for reduced tax rate from 2020 to 2025, while the subsidiary’s eligibility period runs
from 2023 through 2025.
We are subject to value added tax, or VAT, at a rate of 6% on the services we provide to borrowers, investors and institutional
funding partners, less any deductible VAT we have already paid or borne. We are also subject to surcharges on VAT payments in
accordance with Chinese Mainland law. VAT has been phased in since May 2012 to replace the business tax that was previously
applicable to the services we provide. During the periods presented, we were not subject to business tax on the services we provide.
Dividends paid by our wholly foreign-owned subsidiary in Chinese Mainland to our intermediary holding company in Hong Kong
will be subject to a withholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the
Arrangement between the Chinese Mainland and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation
and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and receives approval from the relevant tax authority. If
our Hong Kong subsidiary satisfies all the requirements under the tax arrangement and receives approval from the relevant tax authority,
then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%.
If our holding company in the Cayman Islands or any of our subsidiaries outside of Chinese Mainland were deemed to be a “resident
enterprise” under the Law of the PRC on Enterprise Income Tax, it would be subject to enterprise income tax on its worldwide income at
a rate of 25%. See “Item 3. Key Information—3.D. Risk Factors—Risks Relating to Doing Business in China—We may be treated as a
resident enterprise for Chinese Mainland tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to
Chinese Mainland income tax on our global income.”
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119
5.B. Liquidity and Capital Resources
To date, we have financed our operations primarily through cash generated by operating activities and proceeds from issuance and
sales of our shares. As of December 31, 2022, 2023 and 2024, we had RMB602.3 million, RMB1,195.4 million and RMB984.6 million
(US$134.9 million), respectively, in cash and cash equivalents. In September 2018, we completed an initial public offering of 11,763,478
ADSs (including the ADSs sold upon the exercise of the over-allotment option granted to the underwriters), representing 23,526,956
Class A ordinary shares, resulting in net proceeds to us of approximately US$103.9 million. Our cash and cash equivalents primarily
consist of cash on hand, term deposits in banks and three-month U.S. treasury bills. We believe that our current cash and cash equivalents
and our anticipated cash flows from operations and financing activities will be sufficient to meet our anticipated working capital
requirements and capital expenditures for next 12 months. We may, however, need additional capital in the future to fund our continued
operations. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we
may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further
dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating
covenants that might restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to
us, if at all.
Although we consolidate the results of the VIEs, we only have access to cash balances or future earnings of the consolidated variable
interest entities through our contractual arrangements with them. See “Item 4. Information on the Company—C. Organizational Structure
— Contractual Arrangements with Consolidated VIEs and Their Shareholders (“VIE Agreements”).” For restrictions and limitations on
liquidity and capital resources as a result of our corporate structure, see “—Holding Company Structure.”
As of December 31, 2024, we held RMB984.6 million (US$134.9 million) in cash and cash equivalents. Cash provided by
operating activities rose to RMB1,515.5 million (US$207.6 million), driven by higher profitability and solid working capital
management.
We returned approximately US$76 million to shareholders via dividends and share repurchases during 2024. As of December
31, 2024, approximately US$15.9 million remained available under our active share repurchase authorization.
Our long-term focus on disciplined capital allocation—primarily through dividends and share repurchases—has contributed
meaningfully to shareholder value. Between 2021 and 2024, our GAAP earnings per ADS grew from $2.36 to $4.38, representing a
compound annual growth rate (CAGR) of approximately 22.9%. Over the same period, we consistently generated robust return on equity
(ROE), ranging from 18.6% to 24.1%, highlighting the efficiency with which we have deployed capital and managed profitability. These
returns have enabled us to balance capital returns to shareholders with the preservation of financial flexibility to support future growth
and evolving regulatory requirements.
Cash Flows and Working Capital
The following table sets forth a summary of our cash flows for the periods presented:
For the Year Ended December 31,
2022
2023
2024
RMB
RMB
RMB
US$
(in thousands)
Summary Consolidated Cash Flows Data:
Cash provided by operating activities
626,782
1,391,444
1,523,386
208,703
Cash (used in) provided by investing activities
(1,217,468)
(1,683,642)
122,034
16,719
Cash provided by (used in) financing activities
576,351
1,227,458
(1,935,176)
(265,118)
Net increase (decrease) in cash and cash equivalents, and restricted
cash
14,921
937,548
(282,862)
(38,751)
Cash and cash equivalents, and restricted cash at beginning of year
992,039
1,006,960
1,944,508
266,396
Cash and cash equivalents, and restricted cash at year end
1,006,960
1,944,508
1,661,646
227,645
Note: The classification of consolidated statement of cash flows has been changed since 2024. As a result, certain line items presented in
the consolidated statement of cash flows for the previous fiscal years have been retrospectively adjusted to conform to current
presentation. For further information, see Note 2(al) “Summary of significant accounting policies - Revisions of prior year”.
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120
Operating Activities
Cash provided by operating activities was RMB1,523.4 million (US$208.7 million) in 2024. In 2024, the difference between our
cash provided by operating activities and our net income of RMB1,539.9 million (US$211.0 million) in 2024 resulted mainly from (i) the
increase of accounts receivable and contract assets of RMB405.7 million (US$55.6 million), (ii) the increase of deposits to institutional
cooperators of RMB259.0 million (US$35.5 million), (iii) the decrease in contingent guarantee liabilities of RMB116.0 million (US$15.9
million), which were partially offsets by (i) provisions for loans receivable from Xiaoying Credit Loans and other loans of RMB225.8
million (US$30.9 million), (ii) the increase of income taxes payable of RMB143.9 million (US$19.7 million), (iii) the increase of
deferred guarantee income of RMB118.1 million (US$16.2 million) and (iv) provision for contingent guarantee liabilities of RMB241.7
million (US$33.1 million).
Cash provided by operating activities was RMB1,391.4 million in 2023. In 2023, the difference between our cash provided by
operating activities and our net income of RMB1,186.8 million in 2023 resulted mainly from (i) the increase of accounts receivable and
contract assets of RMB509.9 million, and, which were partially offsets by (i) provisions for loans receivable from Xiaoying Credit Loans
and other loans of RMB233.4 million, (ii) the increase of income taxes payable of RMB176.4 million, (iii) the increase in accrued
expenses and other current liabilities of RMB92.4 million, (iv) the decrease in deposits to institutional cooperators of RMB68.5 million,
(v) the provision for contingent guarantee liabilities of RMB67.5 million and (vi) the increase in deferred guarantee income of RMB46.6
million.
Cash provided by operating activities was RMB626.8 million in 2022. In 2022, the difference between our cash provided by
operating activities and our net income of RMB812.0 million in 2022 resulted mainly from (i) the increase of accounts receivable and
contract assets of RMB436.3 million, and (ii) the change of financial guarantee derivatives due to the lag between payments to the
financing guarantee companies and the collection of monthly guarantee derivative of RMB223.9 million, which were partially offsets by
(i) the deferred tax expenses of RMB202,3 million, (ii) provisions for loans receivable from Xiaoying Credit Loans and other loans of
RMB164.6 million, and (iii) the decrease in prepaid expenses and other current assets of RMB121.8 million due to the decrease of
prepaid expenses to various service providers in 2022.
Investing Activities
Cash provided by investing activities was RMB122.0 million (US$16.7 million) in 2024, which was primarily attributable to (i) the
amount of RMB9,360.5 million (US$1,282.4 million) for principal collection of loans receivables under Consolidated trust and
partnership model, and (ii) collection of financial investments of RMB391.1 million (US$53.6 million), which partially offset by (i) the
amount of RMB8,695.8 million (US$1,191.3 million) for the principal payment of loans receivables under Consolidated trust and
partnership model, (ii) an aggregate amount of RMB771.0 million (US$105.6 million) for loans made to customers and principal
collections of loans receivables provided by Xiaoying Microcredit, and (iii) purchase of financial investments of RMB148.6 million
(US$20.4 million).
Cash used in investing activities was RMB1,683.6 million in 2023, which was primarily attributable to (i) an aggregate amount of
RMB9,160.4 million for the principal payment of loans at fair value and loans receivables under Consolidated trust and partnership
model, (ii) an aggregate amount of RMB577.3 million for loans made to customers and principal collections of loans receivables
provided by Xiaoying Microcredit, and (iii) purchase of financial investments of RMB424.1 million, which partially offset by an
aggregate amount of RMB8,486.7 million for principal collection of loans at fair value and loans receivables under Consolidated trust
and partnership model.
Cash used in investing activities was RMB1,217.5 million in 2022, which was primarily attributable to (i) an aggregate amount of
RMB8,281.1 million for the principal payment of loans at fair value and loans receivables under Consolidated trust and partnership
model, (ii) an aggregate amount of RMB299.3 million for loans made to customers and principal collections of loans receivables
provided by Xiaoying Microcredit, and (iii) purchase of financial investments of RMB90.5 million, which partially offset by (i) an
aggregate amount of RMB7,352.7 million for principal collection of loans at fair value and loans receivables under Consolidated trust
and partnership model, and (ii) the collection of loans’ earnings rights from a related party of RMB100.0 million.
Financing Activities
Cash used in financing activities was RMB1,935.2 million (US$265.1 million) in 2024, which was attributable to by (i) cash paid to
investors and institutional funding partners under Consolidated trust and partnership model of RMB3,098.1 million (US$424.4 million),
(ii) repayments of short-term borrowings of RMB370.0 million (US$50.7 million), and (iii) cash paid to repurchase common shares of
RMB182.2 million (US$25.0 million), which was partially offset by (i) cash received from investors and institutional funding partners
under Consolidated trust and partnership model of RMB1,698.2 million (US$232.6 million) and (ii) proceeds from short-term
borrowings of RMB133.5 million (US$18.3 million).
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Cash provided by financing activities was RMB1,227.5 million in 2023, which was attributable to by cash receipt from investors and
institutional funding partners under Consolidated trust and partnership model of RMB3,252.0 million and proceeds from short-term
borrowings of RMB802.5 million, which was partially offset by (i) cash paid to investors and institutional funding partners under
Consolidated trust and partnership model of RMB2,437.2 million, (ii) repayments of short-term borrowings of RMB307.7 million and
(iii) cash paid to repurchase common shares of RMB24.9 million.
Cash provided by financing activities was RMB576.4 million in 2022, which was attributable to by cash receipt from investors and
institutional funding partners under Consolidated trust and partnership model of RMB2,595.8 million and proceeds from short-term
borrowings of RMB70.2 million, which was partially offset by (i) cash paid to repurchase common shares of RMB146.7 million, (ii) cash
paid to investors and institutional funding partners under Consolidated trust and partnership model of RMB1,776.7 million and (iii)
repayment of short-term borrowings of RMB166.5 million.
Material Cash Requirements
Our material cash requirements as of December 31, 2024 and any subsequent interim period primarily include contractual
obligations, including operating lease obligations and short-term borrowings.
The following table sets forth our contractual obligations, including interest payments, as of December 31, 2024:
Payment Due by Period
Less than 1
More than 3
Total
year
1-2 years
2-3 years
years
(RMB in thousands)
Contractual Obligations:
Operating lease obligations (1)
44,984,098
15,691,876
12,414,733
11,926,988
4,950,501
Short-term borrowings
331,153,075
331,153,075
—
—
—
Note:
(1) Operating lease obligations represent our obligations for office premises, which include all future cash outflows under ASC Topic
842, Leases. Please see “Leases” under Note 2 to our audited consolidated financial statements
Our remaining subscribed capital contribution in a VC fund was nil by the end of 2024, which has been paid as of the date of this
annual report.
Payables to investors and intuitional funding partners have been excluded from the table above. We will make such payments to the
investors and intuitional funding partners if and when we receive the related loan payments from borrowers.
Other than those shown above, we did not have any significant capital and other commitments, long-term obligations, or guarantees
other than the contingent guarantee liabilities originated from the financial guarantee businesses as of December 31, 2024.
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Holding Company Structure
X Financial is a holding company with no material operations of its own. We conduct our operations primarily through our Beijing
WFOE and its subsidiaries, variable interest entities and its subsidiaries in Chinese Mainland. As a result, X Financial’s ability to pay
dividends depends upon dividends paid by Beijing WFOE. If Beijing WFOE or any newly formed subsidiaries incur debt on their own
behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-
owned subsidiary in Chinese Mainland is permitted to pay dividends to us only out of its retained earnings, if any, as determined in
accordance with Chinese Mainland’s accounting standards and regulations. Under Chinese Mainland’s law, each of our subsidiaries and
variable interest entities is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds
until such reserve funds reach 50% of its registered capital. In addition, each of our subsidiaries may allocate a portion of its after-tax
profits based on Chinese Mainland’s accounting standards to enterprise expansion funds and staff bonus and welfare funds at its
discretion, and our variable interest entity may allocate a portion of its after-tax profits based on Chinese Mainland’s accounting
standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as
cash dividends. Remittance of dividends by a wholly foreign-owned company out of Chinese Mainland is subject to examination by the
banks designated by SAFE. Our Beijing WFOE will not be able to pay dividends until it generates accumulated profits and meet the
requirements for statutory reserve funds or general risk reserves.
5.C. Research and Development, Patents and Licenses, etc.
See “Item 4. Information on the Company—B. Business Overview—Our Technology and IT Infrastructure” and “Item 4.
Information on the Company—B. Business Overview—Intellectual Property.”
5.D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or
events for the year ended December 31, 2024 that are reasonably likely to have a material and adverse effect on our net revenues,
income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily
indicative of future results of operations or financial condition.
5.E. Critical Accounting Estimates
We consider an accounting estimate to be critical if:
(i)
the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting
estimate was made, and
(ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably
could have used in the current period, would have a material impact on our financial condition or results of operations.
Besides accounting estimates defined as critical as above, there are other items within our financial statements that require
estimation but are not deemed critical, which are described in more detail in Note 2 – Summary of significant accounting policies. We
believe the following critical accounting estimates used in the preparation of our consolidated financial statements require the most
difficult, subjective and complex judgments and estimates and have had, or are reasonably likely to have a material impact on our
financial condition or results of operations.
Variable considerations of revenue recognition
For the loans facilitated that we collected service fee indirectly through external financing guarantee company or directly from
institutional funding partner, our transaction price includes variable consideration adjusted for default risk of the borrowers and
prepayment risk of the borrowers. We determine the consideration based on historical experiences as well as the credit due diligence
performed on each borrower prior to loan origination.
We estimate variable consideration for these contracts using the expected value methodology by adjusting the pre-agreed service
fees for the loans that we facilitated by expected vintage-based loss rates and expected prepayment rates. When estimates the loss rates
and the prepayment rates, we also consider the historical loss or prepayment experience period, the weighted multiple macroeconomic
forecast scenarios over the life of the loans and selected economic variables.
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The increase in the expected loss rates and expected prepayment rates, of the underlying off-balance sheet loans will result in the
decrease in revenue recognized. We update our estimate on a quarterly basis, and any adjustments to the estimate are recognized as
adjustments to revenue using the cumulative catch-up method. The revenue recognition is sensitive to our estimates in these factors.
Changes in our estimates of these factors may have a significant impact on the revenue recognized.
During the year ended December 31, 2023 and 2024, when our estimates of the expected loss rates and expected prepayment rates
for loan facilitation service increased/decreased by 0.5% while holding all other estimates constant, our loan facilitation service revenue
would decrease/increase by approximately RMB 69 million and RMB28 million, respectively. Our estimate of the key assumptions
related to revenue recognition did not change significantly throughout the periods presented.
Allowance for credit losses of loans receivables from Xiaoying Credit Loans and other loans and contingent guarantee
liabilities
We establish the Allowance for credit losses (“ACL”) by applying a current expected credit losses methodology, which is based on
past events, current conditions, and reasonable and supportable forecasts over the life of the loans. The ACL is measured based on loans
that share similar risk characteristics and includes both quantitative and qualitative components. The ACL for loans receivable that are
not covered by the financing guarantee company and for contingent guarantee liabilities generated from financing guarantee business is
calculated using vintage-based loss rate and macroeconomic forecast scenario models, and the ACL for loans receivables are covered by
the financing guarantee company is calculated using probability of default, loss given default and macroeconomic forecast scenario
models. Our qualitative component of the CECL methodology represents our judgment of additional considerations to account for
internal and external risk factors that are not adequately measured in the quantitative component, including consideration of idiosyncratic
risk factors or other relevant factors.
For the loans receivable that are not covered by the financing guarantee company, during the year ended December 31, 2023
and 2024, when change in one of our estimates or a combined effect of changes of multiple estimates, which results in a 0.5%
increase/decrease in the expected loss rates while holding all other estimates constant, there would be approximately RMB7
million and RMB8 million decrease/increase, respectively, pre-tax impact to our consolidated results of operations.
For loans receivables are covered by the financing guarantee company, during the year ended December 31, 2023 and 2024,
when change in one of our estimates or a combined effect of changes of multiple estimates, which results in a 0.5%
increase/decrease in the probability of default while holding all other estimates constant, there would be approximately
RMB18 million and RMB17 million decrease/increase, respectively, pre-tax impact to our consolidated results of operations.
For contingent guarantee liabilities, during the year ended December 31, 2023 and 2024, when change in one of our estimates
or a combined effect of changes of multiple estimates, which results in a 0.5% increase/decrease in the expected loss rates
while holding all other estimates constant, there would be approximately RMB3 million and RMB12 million
decrease/increase, respectively, pre-tax impact to our consolidated results of operations.
Our estimate of the key assumptions related to credit losses did not change significantly throughout the periods presented.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. Directors and Senior Management
The following table sets forth the name, age and position of each of our directors and executive officers as of the date of this annual
report.
Name
Age
Position/Title
Yue (Justin) Tang
54
Chief Executive Officer, Chairman
Kan (Kent) Li
51
President, Director
Frank Fuya Zheng
58
Chief Financial Officer
Yufan (Jason) Jiang
41
Chief Risk Officer
Shaoyong (Simon) Cheng
55
Non-executive Director
Zheng Wan
51
Independent Director
Zheng Xue
54
Independent Director
Longgen Zhang
60
Independent Director
Mr. Yue (Justin) Tang is our founder, Chief Executive Officer and Chairman of our board of directors. Mr. Tang is responsible for our
overall business strategies and operation. Before starting our company group, Mr. Tang co-founded eLong.com, an online travel service
company in China in 1999. From 2006 to 2014, Mr. Tang was the founder and managing partner of Blue Ridge China, an investment and
consulting company. Mr. Tang received a bachelor’s degree in business administration from Concordia College.
Mr. Kan (Kent) Li has served as our President since May 2021, Director since December 2021 and our Chief Risk Officer from
November 2017 to November 2023. Mr. Li joined us in 2015. Prior to that, Mr. Li served as a division director in charge of unsecured
loan risk from 2015 to 2017. From September 2008 to November 2015, he served as a manager at Capital One. Mr. Li received his
bachelor’s degree and master’s degree in economics from Southwestern University of Economics and Finance.
Mr. Frank Fuya Zheng has served as our Chief Financial Officer since August 2020. Since May 2021, Mr. Zheng has served as an
Independent Non-executive Director at Newegg Commerce, Inc. (NASDAQ: NEGG). From April 2020 to May 2021, Mr. Zheng was an
independent director of Lianluo Smart Limited (NASDAQ: LLIT) which changed its name to Newegg Commerce, Inc. From 2018 to
2019, Mr. Zheng was an independent director of ChinaCache International Holdings Ltd. Mr. Zheng also served as an independent
director of Yingde Gases Group Company (02168.HK) from 2009 to 2017. From 2008 to 2012, Mr. Zheng was the Chief Financial
Officer of Cogo Group, Inc., a company previously listed on NASDAQ that provided customized module design solutions and
manufactured electronic products in China. Mr. Zheng was also a director of the same company from 2005 to 2012. From 2000 to 2007,
Mr. Zheng was Vice President of online travel services at eLong.com, a company previously listed on NASDAQ. Mr. Zheng received a
bachelor’s degree in Business Administration majoring in accounting from Baruch College of the City University of New York in 1994.
Mr.Yufan (Jason) Jiang has served as our Chief Risk Officer since November 2023. Mr. Jiang joined us in 2015. Mr. Jiang Yufan has
more than 10 years of working experience in the field of personal credit and is proficient in database management and risk strategy
development. Before joining us, Mr. Jiang worked in the Credit Card Center of Bank of Communications, responsible for fraud risk
management. Mr. Jiang received a bachelor’s degree in Science from University of Shanghai for Science and Technology.
Mr. Shaoyong (Simon) Cheng has served as our Non-executive Director since November 2023, our Executive Director from
December 2017 to November 2023 and our Vice Chairman from May 2021 to November, 2023. Mr. Cheng joined us in 2015. Prior to
serving as our Vice Chairman, Mr. Cheng served as our President from 2017 to 2021 and Chief Risk Officer from 2015 to 2017. Prior to
that, Mr. Cheng served as deputy General Manager in charge of retail lending management at Bank of Communications, senior credit risk
manager at HSBC North America and HSBC Asia Pacific. Mr. Cheng also served as head of CEO office and head of business banking at
Hang Seng Bank China Limited, and manager at Capital One. Mr. Cheng received a bachelor’s degree and a master’s degree in
engineering and a bachelor’s degree in economics from Tsinghua University, a master’s degree in industrial engineering and an MBA
degree from University of Southern California.
Mr. Zheng Wan has served as our independent director since May 2024. Mr. Wan served as a Group Director at Cadence Design
Systems since 2022. Mr. Wan served as a Director at Snap Inc from 2016 to 2018 and from 2020 to 2022. Mr. Wan served as Global
Director of M&A Integration at Airbnb Inc from 2018 to 2020. Between 2006 and 2017, Mr. Wan served in multiple capacities at Google
Inc, including as Finance Manager of Internal Audit and Risk Consulting, Corporate Development Manager, and Financial Planning &
Analysis Manager. Mr. Wan received a master degree in political science from University of Utah and an MBA degree from Duke
University.
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Mr. Zheng Xue has served as our independent director since September 2018. Since August 2011, Mr. Xue has served as an
independent director at Yingli Solor (YGE). Mr. Xue served as the Chief Financial Officer of China Music Corporation from 2015 to
2017, the Chief Financial Officer of Lightinthebox Inc. from 2011 to 2014, partner at Softbank China & India Fund from 2008 to 2010,
the Chief Financial Officer of Target Media from 2005 to 2007, and the Chief Financial Officer of eLong Inc. from 2003 to 2005. Mr.
Xue received a bachelor’s degree in physics from University of Illinois and an MBA degree from University of Chicago.
Mr. Longgen Zhang has served as our independent director since September 2018. Since January 2018, Mr. Zhang has served as the
Chief Executive Officer at Daqo New Energy Corp., an NYSE-listed company, and an independent non-executive director at ZZ Capital
International Limited, a company listed on the HKEx’s Main Board. Since May 2014, Mr. Zhang has served as a director at JinkoSolar
Holding Co., Ltd., an NYSE-listed company. Mr. Zhang served as the Chief Financial Officer at JinkoSolar Holding Co., Ltd. from 2008
to 2014, and the Chief Financial Officer and director at Xinyuan Real Estate Co., Ltd., an NYSE-listed company, from 2006 to 2008. Mr.
Zhang received a master’s degree in professional accounting from New Texas A&M University and a master’s degree in business
administration from New Texas A&M University.
6.B. Compensation
Compensation
For the fiscal year ended December 31, 2024, the aggregate cash compensation and benefits that we paid to our directors and
executive officers was approximately RMB13.8 million (US$1.9 million). No pension, retirement or similar benefits have been set aside
or accrued for our executive officers or directors. We have no service contracts with any of our directors providing for benefits upon
termination of employment.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with our executive officers. Each of our executive officers is employed for a specified
time period, which will be automatically extended unless either we or the executive officer gives prior notice to terminate such
employment. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive
officer, including but not limited to the commitments of any serious or persistent breach or non-observance of the terms and conditions of
the employment, conviction of a criminal offense other than one which in the opinion of the board does not affect the executive’s
position, willful, disobedience of a lawful and reasonable order, misconducts being inconsistent with the due and faithful discharge of the
executive officer’s material duties, fraud or dishonesty, or habitual neglect of his or her duties. An executive officer may terminate his or
her employment at any time with not less than one-month prior written notice.
Each executive officer has agreed to hold, both during and after the employment agreement expires or is earlier terminated, in strict
confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information.
Each executive officer has also agreed to assign to our company group all his or her inventions, improvements, designs, original works of
authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works, concepts and trade secrets
which the executive officer may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or
reduced to practice, during the period of the executive officer’s employment with us that are either related to the scope of the
employment or make use of the resources of the company. In addition, all executive officers have agreed to be bound by non-competition
and non-solicitation restrictions set forth in their agreements. Specifically, each executive officer has agreed to devote all his or her
working time and attention to our business and use best efforts to develop our business and interests. Moreover, each executive officer
has agreed not to, for a certain period following termination of his or her employment or expiration of the employment agreement:
(i) carry on or be engaged, concerned or interested directly or indirectly whether as shareholder, director, employee, partner, agent or
otherwise carry on any business in direct competition with us, (ii) solicit or entice away any of our user, client, representative or agent, or
(iii) employ, solicit or entice away or attempt to employ, solicit or entice away any of our officer, manager, consultant or employee.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his
or her employment and typically for two years following the last date of employment. Specifically, each executive officer has agreed not
to (i) approach our suppliers, clients, users or contacts or other persons or entities introduced to the executive officer in his or her
capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships
with these persons or entities; (ii) assume employment with or provide services to any of our competitors, or engage, whether as
principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (iii) seek directly or indirectly, to solicit
the services of any of our employees who is employed by us on or after the date of the executive officer’s termination, or in the year
preceding such termination, without our express consent.
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We have entered into indemnification agreements with our directors and executive officers, pursuant to which we will agree to
indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims
made by reason of their being such a director or officer.
Share Incentive Plan
The 2015 Global Share Option Plan (the “Share Incentive Plan”) was adopted by our then sole director on January 25, 2015, and
amended and restated as the Amended and Restated 2015 Global Share Incentive Plan by our board of directors on May 9, 2018.
The purpose of the Share Incentive Plan is to enhance our ability to attract and retain the best available personnel for positions of
substantial responsibility and to promote the value of the Company, by providing such persons an opportunity to acquire or increase a
direct interest in our operations and future success. The maximum aggregate number of ordinary shares which may be issued pursuant to
all awards under the Share Incentive Plan is 95,849,500 ordinary shares. The ordinary shares subject to the Share Incentive Plan may be
authorized but unissued or reacquired ordinary shares.
The following paragraph summarize the terms of the Share Incentive Plan.
Share reserve. The maximum aggregate number of ordinary shares that will be subject to award and sold under the Share Incentive
Plan is 95,849,500 shares. During the term of this Plan, we will at all times reserve and keep available such number of ordinary shares as
will be sufficient to satisfy the requirements of the Share Incentive Plan. If an award expires or becomes unexercisable without having
been exercised in full, the ordinary shares unvested which were subject thereto will become available for future grant or sale under the
Share Incentive Plan. Ordinary shares used to pay the exercise price of an award or to satisfy the tax withholding obligations related to an
award will become available for future grant or sale under the Share Incentive Plan.
Administration. The Share Incentive Plan will be administered by (A) our board of directors; or (B) where a committee has been
established in the Company, the committee (in either event, the “Administrator”). These administrative powers include, but are not
limited to, approving forms of award documents, determining the terms and conditions of any award granted, determining the fair market
value of an ordinary share, prescribing, amending and rescinding rules and regulations relating to the Share Incentive Plan and modifying
and amending each award.
Types of Awards. The Share Incentive Plan permits the grants of stock options, SARs, restricted stock, RSUs, performance awards,
deferred awards and other share-based awards.
●
Stock Options. A stock option is a right to purchase ordinary shares at a future date at a specified exercise price. Stock options
that are intended to qualify as incentive stock options must meet the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended. The per share exercise price of a stock option (except in the case of substitute awards) will be determined
by the Administrator at the time of grant but will be no less than one hundred percent of the fair market value per ordinary share
on the date of grant, subject to certain exceptions. No stock option will be exercisable more than ten years from the grant date,
except that the Administrator may generally provide for an extension of such ten-year term in the event the exercise of the stock
option would be prohibited by law on the expiration date. In the case of an incentive stock option granted to an employee who
has owned ordinary shares representing more than ten percent of the voting power of all classes of ordinary shares of the
company or any parent or subsidiary, the per share exercise price will be no less than one hundred ten percent of the fair market
value per ordinary share on the date of grant, and the term of the incentive stock option will be five years from the date of grant
or such shorter term as may be provided in the award document.
●
SARs. A SAR represents a right to receive, in cash or ordinary shares, upon exercise by a participant or settlement, the excess of
(i) the fair market value of one ordinary share on the date of exercise or settlement over (ii) the exercise price of the right on the
date of grant, or if granted in connection with an option, on the date of grant of the option. The per share exercise price for the
ordinary shares to be issued pursuant to the exercise of a SAR (except in the case of substitute awards) will be determined by
the Administrator, but will be no less than one hundred percent of the fair market value per ordinary share on the date of grant.
The Administrator will determine the date on which each SAR may be exercised or settled and the expiration date of each SAR.
However, no SAR will be exercisable more than ten years from the grant date.
●
Restricted Stock. Restricted stock is an award of ordinary shares of our common share that are subject to restrictions on transfer
and a substantial risk of forfeiture.
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●
RSU. An RSU represents a right to receive the value of one ordinary share, subject to specified vesting and other restrictions.
●
Performance Awards. Performance awards, which may be denominated in cash or ordinary shares, will be earned upon the
satisfaction of performance conditions specified by the Administrator. These performance criteria may be measured on an
absolute (e.g., plan or budget) or relative basis, may be established on a corporate-wide basis or with respect to one or more
business units, divisions, subsidiaries or business segments, and may be made relative to an index or other acceptable objective
and quantifiable indices. The Administrator may specify that any other award shall constitute a performance award by
conditioning the right of a participant to exercise the award or have it settled, and the timing thereof, upon achievement or
satisfaction of such performance conditions as may be specified by the Administrator.
●
Deferred Awards. The Administrator is authorized to grant awards denominated in a right to receive ordinary shares on a
deferred basis.
●
Other Share-Based Awards. The Administrator is authorized to grant other awards that may be denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related to, ordinary shares or factors that may influence the
value of ordinary shares.
Eligibility. Equity incentive awards may be granted to employees, directors, consultants or any other person providing services to the
company, or any parent, subsidiary or affiliate of the company.
Term of Plan. The Share Incentive Plan became effective upon its initial adoption by our then sole director on January 15, 2015.
Unless sooner terminated by the board of directors, the Share Incentive Plan will continue in effect for a term of ten years from the later
of (a) the effective date of the Share Incentive Plan, or (b) the earlier of the most recent board of directors or shareholder approval of an
increase in the number of ordinary shares reserved for issuance under the Share Incentive Plan, which occurred on May 9, 2018 in
connection with the approval of the resolutions effecting the amendment and restatement of the Share Incentive Plan.
Termination of Service. The Administrator will determine the effect of a termination of service on outstanding awards, including
whether the awards will vest, become exercisable, settle or be forfeited.
Adjustment upon Merger or Change in Control. In the event of a merger or a change of control, except as otherwise provided in the
applicable award agreement, the Administrator may provide for the treatment of each outstanding award without a Plan participant’s
consent, including without limitation, that
●
Awards will be assumed, or substantially equivalent awards be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices;
●
Upon written notice to a participant, the participant’s awards will terminate upon or immediately prior to the consummation of
such merger or change in control;
●
Outstanding awards will vest and become exercisable, realizable or payable, or restrictions applicable to an award will lapse, in
whole or in part prior to or upon consummation of such merger or change in control;
●
The awards will terminate in exchange for an amount of cash and/or property, if any, equal to the amount that would have been
attained upon the exercise of such awards or realization of the participant’s rights as of the date of the occurrence of the
transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the Administrator determines
in good faith that no amount would have been attained upon the exercise of such awards or realization of the participant’s
rights, then such award may be terminated by the company without payment), or such awards will be replaced with other rights
or property selected by the Administrator in its sole discretion; or
●
Any combination of the foregoing.
Amendment and Termination. Our board of directors may amend, alter, suspend, discontinue or terminate the Share Incentive Plan.
The Administrator may also amend, alter, suspend, discontinue or terminate, or waive any conditions or rights under, any outstanding
award. However, subject to the adjustment provision and change in control provision, any such action by the Administrator that would
materially adversely affect the rights of a holder of an outstanding award may not be taken without the holder’s consent, except to the
extent that such action is taken to cause the Share Incentive Plan to comply with applicable laws, stock market or exchange rules and
regulations, or accounting or tax rules and regulations, or to impose any “clawback” or recoupment provisions on any awards in
accordance with the Share Incentive Plan.
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On January 25, 2015, we granted 13,843,645 stock options to employees and executives. On June 29, 2015, we granted 630,000
stock options to certain employees, directors and officers. On May 3, 2016, we granted 7,425,000 stock options to certain employees,
directors and officers. On October 11, 2017, we granted 16,616,000 stock options to certain employees and senior management. On April
30, 2018, we granted 841,054 stock options to certain employees and senior management. On May 9, 2018, we granted 40,000,000 stock
options to certain senior management. The exercise price of such 40,000,000 stock options is US$4.75, the offering price per share of our
initial public offering, and such options have become exercisable upon the completion of our initial public offering and in accordance
with the vesting schedule, which is specified in the relevant award agreement. On October 31, 2018, we granted 475,000 stock options to
certain employees. On April 15, 2019, we granted 150,000 restricted stock units to certain directors, which are subject to the vesting
schedule specified in the relevant award agreement. On April 30, 2019, we granted 155,000 stock options to certain employees. On
November 20, 2019, we granted 1,789,400 restricted stock units to certain employees. On August 13, 2019 and November 20, 2019, the
Board of Directors decided to cancel 1,500,000 and 250,000 of unvested options of certain senior managements and concurrently granted
1,500,000 and 250,000 of restricted stock units as replacement awards to the senior managements. On January 21, 2020, we granted
4,600,000 restricted stock units to certain employees and officers. On April 30, 2020, we granted 673,300 restricted stock units to certain
employees. On October 31, 2020, we granted 550,000 restricted stock units to certain employees. On November 10, 2021, we granted
26,657,998 restricted stock units to certain senior managements and employees. On November 10, 2021, the Board of Directors decided
to cancel 9,429,984 of unvested share options granted to certain senior management. On March 3, 2022, the Board of Directors of
granted 810,000 restricted stock units to certain directors. On December 1, 2023, the Board of Directors of X Financial granted 180,000
restricted stock units to certain directors. On January 10, 2024, the Board of Directors of X Financial granted 6,400,000 restricted stock
units to certain directors. The restricted stock units shall vest over a period of three years. On June 1, 2024, the Board of Directors of X
Financial granted 270,000 restricted stock units to certain directors. The restricted stock units shall vest over a period of three years. On
August 1, 2024, the Board of Directors of X Financial granted 540,000 restricted stock units to certain directors. The restricted stock
units shall vest over a period of three years.
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129
The table below summarizes, as of the date of this annual report, the awards we have granted (excluding those cancelled, forfeited or
expired) to our directors and executive officers.
Ordinary Shares
Option
Underlying
Option Exercise
Expiration
Name
Position
Options Awarded
Price
Grant Date
Date
Yue (Justin) Tang
Chief Executive
6,000,000
US$
0
November 10, 2021
November 10, 2031
Officer and
Chairman
*
US$
0
January 10, 2024
January 10, 2034
Shaoyong (Simon) Cheng
Non-executive
*
US$
0.04
May 3, 2016
May 2, 2026
Director
*
US$
0.04
October 11,2017
October 10,2027
*
US$
0
January 21,2020
January 19,2030
Frank Fuya Zheng
Chief Financial Officer
*
US$
0
October 31,2020
October 30,2030
*
US$
0
November 10, 2021
November 10, 2031
*
US$
0
January 10, 2024
January 10, 2034
Kan (Kent) Li
President and
*
US$
0.04
May 3, 2016
May 2,2026
Director
*
US$
1.575
October 11, 2017
October 10, 2027
*
US$
0
January 21, 2020
January 19, 2030
*
US$
0
November 10, 2021
November 10, 2031
*
US$
0
January 10, 2024
January 10, 2034
Yufan (Jason) Jiang
Chief Risk Officer
*
US$
0.04
May 3, 2016
May 2, 2026
*
US$
0.04
October 11, 2017
October 10, 2027
*
US$
0
November 20, 2019
November 20, 2029
*
US$
0
April 30, 2020
April 30, 2030
*
US$
0
November 10, 2021
November 10, 2031
*
US$
0
January 10, 2024
January 10, 2034
Zheng Wan
Independent Director
*
US$
0
June 1, 2024
June 1, 2034
Zheng Xue
Independent Director
*
US$
0
April 15,2019
April 15,2029
*
US$
0
March 3, 2022
March 3, 2032
*
US$
0
August 1, 2024
August 1, 2034
Longgen Zhang
Independent Director
*
US$
0
April 15,2019
April 15,2029
*
US$
0
March 3, 2022
March 3, 2032
*
US$
0
August 1, 2024
August 1, 2034
*
Less than 1% of our total outstanding shares.
For discussions of our accounting policies and estimates for awards granted pursuant to the Share Incentive Plan, see “Note 2 –
Summary of significant accounting policies” and “Item 6. Directors, Senior Management and Employees—6.B. Compensation—Share
Incentive Plan.”
Clawback Policy
On November 22, 2023, our board of directors adopted a clawback policy (the “Clawback Policy”) permitting the Company to seek
the recoupment of incentive compensation received by any of the Company’s current and former executive officers (as determined by the
board in accordance with Section 10D of the Exchange Act and the NYSE rules) and such other senior executives/employees who may
from time to time be deemed subject to the Clawback Policy by the board (collectively, the “Covered Executives”). The amount to be
recovered will be the excess of the incentive compensation paid to the Covered Executive based on the erroneous data over the incentive
compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the board.
If the board cannot determine the amount of excess incentive compensation received by the Covered Executive directly from the
information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the
accounting restatement. Refer to Exhibit 97.1 of this Annual Report for the Company’s Clawback Policy.
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130
6.C. Board Practices
Board of Directors
Our board of directors consists of six directors. A director is not required to hold any shares in the Company to qualify to serve as a
director. The Corporate Governance Rules of the NYSE generally require that a majority of an issuer’s board of directors must consist of
independent directors. However, the Corporate Governance Rules of the NYSE permit foreign private issuers like us to follow “home
country practice” in certain corporate governance matters. We rely on this “home country practice” exception and do not have a majority
of independent directors serving on our board of directors.
Our board of directors may exercise all the powers of the Company to borrow money, mortgage or charge its undertaking, property
and uncalled capital, and to issue debentures, bonds and other securities whenever money is borrowed or as security for any debt,
liability or obligation of the company or of any third party.
A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company is
required to declare the nature of his interest at a meeting of our directors. A director may vote in respect of any contract, proposed
contract, or arrangement notwithstanding that he may be 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 any such contract or proposed contract or arrangement is considered.
We have no service contracts with any of our directors providing for benefits upon termination of employment. See “ Item 6.B.
Directors, Senior Management and Employees—Compensation.”
Board Committees
We have established an audit committee, a compensation committee and a nominating and corporate governance committee under
our board of directors. We have adopted a charter for each of the three committees. Each committee’s members and functions are
described below.
Audit Committee
Our audit committee consists of three directors, namely Zheng Xue, Longgen Zhang and Zheng Wan, and is chaired by Zheng Xue.
Our board of directors has determined that each of the three directors satisfy the “independence” requirements of Rule 10A-3 under the
Securities Exchange Act of 1934, as amended, and Section 303A of the Corporate Governance Rules of the NYSE. The audit committee
oversees our accounting and financial reporting processes and the audits of the financial statements of the Company. The audit committee
is responsible for, among other things: selecting the independent auditors and pre-approving all auditing and non-auditing services
permitted to be performed by the independent auditors;
●
setting clear hiring policies for employees or former employees of the independent auditors;
●
reviewing with the independent auditors any audit problems or difficulties and management’s response;
●
reviewing and approving all related-party transactions;
●
discussing the annual audited financial statements with management and the independent auditors;
●
discussing with management and the independent auditor’s major issues regarding accounting principles and financial statement
presentations;
●
reviewing reports prepared by management or the independent auditors relating to significant financial reporting issues
and judgments;
●
reviewing with management and the independent auditors related-party transactions and off-balance sheet transactions
and structures;
●
reviewing with management and the independent auditors the effect of regulatory and accounting initiatives;
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131
●
reviewing policies with respect to risk assessment and risk management;
●
reviewing our disclosure controls and procedures and internal control over financial reporting;
●
reviewing reports from the independent auditors regarding all critical accounting policies and practices to be used by
the Company;
●
establishing procedures for the receipt, retention and treatment of complaints we received regarding accounting, internal
accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding
questionable accounting or auditing matters;
●
periodically reviewing and reassessing the adequacy of our audit committee charter;
●
such other matters that are specifically delegated to our audit committee by our board of directors from time to time; and
●
meeting separately, periodically, with management, the internal auditors and the independent auditors.
Compensation Committee
Our compensation committee consists of three directors, namely Longgen Zhang, Zheng Wan and Zheng Xue, and is chaired by
Longgen Zhang. Our board of Directors has determined that each of the three directors satisfy the “independence” requirements of Rule
10A-3 under the Securities Exchange Act of 1934, as amended, and Section 303A of the Corporate Governance Rules of the NYSE. Our
compensation committee assists the board in reviewing and approving the compensation structure of our executive officers, including all
forms of compensation to be provided to our executive officers. The compensation committee is responsible for, among other things:
●
reviewing and approving the compensation for our senior executives;
●
reviewing and evaluating our executive compensation and benefits policies generally;
●
reporting to our board of directors periodically;
●
evaluating its own performance and reporting to our board of directors on such evaluation;
●
periodically reviewing and assessing the adequacy of the compensation committee charter and recommending any proposed
changes to our board of directors; and
●
such other matters that are specifically delegated to the compensation committee by our board of directors from time to time.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of three directors, namely Zheng Wan, Zheng Xue and Longgen
Zhang, and is chaired by Zheng Wan. Our board of Directors has determined that each of the three directors satisfy the “independence”
requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended, and Section 303A of the Corporate Governance
Rules of the NYSE. The nominating and corporate governance committee assists the board in identifying individuals qualified to become
our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee
is responsible for, among other things:
●
identifying and recommending to the board of directors qualified individuals for membership on the board of directors and
its committees;
●
evaluating, at least annually, its own performance and reporting to the board of directors on such evaluation;
●
overseeing compliance with the corporate governance guidelines and code of business conduct and ethics and reporting on such
compliance to the board of directors; and
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132
●
reviewing and assessing periodically the adequacy of its charter and recommending any proposed changes to the board of
directors for approval.
Duties of Directors
Under Cayman Islands law, our directors have a fiduciary duty to the Company to act honestly, in good faith and with a view to our
best interests. Our directors also owe to the Company a duty to act with skill and care. It was previously considered that a director need
not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge
and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill
and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must
ensure compliance with our second amended and restated memorandum and articles of association, as amended and re-stated from time
to time. The Company has the right to seek damages if a duty owed by our directors is breached. In limited exceptional circumstances, a
shareholder may have the right to seek damages in our name if a duty owed by our directors is breached. You should refer to
“Description of Share Capital—Differences in Corporate Law” for additional information on our standard of corporate governance under
Cayman Islands law.
A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company is
required to declare the nature of his interest at a meeting of our directors. A director may vote in respect of any contract, proposed
contract, or arrangement notwithstanding that he may be 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 any such contract or proposed contract or arrangement is considered. Our
directors may exercise all the powers of the Company to borrow money, and to mortgage or charge its undertaking, property and uncalled
capital, and issue debentures, debenture stock or other securities whenever money is borrowed or as security for any debt, liability or
obligation of the company or of any third party.
The functions and powers of our board of directors include, among others:
●
convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;
●
declaring dividends and distributions;
●
appointing officers and determining the term of office of officers;
●
exercising the borrowing powers of the Company and mortgaging the property of the Company; and
●
approving the transfer of shares of the Company, including the registering of such shares in our share register.
Terms of Directors and Officers
Our officers are elected by and serve at the discretion of our board of directors. Our directors are not subject to a term of office and
hold office until such time as they are removed from office by ordinary resolution of the shareholders or until the expiration of his term
or his successor has been elected and qualified. If a Management Director (as defined in our second amended and restated memorandum
and articles of association), Mr. Yue (Justin) Tang shall have the right to appoint another person as a director (such director shall be a
Managing Director) by delivering a written notice to the Company and such replacement shall become effective automatically upon the
delivery of such notice without any further action or resolution of the board or the shareholders, provided that Mr. Tang shall not be
entitled to exercise such right if he and his affiliates do not hold any shares. Subject to the foregoing sentence with respect to the
appointment of a Managing Director, a vacancy on the board created by the removal of a director may be filled by an ordinary resolution
or by the affirmative vote of a simple majority of the remaining directors present and voting at a board meeting. A director will be
removed from office automatically if, among other thing, the director (i) dies; (ii) becomes bankrupt or makes any arrangement or
composition with his creditors generally; (iii) is found to be or becomes of unsound mind; (iv) resigns his office by notice in writing to
the Company; (v) is prohibited by law from being a director; and (vi) is removed from the office pursuant to any other provisions of our
second amended and restated memorandum and articles of association.
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133
6.D. Employees
As of December 31, 2024, we had a total of 563 employees based in China. The following table sets forth the breakdown of our
employees as of December 31, 2024 by function:
As of December 31, 2024
Number of Employee
% of Total Employees
Technology Development
260
47 %
Operation
119
21 %
Risk Management
57
10 %
General Management
92
16 %
Sales and Marketing
35
6 %
Total
563
100 %
We have entered into individual employment contracts with our employees to cover matters such as salaries, benefits, and grounds
for termination. As required by regulations in China, we participate in various government statutory social security plans, including a
pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan, a maternity
insurance plan and a housing provident fund. We are required under Chinese Mainland law to contribute to social security 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 maintain a good working relationship with our employees, and as of the date of this annual report, we have not experienced any
material labor disputes in the past. None of our employees are represented by labor unions.
6.E. Share Ownership
The following table sets forth information with respect to the beneficial ownership of our ordinary shares, as of March 31, 2025, by:
●
each of our directors and executive officers;
●
all of our directors and executive officers as a group; and
●
each person known to us to own beneficially more than 5% of our ordinary shares.
The calculations in the table below are based on 253,256,363 ordinary shares outstanding as of March 31, 2025 comprised of
155,656,363 Class A ordinary shares and 97,600,000 Class B ordinary shares.
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134
Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power
with respect to the ordinary shares. In computing the number of shares beneficially owned by a person and the percentage ownership of
that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option,
warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of
the percentage ownership of any other person, except with respect to the percentage ownership of all executive officers and directors as
a group.
Ordinary Shares Beneficially Owned as of March 31, 2025
Percentage of
total ordinary
Percentage of
shares on an as
aggregate
Class A ordinary share
Class B ordinary share
converted basis
voting power**
Number
%
Number
%
Directors and Executive Officers:
Yue (Justin) Tang(1)
11,067,062
7.11 % 97,600,000
100 %
42.91 %
93.14 %
Shaoyong (Simon) Cheng
*
*
—
—
*
*
Frank Fuya Zheng
*
*
—
—
*
*
Kan (Kent) Li
*
*
—
—
*
*
Yufan (Jason) Jiang
*
*
—
—
*
*
Zheng Wan
*
*
—
—
*
*
Zheng Xue
*
*
—
—
*
*
Longgen Zhang
*
*
—
—
*
*
All directors and executive officers as a group
11,067,062
7.11 % 97,600,000
100 %
42.91 %
93.14 %
Principal Shareholders:
Mangrove Coast Investment Limited(1)
11,067,062
7.11 % 97,600,000
100 %
42.91 %
93.14 %
Dragon Destiny Limited(2)
27,113,806
17.42 %
—
—
10.71 %
1.29 %
Pine Cove Global Limited(3)
20,000,000
12.85 %
—
—
7.90 %
0.95 %
*
Less than 1% of our total outstanding shares.
**
For each person and group included in this column, percentage of voting power is calculated by dividing the voting power
beneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary shares as a single class.
In respect of all matters subject to a shareholders’ vote, each Class A ordinary share is entitled to one vote, and each Class B
ordinary share is entitled to 20 votes, voting together as one class. Each Class B ordinary share is convertible into one Class A
ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any
circumstances.
(1) Represents (i) 97,600,000 Class B ordinary shares held by Mangrove Coast Investment Limited, a British Virgin Islands company
controlled by Mangrove Coast Trust, (ii) 3,000,000 Class A shares in form of 500,000 ADS and 3,803,645 Class A ordinary shares
held by Mr. Yue (Justin) Tang, and (iii) 1,743,890 Class A ordinary shares in the form of 290,648 ADSs and 2,519,527 Class A
ordinary shares held by Purple Mountain Holding Ltd., which is ultimately controlled by Mr. Yue (Justin) Tang. The registered
address of Mangrove Coast Investment Limited is Geneva Place, Waterfront Drive, P.O. Box 3469, Road Town, Tortola, British
Virgin Islands. Mangrove Coast Trust is a trust established under the laws of Bahamas and managed by RHONE TRUSTEES
(BAHAMAS) LTD. as the trustee. Mr. Yue (Justin) Tang is the settlor of the trust and Mr. Tang and his family members are the
trust’s beneficiaries. The registered address of Purple Mountain Holding Ltd. is at Ellen Skelton Building, 3076 Sir Francis Darke
Highway, Road Reef, P.O. Box 765, Road Town, Tortola VG 1110, British Virgin Islands.
(2) Represents 27,113,806 Class A ordinary shares held by Dragon Destiny Limited, a British Virgin Islands company wholly owned by
Chung Kiu Cheung. The registered address of Dragon Destiny Limited is Vistra Corporate Services Centre, Wickhams Cay II, Road
Town, Tortola, VG1110, British Virgin Islands.
(3) Represents 20,000,000 Class A ordinary shares held by Pine Cove Global Limited, a British Virgin Islands company wholly owned
by Nexus Asia Growth Fund SPC and ultimately controlled by David Fung. The registered address of Pine Cove Global Limited is
Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands.
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135
6.F. Disclosure of a registrant’s action to recover erroneously awarded compensation.
None.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—6.E. Share Ownership.”
7.B. Related Party Transactions
Transactions with Jiangxi Ruijing
In 2019, we purchased earnings rights of two loans from Jiangxi Ruijing. The considerations paid amounted to RMB100.0 million
and RMB280.0 million, respectively, which equal to the principal amounts of the underlying loans. The former loan had been fully repaid
by the end of 2020. The latter loan had been fully repaid in January 2022. The associated interest income amounted to RMB0.4 million
in 2022.
Transactions with a financing guarantee company
In 2021, we entered into agreements with a financing guarantee company, which is a wholly-owned subsidiary of our equity investee
obtained in 2020 and disposed in 2022. Following the disposal, it no longer constitutes a related party to us.
This financing guarantee company provides guarantee service for an identified portfolio of loans we facilitated and charges
borrowers a guarantee fee, a portion of which will be subsequently paid to us as the service fee for the intermediary service we provide.
During the year of 2022, this financing guarantee company provided guarantee service for 29.6% of the total loans we facilitated and
provided. We recognized total net revenue of RMB542.7 million during the year of 2022 in connection with the service fees of
facilitation service for loans that covered by this financing guarantee company. As of December 31, 2022, accounts receivable and
contract assets balance amounted to RMB314.0 million, which had been fully settled in 2023.
Transactions with a controlled entity of Mr. Yue (Justin)Tang
As of December 31, 2021 and 2022, dividend receivables of RMB15.0 million were subsequently collected in 2023 from the
nominal shareholder of Jiangxi Ruijing, the nominal shareholder is controlled by Mr. Yue (Justin) Tang. During the year of 2024, we
furtherly received dividend of RMB7.5 million from the nominal shareholder of Jiangxi Ruijing.
Transactions with Newup Bank of Liaoning
In 2022, we entered into agreements with Newup Bank of Liaoning (“Newup Bank”), according to which we charge service fees
directly to Newup Bank for the intermediary service we provide.
We recognized total net revenue of RMB13.1 million and RMB11.4 million, respectively, during the year of 2022 and 2023 in
connection with the service fees of facilitation service for loans. As of December 31, 2022 and 2023, accounts receivable and contract
assets balance amounted to RMB13.9 million and RMB1.1 million, respectively, which had been fully settled in 2024.
Contractual Arrangement with our VIEs and their Shareholders
Chinese Mainland’s laws and regulations currently restrict foreign ownership and foreign investment in VIE in Chinese Mainland.
As a result, we operate our relevant business through contractual arrangements among Beijing WFOE, our wholly-owned Chinese
Mainland subsidiary, VIEs, our consolidated VIEs, and their shareholders. For a description of these contractual arrangements, see “Item
4. Information on the Company—C. Organizational Structure—Contractual Arrangements with Consolidated VIEs and their
Shareholders (“VIE Agreements”)”
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136
Employment Agreements and Indemnification Agreements
See “Item 6. Directors, Senior Management and Employees—6.B. Compensation— Employment Agreements and Indemnification
Agreements” for a description of the employment agreements we have entered into with our senior executive officers.
Share Incentives
See “Item 6. Directors, Senior Management and Employees—6.B. Compensation—Share Incentive Plan” for a description of share
awards we have granted to our directors, officers and other individuals as a group.
7.C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
Litigation
From time to time, we become subject to legal proceedings and claims in the ordinary course of our business. We are currently
involved in several lawsuits in Chinese Mainland courts primarily including lawsuits initiated by us to recover defaulted loan repayment,
including our claim against one corporate borrower for the repayment of loan principal, interest, penalty fees and service fees for our
services. We are not currently a party to any actions, claims, suits, or other legal procedures whose conclusion, if not determined in our
favor, would have a major adverse effect on our business, financial condition, or results of operations, either individually or in the
aggregate.
Dividend Policy
On March 26, 2024, our board of directors approved a semi-annual cash dividend policy. Under the dividend policy, starting from
2024, the determination to declare and pay such semi-annual dividend and the amount of dividend in any particular half year will be
made at the discretion of the Board and will be based upon the Company’s operations and earnings, cash flow, financial condition and
other relevant factors that the Board may deem appropriate.
Our board of directors has complete discretion, subject to certain requirements of Cayman Islands law, in deciding whether to
distribute dividends. Even if our board of directors decides to 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.
We are a holding company with no material operations of our own. Chinese Mainland’s regulations may restrict the ability of Beijing
WFOE to pay dividends to us. As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends
paid by Beijing WFOE. If Beijing WFOE or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments
governing their debt may restrict their ability to pay dividends to us. See “Item 3. Key Information—D. Risk Factors—Risks Relating to
Doing Business in China—We rely to a significant extent on dividends and other distributions on equity paid by our principal operating
subsidiaries to fund offshore cash and financing requirements.”
If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the underlying Class A
ordinary shares represented by our ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary
then will pay such amounts to our ADS holders in proportion to the underlying Class A ordinary shares represented by the ADSs held by
such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Item 12.
Description Of Securities Other Than Equity Securities—12.D. American Depositary Shares.”
Cash dividends on our Class A ordinary shares and Class B ordinary shares, if any, will be paid in U.S. dollars.
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137
8.B. Significant Changes
Except as otherwise disclosed in this annual report on Form 20-F, 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
9.A. Offering and Listing Details
Our ADSs have been listed on the NYSE since September 19, 2018 under the symbol “XYF.” Each ADS represents two ordinary
shares, par value US$0.0001 per share. Effective from November 19, 2020, we adjusted the ratio of our ADSs to the Class A ordinary
shares from one (1) ADS representing two (2) Class A ordinary shares to one (1) ADS representing six (6) Class A ordinary shares.
9.B. Plan of Distribution
Not applicable.
9.C. Markets
Our ADSs have been listed on the NYSE since September 19, 2018 under the symbol “XYF.”
9.D. Selling Shareholders
Not applicable.
9.E. Dilution
Not applicable.
9.F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
Not applicable.
10.B. Memorandum and Articles of Association
We are a Cayman Islands company and our affairs are governed by our Second Amended and Restated Memorandum and Articles of
Association and the Companies Law (as amended) of the Cayman Islands, or Companies Law, and the common law of the Cayman
Islands.
We incorporate by reference into this annual report our Second Amended and Restated Memorandum and Articles of Association,
the form of which was filed as Exhibit 3.2 to our registration statement on Form F-1 (File Number 333-227065) filed with the Securities
and Exchange Commission on August 28, 2018. Our board of directors adopted our Second Amended and Restated Memorandum and
Articles of Association by a special resolution on August 24, 2018, which became effective immediately prior to completion of our initial
public offering of ADSs representing our ordinary shares.
The following are summaries of material provisions of our Second Amended and Restated Memorandum and Articles of Association
and the Companies Law as they relate to the material terms of our ordinary shares.
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138
Registered Office and Objects
Our registered office in the Cayman Islands is at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House,
Grand Cayman, KY1-1104, Cayman Islands.
According to Clause 3 of our Amended and Restated Memorandum of Association, the objects for which we are 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.”
Ordinary Shares
General. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of Class A ordinary
shares and Class B ordinary shares have the same rights except for voting and conversion rights. Our ordinary shares are issued in
registered form and are issued when registered in our register of members (shareholders). We may not issue shares to bearer. Our
shareholders who are non-residents of the Cayman Islands may freely hold and transfer their ordinary shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors or declared
by our shareholders by ordinary resolution (provided that no dividend may be declared by our shareholders which exceeds the amount
recommended by our directors). Our second amended and restated memorandum and articles of association provide that dividends may
be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our board of directors
determine is no longer needed. Under the laws of the Cayman Islands, the Company may pay a dividend out of either profit or share
premium account, provided that in no circumstances may a dividend be paid if this would result in the Company being unable to pay its
debts as they fall due in the ordinary course of business. Holders of Class A ordinary shares and Class B ordinary shares will be entitled
to the same amount of dividends, if declared.
Voting Rights. In respect of all matters subject to a shareholders’ vote, each Class A ordinary share is entitled to one vote, and each
Class B ordinary share is entitled to 20 votes, voting together as one class. A resolution put to the vote of the general meeting shall be
decided on the vote of the requisite majority pursuant to a poll of the shareholders. An ordinary resolution to be passed at the general
meeting of shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting,
while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding ordinary
shares at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our
second amended and restated memorandum and articles of association.
Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time at the option of the holder
thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer,
assignment or disposition of Class B ordinary shares by a holder to any person or entity which is not an affiliate of such holder, or upon a
change of beneficial ownership of any Class B ordinary share as a result of which any person who is not an affiliate of the registered
holders of such Class B ordinary shares becomes the beneficial owner of such Class B ordinary shares, such Class B ordinary shares shall
be automatically and immediately converted into the equivalent number of Class A ordinary shares.
Transfer of Ordinary Shares. Subject to the restrictions contained in our second amended and restated memorandum and articles of
association, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or
common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up
or on which we have a lien. Our board of directors may also decline to register any transfer of ordinary share unless
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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 of directors may reasonably require to show the right of the transferor to make the transfer;
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the instrument of transfer is in respect of only one class of ordinary shares;
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the instrument of transfer is properly stamped, if required;
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in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not
exceed four; and
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a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our directors may from time to
time require is paid to us in respect thereof.
If our directors refuse to register a transfer, they shall, within two calendar 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, after compliance with any notice required of the NYSE, be suspended and the register of members
closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the
registration of transfers shall not be suspended nor the register of members closed for more than 30 days in any year as our board
may determine.
Liquidation. On the winding up of the Company, if the assets available for distribution amongst our shareholders shall be more than
sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our
shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction
from those shares in respect of which there are monies due, of all monies payable to the Company for unpaid calls or otherwise. If our
assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne
by our shareholders proportion to the par value of the shares held by them. Any distribution of assets or capital to a holder of a Class A
ordinary share and a holder of a Class B ordinary share will be the same in any liquidation event.
Calls on Ordinary Shares and Forfeiture of Ordinary Shares. Our board of directors may from time to time make calls upon
shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 clear days prior to the
specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject to redemption, at our
option or at the option of the holders of these shares, on such terms and in such manner as may be determined by our board of directors.
The Company may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors,
or are otherwise authorized by the articles of association. Under the Companies Law, the redemption or repurchase of any share may be
paid out of the Company’s profits or out of the proceeds of a new 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 the 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.
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
rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series) may,
whether or not the Company is being wound up, be varied with the consent in writing of the holders of a majority of the issued shares of
that class, or the sanction of an ordinary resolution passed at a general meeting of the holders of the shares of that class. The rights
conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the
shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.
General Meetings of Shareholders
Shareholders’ meetings may be convened by a majority of our board of directors or our chairman. Advance notice of at least fifteen
calendar days is required for the convening of our annual general shareholders’ meeting and any other general meeting of our
shareholders. A quorum required for and throughout a meeting of shareholders consists of at least one shareholder entitled to vote and
present in person or by proxy or (in the case of a shareholder being a corporation) by its duly authorized representative representing a
majority of all votes attaching to all of our shares in issue and entitled to vote.
As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders’ annual general meetings.
Our second memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as
our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting
shall be held at such time and place as may be determined by our directors.
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The Companies Law provides shareholders with only limited rights to requisition a general meeting, and does not provide
shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles
of association. Our second memorandum and articles of association provide that upon the requisition of any one or more of our
shareholders who together hold shares which carry in aggregate not less than ten percent (10%) of the total number of votes attaching to
all issued and outstanding shares of the Company entitled to vote at general meetings, our board will convene an extraordinary general
meeting and put the resolutions so requisitioned to a vote at such meeting. However, our second memorandum and articles of association
do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not
called by such shareholders.
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 (other than copies of our memorandum and articles of association and the register of mortgages and
charges, and any special resolutions passed by our shareholders). However, we will provide our shareholders with the right to receive
annual audited financial statements.
Changes in Capital
We may from time to time by ordinary resolution:
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increase the share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe;
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consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;
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sub-divide our existing shares, or any of them into shares of a smaller amount; or
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cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person
and diminish the amount of our share capital by the amount of the shares so canceled.
However, no alteration contemplated above, or otherwise, may be made to the par value of the Class A ordinary shares or Class B
ordinary shares unless an identical alteration is made to the par value of the Class B ordinary shares and Class A ordinary shares, as the
case may be.
We may by special resolution, subject to any confirmation or consent required by the Companies Law, reduce our share capital or
any capital redemption reserve in any manner permitted by law.
Exempted Company
We are an exempted company with limited liability incorporated under the Companies Law. The Companies Law in the Cayman
Islands distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman
Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The
requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges
listed below:
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an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies;
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an exempted company’s register of members is not open to inspection;
●
an exempted company does not have to hold an annual general meeting;
●
an exempted company may issue no par value shares;
●
an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually
given for 20 years in the first instance);
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an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;
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an exempted company may register as a limited duration company; and
●
an exempted company may register as a segregated portfolio company.
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the
company. We are subject to reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers.
The NYSE rules require that every company listed on the NYSE hold an annual general meeting of shareholders. In addition, our second
amended and restated memorandum and articles of association allow directors to call special meeting of shareholders pursuant to the
procedures set forth in our articles.
10.C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in
“Item 4. Information on the Company” and in “Item 7. Major shareholders and Related Party Transactions” or elsewhere in this annual
report.
10.D. Exchange Controls
The Cayman Islands currently has no exchange control regulations or currency restrictions. See “Item 4. Information of the
Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange.”
10.E. Taxation
The following sets forth material Cayman Islands, Chinese Mainland and U.S. federal income tax consequences of the ownership of
our Class A ordinary shares or ADSs. It is based upon laws and relevant interpretations thereof as of the date hereof, all of which are
subject to change. This discussion does not address all possible tax consequences relating to an investment in our Class A ordinary
shares or ADSs, 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 appreciations and
there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of our ADSs and
Class A ordinary shares. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for
stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman
Islands. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold
interests in land in the Cayman Islands. The Cayman Islands are not party to any double tax treaties that are applicable to any payments
made to or by the Company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of the ADSs or ordinary shares will not be subject to taxation in the Cayman Islands
and no withholding will be required on the payment of a dividend or capital to any holder of the ADSs or ordinary shares, nor will gains
derived from the disposal of the ADSs or ordinary shares be subject to Cayman Islands income or corporation tax.
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Taxation
In March 2007, the National People’s Congress of China enacted the Enterprise Income Tax Law, which became effective on
January 1, 2008 and was amended on February 24, 2017. The Enterprise Income Tax Law provides that enterprises organized under the
laws of jurisdictions outside Chinese Mainland with their “de facto management bodies” located within Chinese Mainland may be
considered PRC resident enterprises and therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income.
The Implementing Rules of the Enterprise Income Tax Law further defines the term “de facto management body” as the management
body that exercises substantial and overall management and control over the business, personnel, accounts and properties of an
enterprise. While we do not currently consider the Company or any of our overseas subsidiaries to be a PRC resident enterprise, there is a
risk that the Chinese Mainland tax authorities may deem the Company or any of our overseas subsidiaries as a PRC resident enterprise
since a substantial majority of the members of our management team as well as the management team of our overseas subsidiaries are
located in Chinese Mainland, in which case we or the overseas subsidiaries, as the case may be, would be subject to the PRC enterprise
income tax at the rate of 25% on worldwide income. If the Chinese Mainland tax authorities determine that our Cayman Islands holding
company is a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could
follow. Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council, a 10% PRC withholding
tax is applicable to dividends paid to investors that are non-resident enterprises, which do not have an establishment or place of business
in the Chinese Mainland or which have such establishment or place of business but the dividends are not effectively connected with such
establishment or place of business, to the extent such dividends are derived from sources within the Chinese Mainland. In addition, any
gain realized on the transfer of shares by such investors is also subject to PRC tax at a rate of 10%, if such gain is regarded as income
derived from sources within the Chinese Mainland. If we are deemed a PRC resident enterprise, dividends paid on our ordinary shares or
ADSs, and any gain realized from the transfer of our ordinary shares or ADSs, may be treated as income derived from sources within the
Chinese Mainland and may as a result be subject to PRC taxation. Furthermore, if we are deemed a Chinese Mainland resident
enterprise, dividends paid to individual investors who are non-PRC residents and any gain realized on the transfer of ADSs or ordinary
shares by such investors may be subject to PRC tax at a current rate of 20% (which in the case of dividends may be withheld at source).
Any PRC tax liability may be reduced under applicable tax treaties or tax arrangements between Chinese Mainland and other
jurisdictions. If we or any of our subsidiaries established outside Chinese Mainland are considered a PRC resident enterprise, it is unclear
whether holders of our ADSs or ordinary shares would be able to claim the benefit of income tax treaties or agreements entered into
between Chinese Mainland and other countries or areas.
U.S. Federal Income Taxation
The following are material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of
the ADSs or Class A ordinary shares (“ordinary shares”), but this discussion does not purport to be a comprehensive description of all of
the tax considerations that may be relevant to a particular person’s decision to hold ADSs or ordinary shares.
This discussion applies only to a U.S. Holder that holds the ADSs or ordinary shares as capital assets for U.S. federal income tax
purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of a U.S. Holder’s particular
circumstances, including the alternative minimum tax, the Medicare contribution tax on net investment income and tax consequences
applicable to U.S. Holders subject to special rules, such as:
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certain financial institutions;
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dealers or traders in securities that use a mark-to-market method of tax accounting;
●
persons holding ADSs or ordinary shares as part of a hedging transaction, straddle, conversion transaction, integrated
transaction or similar transaction;
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persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
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entities classified as partnerships for U.S. federal income tax purposes and their partners;
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tax-exempt entities, “individual retirement accounts” or “Roth IRAs”;
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persons that own or are deemed to own ADSs or ordinary shares representing 10% or more of our voting power or value;
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persons who acquired our ADSs or ordinary shares pursuant to the exercise of an employee stock option or otherwise as
compensation; or
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persons holding ADSs or ordinary shares in connection with a trade or business conducted outside the United States.
If a partnership (or other entity that is classified as a partnership for U.S. federal income tax purposes) owns ADSs or ordinary
shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the
partnership. Partnerships owning ADSs or ordinary shares and partners in such partnerships should consult their tax advisers as to the
particular U.S. federal income tax consequences of owning and disposing of ADSs or ordinary shares.
This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial
decisions, final, temporary and proposed Treasury regulations, and the income tax treaty between the United States and the PRC (the
“Treaty”), all as of the date hereof, any of which is subject to change, possibly with retroactive effect.
As used herein, a “U.S. Holder” is a beneficial owner of our ADSs or ordinary shares that is, for U.S. federal income tax purposes:
●
a citizen or individual resident of the United States;
●
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
therein or the District of Columbia; or
●
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
In general, a U.S. Holder who owns ADSs will be treated as the owner of the underlying ordinary shares represented by those ADSs
for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the
underlying ordinary shares represented by those ADSs.
This discussion does not address the effects of any state, local or non-U.S. tax laws, or any U.S. federal taxes other than income
taxes (such as U.S. federal estate or gift tax consequences). U.S. Holders should consult their tax advisers concerning the U.S. federal,
state, local and non-U.S. tax consequences of owning and disposing of ADSs or ordinary shares in their particular circumstances.
THIS DISCUSSION IS ONLY A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR ADS OR ORDINARY SHARES. IT IS NOT TAX ADVICE. EACH
HOLDER OF OUR ADS OR ORDINARY SHARES IS URGED TO CONSULT ITS OWN TAX ADVISOR IN RESPECT TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR
ADS OR ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, AND NON-U.S.
TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND ANY APPLICABLE TAX TREATIES.
Passive Foreign Investment Company
In general, a non-U.S. corporation is a PFIC for any taxable year in which (i) 75% or more of its gross income consists of passive
income or (ii) 50% or more of the quarterly value of its assets (generally determined on a quarterly basis) consists of assets that produce,
or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that owns at least 25%
by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and
received directly its proportionate share of the income of the other corporation. Passive income generally includes interest (and income
equivalent to interest), dividends, rents, royalties and gains from financial investments. Cash is generally a passive asset for these
purposes. Goodwill (which may be determined by reference to the excess of the sum of the corporation’s market capitalization and
liabilities over the value of its assets) is an active asset to the extent attributable to business activities that produce active income.
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Due to the decrease in our market capitalization and uncertainties as to the proper classification of certain items of our income and
assets for purposes of the PFIC rules, there is a significant risk that we were a PFIC for our 2020 taxable year. The proper application of
the PFIC rules to us is not clear. For example, it is uncertain whether for purposes of the PFIC rules we should be treated as the owner of
the Consolidated Trusts’ assets. Although such trusts are consolidated on our financial statements for accounting purposes, based on the
manner in which we and the trusts currently operate and the nature of our rights and obligations with respect to the trusts, we believe it is
reasonable to treat the trusts’ assets (to the extent not attributable to any investment by us in the trusts) as not owned by us for purposes
of the PFIC rules, but there can be no assurance in this regard. If the trusts’ assets were treated as owned by us for PFIC purposes, we
would be a PFIC for our 2020 taxable year. Moreover, the value of our goodwill for 2020 was not a positive amount and it is not entirely
clear how the percentage of our active assets should be calculated in such circumstances, and to what extent certain assets shown on our
balance sheet should be treated as active for purposes of determining our PFIC status. In addition, it is not entirely clear how the
contractual arrangements between us and our VIEs will be treated for purposes of the PFIC rules. Because we exercise effective control
over the operation of our VIEs and are entitled to substantially all of their income, we believe it is appropriate to treat the VIEs as owned
by us for purposes of the PFIC rules. However, there can be no assurance in this regard and we may be a PFIC for any taxable year if our
VIEs are not treated as owned by us for such purposes. For these reasons, there is a significant risk that we were a PFIC for our taxable
2020 year and that we will be a PFIC for our current and future taxable years.
If we are a PFIC for any taxable year and any of our subsidiaries, VIEs or other companies in which we own or are treated as
owning equity interests is also a PFIC (any such entity, a “Lower-tier PFIC”), U.S. Holders will be deemed to own a proportionate
amount (by value) of the shares of each Lower-tier PFIC and will be subject to U.S. federal income tax according to the rules described
in the subsequent paragraph on (i) certain distributions by a Lower-tier PFIC and (ii) dispositions of shares of Lower-tier PFICs, in each
case as if the U.S. Holders held such shares directly, even though the U.S. Holders will not receive the proceeds of those distributions or
dispositions.
In general, if we are a PFIC for any taxable year during which a U.S. Holder holds ADSs or ordinary shares, gain recognized by
such U.S. Holder on a sale or other disposition (including certain pledges) of its ADSs or ordinary shares will be allocated ratably over
that U.S. Holder’s holding period. The amounts allocated to the taxable year of the sale or disposition and to any year before we became
a PFIC will be taxed as ordinary income. The amount allocated to each other taxable year will be subject to tax at the highest rate in
effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge will be imposed on the resulting tax
liability for each such year. Furthermore, to the extent that distributions received by a U.S. Holder in any year on its ADSs or ordinary
shares exceed 125% of the average of the annual distributions on the ADSs or ordinary shares received during the preceding three years
or the U.S. Holder’s holding period, whichever is shorter, such distributions will be subject to taxation in the same manner. In addition, if
we are a PFIC (or with respect to a particular U.S. Holder are treated as a PFIC) for a taxable year in which we pay a dividend or for the
prior taxable year, the favorable tax rate described below with respect to dividends paid to certain non-corporate U.S. Holders will not
apply. If we are a PFIC for any taxable year during which a U.S. Holder owns ADSs or ordinary shares, we will generally continue to be
treated as a PFIC with respect to the U.S. Holder for all succeeding years during which the U.S. Holder owns ADSs or ordinary shares,
even if we cease to meet the threshold requirements for PFIC status, unless the U.S. Holder makes a “deemed sale” election, which will
allow the U.S. Holder to eliminate the continuing PFIC status under certain circumstances but will require the U.S. Holder to recognize
gain taxed under the general PFIC rules described above.
Alternatively, if we are a PFIC and if the ADSs are “regularly traded” on a “qualified exchange,” a U.S. Holder of ADSs could make
a mark-to-market election that will result in tax treatment different from the general tax treatment for PFICs described in the preceding
paragraph. The ADSs will be treated as “regularly traded” for any calendar year in which more than a de minimis quantity of the ADSs
are traded on a qualified exchange on at least 15 days during each calendar quarter. The NYSE, where our ADSs are listed, is a qualified
exchange for this purpose. If a U.S. Holder makes the mark-to-market election, the U.S. Holder generally will recognize as ordinary
income any excess of the fair market value of the ADSs at the end of each taxable year over their adjusted tax basis, and will recognize
an ordinary loss in respect of any excess of the adjusted tax basis of the ADSs over their fair market value at the end of the taxable year
(but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder
makes the election, the U.S. Holder’s tax basis in the ADSs will be adjusted to reflect the income or loss amounts recognized. Any gain
recognized on the sale or other disposition of ADSs in a year in which the Company is a PFIC will be treated as ordinary income and any
loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-
market election, with any excess treated as capital loss). If a U.S. Holder makes the mark-to-market election, distributions paid on ADSs
will be treated as discussed under “—Taxation of Distributions” below. U.S. Holders will not be able to make a mark-to-market election
with respect to our ordinary shares, or with respect to any shares of a Lower-tier PFIC, because such shares will not trade on any stock
exchange.
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The rules dealing with PFICs and mark-to-market elections are very complex and are affected by various factors in addition to those
described above. Accordingly, U.S. Holders of our ADS or ordinary shares should consult their own tax advisors concerning the
application of the PFIC rules to our ADS or ordinary shares under their particular circumstances.
We do not intend to provide the information necessary for U.S. Holders to make qualified electing fund elections, which if available
could materially affect the tax consequences of the ownership and disposition of our ADSs or ordinary shares if we are a PFIC for any
taxable year. Therefore, U.S. Holders will not be able to make such elections.
If we are a PFIC for any taxable year during which a U.S. Holder owns any ADSs or ordinary shares, the U.S. Holder will generally
be required to file annual reports with the Internal Revenue Service. U.S. Holders should consult their tax advisers regarding the
determination of whether we are a PFIC for any taxable year and the potential application of the PFIC rules to their ownership of ADSs
or ordinary shares.
Taxation of Distributions
The following discussion is subject to the discussion under “—Passive Foreign Investment Company” above.
Distributions paid on our ADSs or ordinary shares, other than certain pro rata distributions of ADSs or ordinary shares, will be
treated as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income
tax principles. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is
expected that distributions generally will be reported to U.S. Holders as dividends. Dividends will not be eligible for the dividends-
received deduction generally available to U.S. corporations under the Code. Subject to applicable limitations, dividends paid to certain
non-corporate U.S. Holders may be taxable at a favorable rate provided that we are not a PFIC for the taxable year of the distribution or
the preceding year. Due to the significant risk that we were or will be a PFIC, non-corporate U.S. Holders should not assume that any
distribution will be eligible for this favorable rate.
Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s, or in the case of ADSs, the depositary’s,
receipt. The amount of any dividend income paid in foreign currency will be the U.S. dollar amount calculated by reference to the spot
rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars on such date. If the dividend
is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize foreign currency gain or
loss in respect of the amount received. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S.
dollars after the date of receipt.
Dividends will be treated as foreign-source income for foreign tax credit purposes. As described in “—PRC Taxation”, dividends
paid by the Company may be subject to PRC withholding tax. For U.S. federal income tax purposes, the amount of the dividend income
will include any amounts withheld in respect of PRC withholding tax (if any). Subject to applicable limitations, which vary depending
upon the U.S. Holder’s circumstances, PRC taxes withheld from dividend payments (at a rate not exceeding the applicable rate provided
in the Treaty in the case of a U.S. Holder that is eligible for the benefits of the Treaty) generally will be creditable against a U.S. Holder’s
U.S. federal income tax liability. The rules governing foreign tax credits are complex and U.S. Holders should consult their tax advisers
regarding the creditability of foreign tax credits in their particular circumstances. In lieu of claiming a credit, a U.S. Holder may elect to
deduct any such PRC taxes in computing its taxable income, subject to applicable limitations. An election to deduct foreign taxes instead
of claiming foreign tax credits must apply to all foreign taxes paid or accrued in the taxable year.
Sale or Other Taxable Disposition of ADSs or Ordinary Shares
The following discussion is subject to the discussion under “—Passive Foreign Investment Company” above.
A U.S. Holder will generally recognize capital gain or loss on a sale or other taxable disposition of ADSs or ordinary shares in an
amount equal to the difference between the amount realized on the sale or other taxable disposition and the U.S. Holder’s tax basis in
such ADSs or ordinary shares disposed of, in each case as determined in U.S. dollars. The gain or loss will be long-term capital gain or
loss if, at the time of the sale or disposition, the U.S. Holder has owned the ADSs or ordinary shares for more than one year. Long-term
capital gains recognized by non-corporate U.S. Holders may be subject to tax rates that are lower than those applicable to ordinary
income. The deductibility of capital losses is subject to limitations.
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As described in “—PRC Taxation” gains on the sale of ADSs or ordinary shares may be subject to PRC taxes. A U.S. Holder is
entitled to use foreign tax credits to offset only the portion of its U.S. federal income tax liability that is attributable to foreign-source
income. Because under the Code capital gains of U.S. persons are generally treated as U.S.-source income, this limitation may preclude a
U.S. Holder from claiming a credit for all or a portion of any PRC taxes imposed on any such gains. However, U.S. Holders that are
eligible for the benefits of the Treaty may be able to elect to treat the gain as PRC-source and therefore claim foreign tax credits in
respect of PRC taxes on such disposition gains. Proposed Treasury regulations, if finalized in their current form, may impose additional
restrictions on the creditability of any PRC taxes on disposition gains. U.S. Holders should consult their tax advisers regarding the
creditability or deductibility of any PRC tax on disposition gains in general and in their particular circumstances.
Additional Taxes
Under current law, U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally will be
subject to a 3.8% Medicare contribution tax on unearned income, including, without limitation, dividends on, and gains from the sale or
other taxable disposition of, our ordinary shares, subject to certain limitations and exceptions. U.S. Holders should consult their own tax
advisors regarding the effect, if any, of such tax on their ownership and disposition of our ordinary shares.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial
intermediaries may be subject to information reporting and backup withholding, unless (i) the U.S. Holder is a corporation or other
“exempt recipient” and (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and
certifies that it is not subject to backup withholding. Backup withholding is not an additional tax. The amount of any backup withholding
from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle it
to a refund, provided that the required information is timely furnished to the Internal Revenue Service.
Certain U.S. Holders who are individuals (or certain specified entities) may be required to report information relating to their
ownership of ADSs or ordinary shares, unless the ADSs or ordinary shares are held in accounts at financial institutions (in which case the
accounts may be reportable if maintained by non-U.S. financial institutions). U.S. Holders should consult their tax advisers regarding
their reporting obligations with respect to the ADSs or ordinary shares.
10.F. Dividends and Paying Agents
Not applicable.
10.G. Statement by Experts
Not applicable.
10.H. Documents on Display
We previously filed with the SEC registration statement on Form F-1 (File Number 333-227065), as amended, including annual
report contained therein, to register additional securities that become effective immediately upon filing, to register our ordinary shares in
relation to our initial public offering. We also filed with the SEC related registration statement on Form F-6 (File Number 333-227070) to
register the ADSs and registration statement on Form S-8 (File Number 333-227938) to register our securities to be issued under our
Amended and Restated 2015 Global Share Incentive Plan.
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We are subject to the periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private
issuers. 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 within four months after the end of each fiscal year. Copies of reports and other information, when so filed with
the SEC, can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. The
public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission 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. As a foreign private issuer, we are exempt from
the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive
officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in
Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements
with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
We will furnish The Bank of New York Mellon, the depositary of our ADSs, with our annual reports, which will include a review of
operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’
meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such
notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the
information contained in any notice of a shareholders’ meeting received by the depositary from us.
10.I. Subsidiary Information
Not applicable.
10.J. Annual Report to Security Holders
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
All of our revenues and substantially all of our expenses are denominated in RMB. Our exposure to foreign exchange risk primarily
relates to cash and cash equivalent denominated in U.S. dollars and financial investment in VC funds, US treasury and US money market
fund which would be settled in US dollars. We do not believe that we currently have any significant direct foreign exchange risk and
have not used derivative financial instruments to hedge exposure to such risk. Although our exposure to foreign exchange risks should be
limited in general, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and RMB because
the value of our business is effectively denominated in RMB, while our ADSs will be traded in U.S. dollars.
The conversion of RMB into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The
value of RMB is subject to changes in central government policies and to international economic and political developments affecting
supply and demand in the China Foreign Exchange Trading System market. The Chinese Mainland government allowed the RMB to
appreciate by more than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010, this
appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. Between June 2010 and
August 2015, the Chinese Mainland government has allowed the RMB to appreciate slowly against the U.S. dollar again. Since August
2015, the RMB has significantly depreciated against the U.S. dollar. It is difficult to predict how market forces or Chinese Mainland or
U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.
To the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar
would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert 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 amounts available to us.
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Interest Rate Risk
We have not been exposed to material risks due to changes in market interest rates, and we have not used any derivative financial
instruments to manage our interest risk exposure.
The fluctuation of interest rates may affect the demand for loan services on our platform. For example, a decrease in interest rates
may cause potential borrowers to seek lower-priced loans from other channels. A high interest rate environment may lead to an increase
in competing investment options and dampen institutional funding partners’ desire to invest on our products. We do not expect that the
fluctuation of interest rates will have a material impact on our financial condition. However, we cannot provide assurance that we will
not be exposed to material risks due to changes in market interest rate in the future. See “Item 3. Key Information on the Company—3.D.
Risk Factors—Risks Relating to Our Business and Industry—Increase in market interest rates could negatively affect the amount of loans
facilitated by us and cost of funds provided to borrowers.”
Impact of Inflation/Deflation
Since our inception, inflation or deflation in Chinese Mainland has not materially affected our results of operations. According to the
National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index increases of 1.8% for December
2022, decrease of 0.3% for December 2023, and increase of 0.1% for December 2024. Although we have not been materially affected by
inflation or deflation in the past, we may be affected if Chinese Mainland experiences higher rates of inflation or deflation in the future.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
12.A. Debt Securities
Not applicable.
12.B. Warrants and Rights
Not applicable.
12.C. Other Securities
Not applicable.
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12.D. American Depositary Shares
Persons depositing or withdrawing shares or ADS holders must pay:
For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
Issuance of ADSs, including issuances resulting from a distribution of
shares or rights or other property
Cancellation of ADSs for the purpose of withdrawal, including if the
deposit agreement terminates
$.05 (or less) per ADS
Any cash distribution to ADS holders
A fee equivalent to the fee that would be payable if securities
distributed to you had been shares and the shares had been
deposited for issuance of ADSs
Distribution of securities distributed to holders of deposited securities
(including rights) that are distributed by the depositary to ADS holders
$.05 (or less) per ADS per calendar year
Depositary services
Registration or transfer fees
Transfer and registration of shares on our share register to or from the
name of the depositary or its agent when you deposit or withdraw shares
Expenses of the depositary
Cable and facsimile transmissions (when expressly provided in the
deposit agreement)
Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the
custodian has to pay on any ADSs or shares underlying
ADSs, such as stock transfer taxes, stamp duty or
withholding taxes
As necessary
Any charges incurred by the depositary or its agents for
servicing the deposited securities
As necessary
The depositary collects its 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 deduction from cash distributions or by directly billing investors or by charging the book-
entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution
payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The
depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of
establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share
revenue from the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers,
dealers, foreign currency dealers or other service providers that are owned by or affiliated with the depositary and that may earn or share
fees, spreads or commissions.
The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account
and not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction
spreads, that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange rate
assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives when
buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained in
any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that the method
by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary’s obligations under the deposit
agreement. The methodology used to determine exchange rates used in currency conversions is available upon request.
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PART II
ITEM 13. ITEM DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
14.A. — 14.D. Material Modifications to the Rights of Security Holders
See “Item 10. Additional Information” for a description of the rights of shareholders, which remain unchanged.
14.E. Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number 333-
227065), as amended, including the annual report contained therein, which registered 11,000,000 ordinary shares representing by ADSs
and was declared effective by the SEC on September 18, 2018, for our initial public offering, which closed in September 21, 2018, and
the underwriters’ exercise of their option to purchase from us an additional 763,478 ADSs representing 1,526,956 ordinary shares, or the
optional offering, which closed in September 21, 2018, at an initial offering price of US$9.50 per ADS. Deutsche Bank Securities Inc.
and Morgan Stanley & Co. International plc were the representatives of the underwriters.
The F-1 Registration was declared effective by the SEC on September 18, 2018. Our expenses incurred and paid to others in
connection with the issuance and distribution of the ADSs in our initial public offering and the optional offering totaled US$12.3 million,
which included US$7.8 million for underwriting discounts and commissions and US$4.5 million for other expenses. We received an
aggregated net proceeds of approximately US$103.9 million from our initial public offering and the option offering. None of the
transaction expenses included payments to directors or officers of the Company or their associates, persons owning more than 10% or
more of our equity securities or our affiliates or others.
None of the net proceeds from the initial public offering and the optional offering was paid, directly or indirectly, to any of our
directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates.
For the period from the date that the F-1 Registration Statement was declared effective by the SEC to December 31, 2024, we used
the net proceeds from our initial public offering for as follows:
●
Approximately US$14.8 million for dividend distribution;
●
Approximately US$30.0 million for capital contributions to our Chinese Mainland subsidiary;
●
Approximately US$6.5 million for general corporate purposes;
●
Approximately US$24.0 million for repurchasing ADSs and Class A ordinary shares from market, including open market
transactions and privately negotiated transactions; and
●
Approximately US$28.6 million for investments of Venture Capital funds.
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ITEM 15. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
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 (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period
covered by this report, as required by Rule 13a-15(b) under the Exchange Act.
Based upon that evaluation, our management has concluded that, as of December 31, 2024, our disclosure controls and procedures
were effective, in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange
Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the
information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding
required disclosure.
(b) Management’s annual report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rule 13a-15(f) under the Exchange Act.
Our 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 U.S. GAAP, and includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of our company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of our company are
being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of the unauthorized acquisition, use or disposition of our company’s assets that could have a material
effect on the consolidated financial statements.
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. In addition, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies and procedures may deteriorate.
As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a “material weakness” is a
deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Our management evaluated the effectiveness of our internal control over financial reporting, as required by Rule 13a-15(c) of the
Exchange Act, based on criteria established in the framework in Internal Control--Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal
control over financial reporting was effective as of December 31, 2024.
(c) Attestation Report of the Registered Public Accounting Firm
KPMG Huazhen LLP has audited the effectiveness of our internal control over financial reporting as of December 31, 2024 as stated
in its report, which appears on page F-2 of this annual report on Form 20-F
(d) Changes in Internal Control over Financial Reporting
As of December 31, 2023, there was a material weakness related to a lack of sufficient U.S. GAAP knowledge by financial reporting
personnel regarding consolidated statements of cash flows classification and consolidated financial statements presentation.
In 2024, we implemented the following measures to address the above remaining material weakness that was identified, including:
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(1) We implemented targeted U.S. GAAP training programs for our financial reporting personnel, utilizing both third-party expertise
and relevant online technical accounting courses, to specifically enhance their proficiency in the proper classification of cash flows and
the presentation of the consolidated financial statements.
(2) We strengthened our financial statement review process by enhancing relevant controls, including formalizing a second-level
review and requiring the use of a standardized checklist covering U.S. GAAP requirements for cash flow classification and consolidated
financial statement presentation.
As of December 31, 2024, based on an assessment performed by our management of the effectiveness of the remediation measures,
we have concluded that the material weakness previously identified in our internal control over financial reporting, has been remediated
and that our internal control over financial reporting is effective.
Other than those described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-
15(f) and 15d-15(f) under the Exchange Act) during the period covered by this annual report on Form 20-F that have materially affected,
or that are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. Zheng Xue, an independent director and the chairperson of our audit committee, the
qualifies as an “audit committee financial expert” within the meaning of the SEC rules and possesses financial sophistication within the
meaning of Listing Rules of the New York Stock Exchange. Mr. Zheng Xue satisfy the “independence” requirements of Rule 10A-3
under the Securities Exchange Act of 1934, as amended, and Section 303A of the Corporate Governance Rules of the NYSE.
ITEM 16B. CODE OF ETHICS
Our board of directors has adopted a code of business conduct and ethics that applies to all of our directors, officers, employees,
including certain provisions that specifically apply to our principal executive officer, principal financial officer, principal accounting
officer or controller and any other persons who perform similar functions for us. We have filed our code of business conduct and ethics
as Exhibit 99.1 of our registration statement on Form F-1 (file No. 333-227065) filed with the SEC on August 28, 2018 and posted a
copy of our code of business conduct and ethics on our website at ir.xiaoyinggroup.com. We hereby undertake to provide to any person
without charge, a copy of our code of business conduct and ethics within ten working days after we receive such person’s written request.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Auditor Fees
The following table sets forth the aggregate fees by categories specified below in connection with all professional services rendered
by KPMG Huazhen LLP, our principal external auditor, and other firms in the KPMG Network for the periods indicated.
Year Ended December 31,
2023
2024
Services
RMB
RMB
(in thousands)
Audit Fees(1)
12,527
13,308
Total
12,527
13,308
(1) Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal
auditor for the audit or review of our annual financial statements or quarterly financial information and review of documents filed
with the SEC. The audit refers to financial statement audit and audit pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.
The policy of our audit committee is to pre-approve all professional services provided by KPMG Huazhen LLP, including audit and
non-audit services. All of the services of KPMG Huazhen LLP for 2023 and 2024 described above were in accordance with the audit
committee pre-approval policy.
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ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
In March 2022, our board of directors has approved a share repurchase plan under which we may repurchase up to US$15 million
worth of its Class A ordinary shares in the form of ADSs over the next eighteen months, effective until September 2023. The size of the
Share Repurchase Program was increased to US$20 million and US$30 million on September 26, 2022, and November 16, 2022, and
was authorized to repurchase Class A ordinary shares. In May 2024, our board of directors has approved a new share repurchase
program, under which the Company may repurchase up to $20 million of its Class A Ordinary Shares, either directly from shareholders
or in the form of ADSs, starting from June 1, 2024, through November 30, 2025. In December 2024, our board of directors has approved
another new share repurchase program under which the Company may repurchase up to US$50 million worth of its Class A Ordinary
Shares, either directly from shareholders or in the form of ADSs, through 30 June 2026. As of the date of December 31, 2024, the
Company had repurchased an aggregate of 17,552,957 ADSs for a total consideration of US$84.1 million.
The table below sets forth the details of our purchases of our own equity securities during the year ended December 31, 2024.
(d) Maximum
Approximate U.S.
(c) Total Number of
dollar Value of ADS
(a) Total Number
(b) Average
ADS Purchased as Part
that May Yet Be
of ADS
Price Paid per
of Publicly Announced
Purchased Under the
Purchased
ADS(1)
Plan
Plan
($)
($)
Period
July 1 — July 31, 2024
2,026,640
$4.52
2,026,640
16,296,894
September 1 — September 30, 2024
281,620
$4.73
281,620
14,964,083
December 1 —December 31, 2024
6,392,206
$7.67
6,392,206
15,910,947
(1) Average price paid per ADS repurchased is the execution price, excluding commissions paid to brokers.
(2) Represented the repurchase of Class A ordinary shares and ADSs.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
We are a “foreign private issuer” (as such term is defined in Rule 3b-4 under the Exchange Act), and our ADSs, each representing
six Class A ordinary shares, are listed on the New York Stock Exchange. Under Section 303A of the New York Stock Exchange Listed
Company Manual, New York Stock Exchange listed companies that are foreign private issuers are permitted to follow home country
practice in lieu of the corporate governance provisions specified by the New York Stock Exchange with limited exceptions. We opt to
follow home country practice specified by the New York Stock Exchange, including the frequency of holding annual general meeting of
shareholders. The following summarizes some significant ways in which our corporate governance practices differ from those followed
by domestic companies under the listing standards of the New York Stock Exchange.
Under the New York Stock Exchange Listed Company Manual, or the NYSE Manual, U.S. domestic listed companies are required
to have a majority of the board consisting of independent directors and have a compensation committee and a nominating/corporate
governance committee, each composed entirely of independent directors, which are not required under the Companies Act (Revised) of
the Cayman Islands, our home country. Currently, our board of directors is composed of six members, only three of whom satisfy the
requirements for an “independent director” under Section 303A of the NYSE Manual. The NYSE Manual also requires U.S. domestic
listed companies to regularly hold executive sessions for non-management directors, or an executive session that only includes
independent directors at least once a year. We are not subject to this requirement under the Cayman Islands law and have decided to
follow our home country practice on this matter. In addition, the NYSE Manual requires shareholder approval for certain matters, which
is not required under the Cayman Islands law. We intend to follow the home country practice and the applicable laws in determining
whether shareholder approval is required.
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ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
(a) Not applicable.
(b) Not applicable.
As of the date of this annual report and to the best of our knowledge:
a.
no governmental entity in the Chinese Mainland or the Cayman Islands owns any shares of the Company or any of the
consolidated foreign operating entities;
b.
none of the governmental entities in the applicable foreign jurisdiction with respect to our registered public accounting
firm have a controlling financial interest in us;
c.
none of the members of our board of directors or the board of directors of our subsidiaries is an official of the Chinese
Communist Party; and
d.
the currently effective Memorandum of Association and Articles of Association, as amended, of the Company do not
contain any charter of the Chinese Communist Party, including the text of any such articles.
ITEM 16J. INSIDER TRADING POLICIES
The Company has adopted an Insider Trading Policy governing the purchase, sale and other dispositions of the Company’s securities
by directors, senior management and employees that is reasonably designed to promote compliance with applicable insider trading laws,
rules and regulations, and all applicable listing standards. A copy of the policy is filed as Exhibit 19.1 hereto.
ITEM 16K. CYBERSECURITY
Risk Management and Strategy
We have established policies and processes for identifying, assessing, and managing material risk from cybersecurity threats, and
have integrated these processes into our overall risk management systems and processes. We routinely assess material risks from
cybersecurity threats, including any potential unauthorized occurrence on or conducted through our information systems that may result
in adverse effects on the confidentiality, integrity, or availability of our information systems or any information residing therein.
We conduct risk assessments to identify cybersecurity threats annually as well as in the event of a material change in our business
practices that may affect information systems that are vulnerable to such cybersecurity threats. These risk assessments include
identification of reasonably foreseeable internal and external risks, the likelihood and potential damage that could result from such risks,
and the sufficiency of existing policies, procedures, systems, and safeguards in place to manage such risks.
Following these risk assessments, we re-design, implement, and maintain reasonable safeguards to mitigate identified risks;
reasonably address any identified gaps in existing safeguards; and monitor the effectiveness of our safeguards. We devote resources and
designate high-level personnel, including our dedicated Information Security Officer who reports to our Chief Executive Officer
(“CEO”), to manage the risk assessment and mitigation process. Our Information Security Officer works closely with a team of
cybersecurity professionals with extensive experience and expertise in cybersecurity threat assessments and detection, incident response
and mitigation.
As part of our overall risk management system, we assess our safeguards in collaboration with various functional teams, including
Information Security, Information Technology, and train our employees on these safeguards. Personnel at all levels and teams are
required to receive periodic security awareness training to ensure that they understand our cybersecurity policies and their roles in
protecting our information systems or any information residing therein.
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We have a set of company-wide policies and procedures concerning cybersecurity matters that include security risk assessment,
identity and access control, vendor security and network security. There are other policies related to cybersecurity involving employees’
use of company equipment and resources, remote work and workplace security and safety. These policies are reviewed periodically and
approved by appropriate members of management.
We engage assessors, consultants, auditors, or other third parties in connection with our risk assessment processes. These service
providers assist us to design and implement our cybersecurity policies and procedures, as well as to monitor and test our safeguards.
These services include Web Application Penetration Testing, Infrastructure security testing, consultant engagements, incident response
preparedness, and vendor security review. We require each third-party service provider to certify that it has the ability to implement and
maintain appropriate security measures, consistent with all applicable laws, in connection with the services they provide to us, and to
promptly report any suspected breach of its security measures that may affect us.
For additional information regarding whether any risks from cybersecurity threats, including as a result of any previous
cybersecurity incidents, have materially affected or are reasonably likely to materially affect our company, including our business
strategy, results of operations, or financial condition, please see Item 3.D. “Risk Factors” of this Annual Report on Form 20-F, including
the risk factors titled “If we are unable to protect the confidential information of our users and adapt to the relevant regulatory framework
regarding protection of such information, our business and operations may be adversely affected”.
Governance
One of the key functions of our board of directors is informed oversight of our risk management process, including risks from
cybersecurity threats. Our board of directors is responsible for oversight of our risk management framework, which is designed to
monitor and manage strategic and operational risks. Management is responsible for the day-to-day identification, assessment, and
management of risks in our operations, including cybersecurity risks. Our board of directors administers its cybersecurity risk oversight
function directly as a whole, as well as through the audit committee.
Our Information Security Officer has more than 10 years of information technology expertise and is responsible to identify, assess
and manage our material risks from cybersecurity threats. Our Information Security Officer started his career as a software developer and
has held various leadership positions at Tencent and Baidu. At Baidu, he was responsible for the backend services of Baidu Antivirus and
Baidu Security Guardian, established cloud security capabilities. He received a bachelor degree in Computer Science and Technology
from Xidian University and a master’s degree from Tsinghua University.
Our Information Security Officer oversees our cybersecurity policies and processes, including those described in “Risk Management
and Strategy” above. The processes by which our Information Security Officer is informed about and monitors the prevention, detection,
mitigation, and remediation of cybersecurity incidents include the following: tabletop exercises, vulnerability management programs,
internal & external security risk assessments, threat modeling processes of new services, third party security risk functions, incident
response processes, phishing awareness programs, and additional control validation services.
Our Information Security Officer reports to our CEO ad hoc or at least annually regarding the company’s cybersecurity risks and
activities, including the implementation and operation of preventative controls and the detection, any recent cybersecurity incidents, and
mitigation and remediation responses. The CEO reports to the Board of Directors and Audit Committee on key cybersecurity risk
management topics, as appropriate.
Table of Contents
156
PART III
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements of X Financial are included at the end of this annual report.
ITEM 19. EXHIBITS
Exhibit
Number
Description of Document
1.1
Second Amended and Restated Memorandum and Articles of Association (incorporated by reference to Exhibit 3.2 from
our registration statement on Form F-1 (File No. 333-227065) filed publicly with the SEC on August 28, 2018)
2.1
Form of Registrant’s Specimen American Depositary Receipt (incorporated by reference to Exhibit 4.1 from our
registration statement on Form F-1 (File No. 333-227065) filed publicly with the SEC on August 28, 2018)
2.2
Registrant’s Specimen Certificate for Class A Ordinary Shares (incorporated by reference to Exhibit 4.2 from our
registration statement on Form F-1 (File No. 333-227065) filed publicly with the SEC on August 28, 2018)
2.3
Form of Deposit Agreement (incorporated by reference to Exhibit 4.3 from our registration statement on Form F-1 (File
No. 333-227065) filed publicly with the SEC on August 28, 2018)
2.4
Description of Securities registered under Section 12 of the Exchange Act (incorporated by reference to Exhibit 2.4 of
our Annual Report on Form 20-F (File No. 001-38652) filed with the Securities and Exchange Commission on June 4,
2020)
4.1
Amended and Restated 2015 Global Share Incentive Plan (incorporated by reference to Exhibit 10.1 from our
registration statement on Form F-1 (File No. 333-227065) filed publicly with the SEC on August 28, 2018)
4.2
Form of Indemnification Agreement between the Registrant and the directors and executive officers of the Registrant
(incorporated by reference to Exhibit 10.2 from our registration statement on Form F-1 (File No. 333-227065) filed
publicly with the SEC on August 28, 2018)
4.3
Form of Employment Agreement between the Registrant and the executive officers of the Registrant (incorporated by
reference to Exhibit 10.3 from our registration statement on Form F-1 (File No. 333-227065) filed publicly with the SEC
on August 28, 2018)
4.4
Exclusive Business Cooperation Agreement between Xiaoying (Beijing) Information Technology Group Co., Ltd. and
Beijing Ying Zhong Tong Rongxun Technology Service Co., Ltd., dated October 15, 2021 (incorporated by reference to
Exhibit 4.8 of our Annual Report on Form 20-F (File No. 001-38652) filed with the Securities Exchange Commission on
April 29, 2024)
4.5
Shareholders’ Voting Rights Proxy Agreement concerning Beijing Ying Zhong Tong Rongxun Technology Service Co.,
Ltd., among Yue Tang, Jing Sun and Xiaoying (Beijing) Information Technology Group Co., Ltd., dated October 15,
2021 (incorporated by reference to Exhibit 4.9 of our Annual Report on Form 20-F (File No. 001-38652) filed with the
Securities Exchange Commission on April 29, 2024)
4.6
Equity Pledge Agreement concerning Beijing Ying Zhong Tong Rongxun Technology Service Co., Ltd., between Yue
Tang and Xiaoying (Beijing) Information Technology Group Co., Ltd., dated October 15, 2021 (incorporated by
reference to Exhibit 4.10 of our Annual Report on Form 20-F (File No. 001-38652) filed with the Securities Exchange
Commission on April 29, 2024)
4.7
Equity Pledge Agreement concerning Beijing Ying Zhong Tong Rongxun Technology Service Co., Ltd., between Jing
Sun and Xiaoying (Beijing) Information Technology Group Co., Ltd., dated October 15, 2021 (incorporated by
reference to Exhibit 4.11 of our Annual Report on Form 20-F (File No. 001-38652) filed with the Securities Exchange
Commission on April 29, 2024)
4.8
Exclusive Call Option Agreement concerning Beijing Ying Zhong Tong Rongxun Technology Service Co., Ltd., among
Yue Tang, Jing Sun and Xiaoying (Beijing) Information Technology Group Co., Ltd., dated October 15, 2021
(incorporated by reference to Exhibit 4.12 of our Annual Report on Form 20-F (File No. 001-38652) filed with the
Securities Exchange Commission on April 29, 2024)
4.9
Spousal Consent Letter of Yue Tang concerning Beijing Ying Zhong Tong Rongxun Technology Service Co., Ltd., dated
October 15, 2021 (incorporated by reference to Exhibit 4.13 of our Annual Report on Form 20-F (File No. 001-38652)
filed with the Securities Exchange Commission on April 29, 2024)
Table of Contents
157
Exhibit
Number
Description of Document
4.10
Exclusive Business Cooperation Agreement between Xiaoying (Beijing) Information Technology Group Co., Ltd. and
Shenzhen Xiaoying Technology Co., Ltd., dated 2023 (English Translation) (incorporated by reference to Exhibit 4.14
of our Annual Report on Form 20-F (File No. 001-38652) filed with the Securities Exchange Commission on April 29,
2024)
4.11
Shareholders’ Voting Rights Proxy Agreement concerning Shenzhen Xiaoying Technology Co., Ltd., among Yue Tang,
Baoguo Zhu, Zijinzhonghao (Zhejiang) Investment Co., Ltd., Shenzhen Ao Li Hua Investment Management
Partnership, Shenzhen Gu Fo Investment Management Partnership (Limited Partnership), Shenzhen Man Ni Ou
Investment Management Partnership (Limited Partnership), Shenzhen Bo Li Fu Investment Management Partnership
(Limited Partnership) and Xiaoying (Beijing) Information Technology Group Co., Ltd., dated 2023 (English
Translation) (incorporated by reference to Exhibit 4.15 of our Annual Report on Form 20-F (File No. 001-38652) filed
with the Securities Exchange Commission on April 29, 2024)
4.12
Equity Pledge Agreement concerning Shenzhen Xiaoying Technology Co. Ltd., between Yue Tang and Xiaoying
(Beijing) Information Technology Group Co., Ltd., dated 2023 (English Translation) (incorporated by reference to
Exhibit 4.16 of our Annual Report on Form 20-F (File No. 001-38652) filed with the Securities Exchange Commission
on April 29, 2024)
4.13
Equity Pledge Agreement concerning Shenzhen Xiaoying Technology Co. Ltd., between Zijinzhonghao (Zhejiang)
Investment Co., Ltd. and Xiaoying (Beijing) Information Technology Group Co., Ltd., dated 2023 (English Translation)
(incorporated by reference to Exhibit 4.17 of our Annual Report on Form 20-F (File No. 001-38652) filed with the
Securities Exchange Commission on April 29, 2024)
4.14
Equity Pledge Agreement concerning Shenzhen Xiaoying Technology Co. Ltd., between Shenzhen Ao Li Hua
Investment Management Partnership (Limited Partnership) and Xiaoying (Beijing) Information Technology Group Co.,
Ltd., dated 2023 (English Translation) (incorporated by reference to Exhibit 4.18 of our Annual Report on Form 20-F
(File No. 001-38652) filed with the Securities Exchange Commission on April 29, 2024)
4.15
Equity Pledge Agreement concerning Shenzhen Xiaoying Technology Co. Ltd., between Shenzhen Man Ni Ou
Investment Management Partnership (Limited Partnership) and Xiaoying (Beijing) Information Technology Group Co.,
Ltd., dated 2023 (English Translation) (incorporated by reference to Exhibit 4.19 of our Annual Report on Form 20-F
(File No. 001-38652) filed with the Securities Exchange Commission on April 29, 2024)
4.16
Equity Pledge Agreement concerning Shenzhen Xiaoying Technology Co. Ltd., between Shenzhen Gu Fo Investment
Management Partnership (Limited Partnership) and Xiaoying (Beijing) Information Technology Group Co., Ltd., dated
2023 (English Translation) (incorporated by reference to Exhibit 4.20 of our Annual Report on Form 20-F (File No.
001-38652) filed with the Securities Exchange Commission on April 29, 2024)
4.17
Equity Pledge Agreement concerning Shenzhen Xiaoying Technology Co. Ltd., between Shenzhen Bo Li Fu Investment
Management Partnership (Limited Partnership and Xiaoying (Beijing) Information Technology Group Co., Ltd., dated
2023 (English Translation) (incorporated by reference to Exhibit 4.21 of our Annual Report on Form 20-F (File No.
001-38652) filed with the Securities Exchange Commission on April 29, 2024)
4.18
Exclusive Call Option Agreement concerning Shenzhen Xiaoying Technology Co. Ltd., among Yue Tang,
Zijinzhonghao (Zhejiang) Investment Co., Ltd., Shenzhen Ao Li Hua Investment Management Partnership, Shenzhen
Gu Fo Investment Management Partnership (Limited Partnership), Shenzhen Man Ni Ou Investment Management
Partnership (Limited Partnership), Shenzhen Bo Li Fu Investment Management Partnership (Limited Partnership) and
Xiaoying (Beijing) Information Technology Group Co., Ltd., dated 2023 (English Translation) (incorporated by
reference to Exhibit 4.22 of our Annual Report on Form 20-F (File No. 001-38652) filed with the Securities Exchange
Commission on April 29, 2024)
4.19
Spousal Consent Letter of Yue Tang concerning Shenzhen Xiaoying Technology Co. Ltd., dated 2023 (English
Translation) (incorporated by reference to Exhibit 4.23 of our Annual Report on Form 20-F (File No. 001-38652) filed
with the Securities Exchange Commission on April 29, 2024)
4.20
Exclusive Business Cooperation Agreement between Xiaoying (Beijing) Information Technology Group Co., Ltd. and
Shenzhen Xintang Information Consulting Co., Ltd., (English Translation) dated December 9, 2022 (incorporated by
reference to Exhibit 4.27 of our Annual Report on Form 20 F (File No. 001-38652) filed with the Securities and
Exchange Commission on April 27, 2023)
4.21
Shareholders’ Voting Rights Proxy Agreement concerning Shenzhen Xintang Information Consulting Co., Ltd., between
Shenzhen Lelebu Information Consulting Co., Ltd. and Xiaoying (Beijing) Information Technology Group Co., Ltd.,
(English Translation) dated December 9, 2022 (incorporated by reference to Exhibit 4.28 of our Annual Report on Form
20 F (File No. 001 -38652) filed with the Securities and Exchange Commission on April 27, 2023)
Table of Contents
158
Exhibit
Number
Description of Document
4.22
Equity Pledge Agreement concerning Shenzhen Xintang Information Consulting Co., Ltd., between Shenzhen Lelebu
Information Consulting Co., Ltd. and Xiaoying (Beijing) Information Technology Group Co., Ltd., (English Translation)
dated December 9, 2022 (incorporated by reference to Exhibit 4.29 of our Annual Report on Form 20 F (File No. 001-
38652) filed with the Securities and Exchange Commission on April 27, 2023)
4.23
Exclusive Call Option Agreement concerning Shenzhen Xintang Information Consulting Co., Ltd., between Shenzhen
Lelebu Information Consulting Co., Ltd. and Xiaoying (Beijing) Information Technology Group Co., Ltd., (English
Translation) dated December 9, 2022 (incorporated by reference to Exhibit 4.30 of our Annual Report on Form 20 F
(File No. 001-38652) filed with the Securities and Exchange Commission on April 27, 2023)
4.24
Shenzhen Gamma Capital Management Co., Ltd.’s Power of Attorney authorizing Xiaoying (Beijing) Information
Technology Group Co., Ltd. to exercise certain rights dated July 2018 (English Translation) (incorporated by reference
to Exhibit 4.34 of our Annual Report on Form 20-F (File No. 001-38652) filed with the Securities and Exchange
Commission on June 4, 2020)
4.25
Tripartite Cooperation Agreement among ZhongAn Online P&C Insurance Co., Ltd., Shenzhen Xiaoying Puhui
Technology Co., Ltd. and Shenzhen Tangren Financing Guarantee Co., Ltd. dated November 8, 2019 (English
Translation) (incorporated by reference to Exhibit 4.35 of our Annual Report on Form 20 F (File No. 001 38652) filed
with the Securities and Exchange Commission on May 14, 2021)
4.26
Security Deposit Pledge Agreement between ZhongAn Online P&C Insurance Co., Ltd. and Shenzhen Tangren
Financing Guarantee Co., Ltd. dated December 23, 2019 (English Translation) (incorporated by reference to Exhibit
4.36 of our Annual Report on Form 20 F (File No. 001 38652) filed with the Securities and Exchange Commission on
May 14, 2021)
4.27
Supplemental Agreement to Security Deposit Pledge Agreement between ZhongAn Online P&C Insurance Co., Ltd. and
Shenzhen Tangren Financing Guarantee Co., Ltd. dated July 8, 2020 (English Translation) (incorporated by reference to
Exhibit 4.37 of our Annual Report on Form 20 F (File No. 001 38652) filed with the Securities and Exchange
Commission on May 14, 2021)
4.28
Security Deposit Pledge Agreement between ZhongAn Online P&C Insurance Co., Ltd. and Shenzhen Xiaoying Puhui
Technology Co., Ltd. dated June 19, 2020 (English Translation) (incorporated by reference to Exhibit 4.38 of our
Annual Report on Form 20 F (File No. 001 38652) filed with the Securities and Exchange Commission on May 14,
2021)
4.29
Supplemental Agreement to Security Deposit Pledge Agreement between ZhongAn Online P&C Insurance Co., Ltd. and
Shenzhen Xiaoying Puhui Technology Co., Ltd. dated June 19, 2020 (English Translation) (incorporated by reference to
Exhibit 4.39 of our Annual Report on Form 20 F (File No. 001-38652) filed with the Securities and Exchange
Commission on May 14, 2021)
8.1
List of subsidiaries, VIEs and subsidiaries of the VIEs of the Registrant (incorporated by reference to Exhibit 8.1 of our
Annual Report on Form 20-F (File No. 001-38652) filed with the Securities Exchange Commission on April 29, 2024)
10.1
Share Purchase Agreement dated November 1, 2021 (English Translation) (incorporated by reference to Exhibit 10.1 of
our Annual Report on Form 20-F (File No. 001-38652) filed with the Securities Exchange Commission on April 28,
2022)
10.2
Shareholder Agreement dated November 1, 2021 (English Translation) (incorporated by reference to Exhibit 10.2 of our
Annual Report on Form 20-F (File No. 001-38652) filed with the Securities Exchange Commission on April 28, 2022)
11.1
Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 from our registration
statement on Form F-1 (File No. 333-227065) filed publicly with the SEC on August 28, 2018)
11.2
Insider Trading Policy (incorporated by reference to Exhibit 19.1 of our Annual Report on Form 20-F (File No. 001-
38652) filed with the Securities Exchange Commission on April 29, 2024)
12.1*
Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*
Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1**
Certification by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**
Certification by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*
Consent of KPMG Huazhen LLP
99.1
Consolidated Financial Statements of Shenyang Tianxinhao Technology Limited as of December 31, 2021 (incorporated
by reference to Exhibit 99.1 of our Annual Report on Form 20-F (File No. 001-38652) filed with the Securities and
Exchange Commission on April 28, 2022)
97.1
The clawback policy (incorporated by reference to Exhibit 97.1 of our Annual Report on Form 20-F (File No. 001-
38652) filed with the Securities Exchange Commission on April 29, 2024)
Table of Contents
159
Exhibit
Number
Description of Document
99.3*
Consent of Han Kun Law Offices
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104**
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith
** Furnished herewith
Table of Contents
160
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly
caused and authorized the undersigned to sign this annual report on its behalf.
X Financial
By: /s/ Yue (Justin) Tang
Name: Yue (Justin) Tang
Title: Chief Executive Officer and Chairman
Date: April 25, 2025
Table of Contents
F-1
X FINANCIAL
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of independent registered public accounting firm (PCAOB ID: 1186)
F-2
Consolidated balance sheets as of December 31, 2023 and 2024
F-6
Consolidated statements of comprehensive income for the years ended December 31, 2022, 2023 and 2024
F-7
Consolidated statements of changes in shareholders’ equity for the years ended December 31, 2022, 2023 and 2024
F-8
Consolidated statements of cash flows for the years ended December 31, 2022, 2023 and 2024
F-9
Notes to the consolidated financial statements for the years ended December 31, 2022, 2023 and 2024
F-10
Schedule I—Condensed financial information of parent company
F-64
Table of Contents
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
X Financial:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of X Financial, its subsidiaries and variable interest entities (the
Company) as of December 31, 2024 and 2023, the related consolidated statements of comprehensive income, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes and financial
statement schedule I (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations
and its cash flows for each of the years in the three-year period ended December 31, 2024, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated
April 24, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole,
and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Table of Contents
F-3
Variable consideration related to the loan facilitation and post-origination services revenues
As discussed in Note 2(d) to the consolidated financial statements, the Company’s loan facilitation service fees and post-origination
service fees for the year ended December 31, 2024 were RMB 3,102,344,942 and RMB759,538,640, respectively. The transaction price
for loan facilitation and post-origination services includes variable consideration adjusted for default risk and prepayment risk of the
borrowers. The Company estimates variable consideration using the expected value methodology, including models to estimate the loss
rates, the prepayment rates, and the weighted macroeconomic forecast, which are based on past events, current conditions, and
reasonable and supportable forecasts over the life of the loans. The expected value of the consideration is the product of multiplying the
loan principal and the pre-agreed service fee rates, adjusted for the loss rates and the prepayment rates. The loss rates are calculated using
vintage-based loss rate model, adjusted for a weighted macroeconomic forecast. The models consider (i) the historical loss experience
period for the vintage-based loss rates; (ii) the historical prepayment experience period for the prepayment rates; and (iii) the weighting
of multiple macroeconomic forecast scenarios over the life of the loans and selected economic variables, including gross domestic
product (GDP), unemployment rate and other macro-economic variables.
We identified the assessment of variable consideration related to the loan facilitation and post-origination services revenues as a critical
audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was
involved in the assessment of the expected value methodology, including the models used to estimate the vintage-based loss rates,
prepayment rates and weighted macroeconomic forecast. In addition, we evaluated the weighting of multiple macroeconomic forecast
scenarios and selected economic variables.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the
operating effectiveness of certain internal controls related to the Company’s measurement of the variable consideration related to the loan
facilitation and post-origination services revenues, including controls over the:
●
development of the expected value methodology
●
continued use and appropriateness of the models used to estimate the vintage-based loss rates, prepayment rates, and weighted
macroeconomic forecast
●
identification and determination of the weighting of multiple macroeconomic forecast scenarios and economic variables.
We evaluated the Company’s process to develop the variable consideration related to the loan facilitation and post-origination services
revenues by (1) evaluating the expected value methodology for compliance with U.S. generally accepted accounting principles; (2)
testing certain sources of data, factors, and assumptions, including prepayment rates, the Company used and considered the relevance
and reliability of such data, factors and assumptions; and (3) inspecting contractual documents to determine if all arrangement terms that
may have impacted revenue recognition were identified and properly considered. In addition, we involved credit risk professionals with
specialized skill and knowledge, who assisted in:
●
assessing the conceptual soundness of the models used to estimate the vintage-based loss rates, prepayment rates and weighted
macroeconomic forecast by inspecting the models’ documentation to determine whether the models are suitable for their intended
use
●
assessing the weighting of multiple macroeconomic forecast scenarios and the selection of the economic variables by comparing
them to the Company’s business environment and relevant industry practices.
Assessment of the allowance for credit losses on loans and contingent guarantee liabilities for off-balance sheet credit exposures
evaluated on a collective basis
Table of Contents
F-4
As discussed in Notes 2(m), 2(ah), 2(g) and 12 to the consolidated financial statements, as of December 31, 2024, the allowance for
credit losses evaluated on a collective basis for loans receivable from Xiaoying Credit Loans and other loans was RMB 175,820,629, and
contingent guarantee liabilities evaluated on a collective basis for off-balance sheet credit exposures were RMB187,640,702 (together,
the collective ACL). The Company establishes the collective ACL by applying a current expected credit losses methodology, which is
based on past events, current conditions, and reasonable and supportable forecasts over the life of the loans. The collective ACL is
measured based on loans that share similar risk characteristics and includes both quantitative and qualitative components. The collective
ACL on loans that are not covered by the financing guarantee companies and on contingent guarantee liabilities are calculated using
vintage-based loss rate and macroeconomic forecast scenario models, and is the product of multiplying the Company’s estimates of
vintage-based loss rates and individual loan level exposure at default (EAD) on an undiscounted basis, adjusted for a weighted
macroeconomic forecast. The collective ACL on loans that covered by the financing guarantee companies is calculated using probability
of default (PD) determined by external credit ratings of financial institutional cooperators, loss given default (LGD), and macroeconomic
forecast scenario models, and is the product of multiplying the PD, LGD, and individual loan level EAD on an undiscounted basis,
adjusted for a weighted macroeconomic forecast. The models for the collective ACL consider (i) the historical loss experience period for
the vintage-based loss rates; (ii) external credit ratings of financial institutional cooperators used to determine the PD; and (iii) the
weighting of multiple macroeconomic forecast scenarios over the life of the loans and selected economic variables, including gross
domestic product (GDP), unemployment rate and other macro-economic variables that were determined to be the most relevant to the
credit losses. The qualitative component of the collective ACL represents the Company’s judgment of additional considerations to
account for internal and external risk factors that are not adequately measured in the quantitative component of the collective ACL,
including consideration of idiosyncratic risk factors or other relevant factors.
We identified the assessment of the collective ACL as a critical audit matter. A high degree of audit effort, including specialized skills
and knowledge, and subjective and complex auditor judgment was involved in the assessment of the collective ACL due to significant
measurement uncertainty. Specifically, the assessment encompassed the evaluation of the collective ACL methodology, including the
models used to estimate the vintage-based loss rates, PD, and weighted macroeconomic forecast. In addition, we evaluated the weighting
of multiple macroeconomic forecast scenarios and selected economic variables.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the
operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL, including controls over
the:
●
development of the collective ACL methodology
●
continued use and appropriateness of the models used to estimate the vintage-based loss rates, PD, and weighted macroeconomic
forecast
●
identification and determination of the weighting of multiple macroeconomic forecast scenarios and economic variables.
We evaluated the Company’s process to develop the collective ACL by testing certain sources of data, factors, and assumptions the
Company used and considered the relevance and reliability of such data, factors and assumptions. In addition, we involved credit risk
professionals with specialized skill and knowledge, who assisted in:
●
evaluating the collective ACL methodology for compliance with U.S. generally accepted accounting principles
●
assessing the conceptual soundness of the models used to estimate the vintage-based loss rates, PD and weighted macroeconomic
forecast by inspecting the models’ documentation to determine whether the models are suitable for their intended use
●
assessing the weighting of multiple macroeconomic forecast scenarios and the selection of the economic variables by comparing
them to the Company’s business environment and relevant industry practices.
We have served as the Company’s auditor since 2020.
/s/ KPMG Huazhen LLP
KPMG Huazhen LLP
Shenzhen, China
April 25, 2025
Table of Contents
F-5
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
X Financial:
Opinion on Internal Control Over Financial Reporting
We have audited X Financial, its subsidiaries and variable interest entities (the Company) internal control over financial reporting as of
December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of
comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December
31, 2024, and the related notes and financial statement schedules I (collectively, the consolidated financial statements), and our report
dated April 24, 2025 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG Huazhen LLP
KPMG Huazhen LLP
Shenzhen, China
April 25, 2025
Table of Contents
F-6
X FINANCIAL
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2023 AND 2024
As of
December 31,
As of December 31,
Notes
2023
2024
2024
RMB
RMB
US$
ASSETS
Cash and cash equivalents
1,195,351,730
984,611,409
134,891,210
Restricted cash, net of allowance for credit losses of RMB86,019 and RMB241,398 as of December 31, 2023 and
2024, respectively (including RMB711,756,581 and RMB527,457,300 from Consolidated Trusts and Partnerships
as of December 31, 2023 and 2024, respectively)
749,069,826
676,793,411
92,720,317
Accounts receivable and contract assets, net of allowance for credit losses of RMB9,266,619 and RMB24,172,284 as
of December 31, 2023 and 2024, respectively (including RMB54,749,985 and RMB37,373,243 from Consolidated
Trusts and Partnerships as of December 31, 2023 and 2024, respectively; including RMB1,096,251 and nil from
related parties as of December 31, 2023 and 2024, respectively)
2(l)
1,659,587,975
2,029,550,471
278,047,275
Loans receivable from Xiaoying Credit Loans and other loans, net of allowance for credit losses of RMB188,719,449
and 175,820,629 as of December 31, 2023 and 2024, respectively (including RMB3,571,283,174 and
RMB2,916,966,912 from Consolidated Trusts and Partnerships as of December 31, 2023 and 2024, respectively)
2(m)
4,947,833,357
4,828,316,995
661,476,716
Loan receivable from Xiaoying Housing Loans, net
2(o)
8,656,846
—
—
Deposits to institutional cooperators, net of allowance for credit losses of RMB2,649,017 and RMB5,871,290 as of
December 31, 2023 and 2024, respectively
5
1,702,472,396
1,958,297,244
268,285,622
Prepaid expenses and other current assets
4
48,767,987
34,078,494
4,668,735
Financial guarantee derivative
3
—
1,038,258
142,241
Deferred tax assets, net
14
135,957,626
197,712,551
27,086,508
Long-term investments
10
493,411,355
498,038,310
68,230,969
Financial investments (amortized cost of RMB406,243,877 and RMB141,685,928 and allowance for credit losses of
nil and nil related to investments accounted under AFS model as of December 31, 2023 and 2024, respectively)
9
608,198,249
513,475,537
70,345,860
Property and equipment, net
6
8,642,392
15,833,490
2,169,179
Intangible assets, net
7
36,810,384
36,591,969
5,013,079
Other non-current assets
55,264,517
44,951,464
6,158,325
TOTAL ASSETS
11,650,024,640
11,819,289,603
1,619,236,036
LIABILITIES
Payable to investors and institutional funding partners at amortized cost (including RMB3,584,040,757 and
RMB2,184,085,667 from the Consolidated VIEs, Trusts and Partnerships, without recourse to the Company as of
December 31, 2023 and 2024, respectively)
3,584,040,757
2,184,085,667
299,218,509
Contingent guarantee liabilities
12
61,906,509
187,640,702
25,706,671
Deferred guarantee income
12
46,597,143
164,724,512
22,567,166
Short-term borrowings (including RMB320,000,000 and RMB10,000,000 from the Consolidated VIEs, Trusts and
Partnerships, without recourse to the Company as of December 31, 2023 and 2024, respectively)
8
565,000,000
328,500,000
45,004,315
Accrued payroll and welfare (including RMB15,011,080 and RMB18,482,497 from the Consolidated VIEs, Trusts
and Partnerships, without recourse to the Company as of December 31, 2023 and 2024, respectively)
86,770,637
94,716,949
12,976,169
Other taxes payable (including RMB126,900,881 and RMB119,683,947 from the Consolidated VIEs, Trusts and
Partnerships, without recourse to the Company as of December 31, 2023 and 2024, respectively)
289,821,092
279,994,194
38,359,047
Income taxes payable (including RMB28,266,791 and RMB174,425,660 from the Consolidated VIEs, Trusts and
Partnerships, without recourse to the Company as of December 31, 2023 and 2024, respectively)
14
446,499,777
591,491,126
81,033,952
Deposit payable to channel cooperators
2(v)
19,700,235
12,016,415
1,646,242
Dividend payable
59,226,084
—
—
Accrued expenses and other current liabilities (including RMB69,989,510 and RMB94,825,511 from the
Consolidated VIEs, Trusts and Partnerships, without recourse to the Company as of December 31, 2023 and 2024,
respectively)
11
575,727,263
929,490,436
127,339,668
Other non-current liabilities
37,571,057
27,516,391
3,769,730
Deferred tax liabilities (including nil and RMB642,602 from the Consolidated VIEs, Trusts and Partnerships, without
recourse to the Company as of December 31, 2023 and 2024, respectively)
14
30,039,799
65,958,569
9,036,287
TOTAL LIABILITIES
5,802,900,353
4,866,134,961
666,657,756
Commitments and Contingencies (Note 18)
Equity:
Common shares (US$0.0001 par value; 1,000,000,000 shares authorized as of December 31, 2023 and 2024;
329,117,943 and 329,117,943 shares issued as of December 31, 2023 and 2024; 293,553,607 and 250,678,439
shares outstanding as of December 31, 2023 and 2024)
206,793
206,793
28,331
Treasury stock (35,564,336 and 78,439,504 shares as of December 31, 2023 and 2024)
(111,520,291)
(509,643,763)
(69,820,909)
Additional paid-in capital
3,196,942,284
3,207,028,391
439,361,088
Retained earnings
2,692,018,850
4,174,511,191
571,905,688
Other comprehensive income
69,476,651
81,052,030
11,104,082
TOTAL EQUITY
5,847,124,287
6,953,154,642
952,578,280
TOTAL LIABILITIES AND EQUITY
11,650,024,640
11,819,289,603
1,619,236,036
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-7
X FINANCIAL
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
Year ended
Year ended
Year ended
December 31,
December 31,
December 31,
Notes
2022
2023
2024
2024
RMB
RMB
RMB
US$
Net revenues
Loan facilitation service (including RMB495,092,744, RMB8,081,737 and nil from
related parties for the years ended December 31, 2022, 2023 and 2024, respectively)
2,044,343,554
2,740,974,233
3,102,344,942
425,019,514
Post-origination service (including RMB60,727,604, RMB3,288,307 and nil from related
parties for the years ended December 31, 2022, 2023 and 2024, respectively)
372,450,606
596,581,987
759,538,640
104,056,367
Financing income
966,277,466
1,137,336,454
1,372,004,085
187,963,789
Guarantee income
—
24,496,658
201,715,792
27,634,950
Other revenue
179,878,489
315,494,698
436,178,287
59,756,181
Total net revenue
2(d)
3,562,950,115
4,814,884,030
5,871,781,746
804,430,801
Operating costs and expenses:
Origination and servicing
1,337,369,916
1,544,013,591
1,738,139,455
238,124,129
Borrower acquisitions and marketing
833,109,421
1,370,942,033
1,582,472,287
216,797,815
General and administrative
143,234,358
153,943,169
175,932,509
24,102,656
(Reversal of) provision for contingent guarantee liabilities
12
(14,000,000)
67,519,980
241,738,132
33,117,988
Provision for accounts receivable and contract assets
2(l)
21,835,625
12,233,743
35,732,133
4,895,282
Reversal of provision for loan receivable from Xiaoying Housing Loans
2(o)
(6,066,176)
(4,213,234)
(4,156,904)
(569,494)
Provision for loans receivable from Xiaoying Credit Loans and other loans
2(m)
164,641,879
233,350,276
225,815,327
30,936,573
Change in fair value of financial guarantee derivative
3
(137,654,096)
(24,966,242)
(1,038,258)
(142,241)
Fair value adjustments related to Consolidated Trusts
3
6,168,307
531,202
—
—
Provision for (reversal of) credit losses on deposits to institutional cooperators
5
1,295,879
(673,558)
3,222,273
441,450
(Reversal of) provision for credit losses for other financial assets
2(k)
(764,600)
86,019
155,379
21,286
Total operating expenses
2,349,170,513
3,352,766,979
3,998,012,333
547,725,444
Income from operations
1,213,779,602
1,462,117,051
1,873,769,413
256,705,357
Interest income (expenses), net (including RMB412,341, nil and nil from related parties
for the year ended December 31, 2022, 2023 and 2024, respectively)
3,756,232
(20,364,821)
(559,693)
(76,678)
Foreign exchange loss
(19,962,949)
(4,023,039)
(9,533,320)
(1,306,059)
(Loss) income from financial investments
9
(9,525,822)
6,497,518
17,133,677
2,347,304
Impairment losses on financial investments
9
(8,874,750)
—
—
—
Other income, net
40,723,863
24,351,280
13,520,019
1,852,235
Income before income taxes
1,219,896,176
1,468,577,989
1,894,330,096
259,522,159
Income tax expense
14
(396,074,046)
(261,130,503)
(405,701,714)
(55,580,907)
(Loss) gain from equity in affiliates, net of tax
10
(42,251,538)
(1,930,792)
10,159,031
1,391,782
Gain (loss) from financial investments at equity method, net of tax
9
30,425,847
(18,722,720)
41,118,352
5,633,191
Net income
811,996,439
1,186,793,974
1,539,905,765
210,966,225
Less: net income attributable to non-controlling interests
—
—
—
—
Net income attributable to X Financial
811,996,439
1,186,793,974
1,539,905,765
210,966,225
Net income
811,996,439
1,186,793,974
1,539,905,765
210,966,225
Other comprehensive income, net of tax :
Gain (loss) from equity in affiliates
204,444
(6,852)
(313,815)
(42,992)
Income from financial investments
—
474,792
292,799
40,113
Foreign currency translation adjustments
57,084,593
5,410,120
11,596,395
1,588,699
Comprehensive income
869,285,476
1,192,672,034
1,551,481,144
212,552,045
Less: comprehensive income attributable to non-controlling interests
—
—
—
—
Comprehensive income attributable to X Financial
869,285,476
1,192,672,034
1,551,481,144
212,552,045
Net income per share—basic
15
2.57
4.12
5.33
0.73
Weighted average number of ordinary shares outstanding—basic
316,444,826
288,115,969
288,828,371
288,828,371
Net income per share—diluted
15
2.52
4.08
5.25
0.72
Weighted average number of ordinary shares outstanding—diluted
322,403,387
290,833,214
293,354,671
293,354,671
Note: The presentation of consolidated statements of comprehensive income has been changed since 2024. As a result, certain line items
presented in the consolidated statements of comprehensive income for the previous fiscal years have been retrospectively adjusted to
conform to current presentation. For further information, see Note 2(al) “Summary of significant accounting policies - Revisions of prior
year”.
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-8
X FINANCIAL
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
Retained
Accumulated
Equity
Common
Treasury
earnings
other
attributable
Non-
Common
share
stock
Additional
(Accumulated
comprehensive
to
controlling
Total
share
amount
amount
paid-in capital
deficit)
income
X Financial
Interests
equity
number
(RMB)
(RMB)
(RMB)
(RMB)
(RMB)
(RMB)
(RMB)
(RMB)
Balance at December 31, 2021
329,117,943
206,793
—
3,159,522,737
810,855,877
6,309,554
3,976,894,961
—
3,976,894,961
Repurchase of common shares
(48,088,568)
—
(146,740,902)
—
—
—
(146,740,902)
—
(146,740,902)
Transfer to employee stock ownership plans
6,889,194
—
22,144,121
(22,144,121)
—
—
—
—
—
Exercise of share option
—
—
—
277,342
—
—
277,342
—
277,342
Share-based compensation (Note 16)
—
—
—
53,537,815
—
—
53,537,815
—
53,537,815
Net income
—
—
—
—
811,996,439
—
811,996,439
—
811,996,439
Gain from equity in affiliates
—
—
—
—
—
204,444
204,444
—
204,444
Foreign currency translation adjustments
—
—
—
—
—
57,084,593
57,084,593
—
57,084,593
Balance at December 31, 2022
287,918,569
206,793
(124,596,781)
3,191,193,773
1,622,852,316
63,598,591
4,753,254,692
—
4,753,254,692
Repurchase of common shares
(5,026,374)
—
(24,872,828)
—
—
—
(24,872,828)
—
(24,872,828)
Transfer to employee stock ownership plans
10,661,412
—
37,949,318
(37,949,318)
—
—
—
—
—
Exercise of share option
—
—
—
1,099,619
—
—
1,099,619
—
1,099,619
Share-based compensation (Note 16)
—
—
—
42,598,210
—
—
42,598,210
—
42,598,210
Net income
—
—
—
—
1,186,793,974
—
1,186,793,974
—
1,186,793,974
Loss from equity in affiliates
—
—
—
—
—
(6,852)
(6,852)
—
(6,852)
Income from financial investments
—
—
—
—
—
474,792
474,792
—
474,792
Foreign currency translation adjustments
—
—
—
—
—
5,410,120
5,410,120
—
5,410,120
Dividend to shareholders
—
—
—
—
(117,627,440)
—
(117,627,440)
—
(117,627,440)
Balance at December 31, 2023
293,553,607
206,793
(111,520,291)
3,196,942,284
2,692,018,850
69,476,651
5,847,124,287
—
5,847,124,287
Repurchase of common shares
(52,202,798)
—
(427,317,136)
(1,020,543)
—
—
(428,337,679)
—
(428,337,679)
Transfer to employee stock ownership plans
9,327,630
—
29,193,664
(29,193,664)
—
—
—
—
—
Exercise of share option
—
—
—
122,507
—
—
122,507
—
122,507
Share-based compensation (Note 16)
—
—
—
40,177,807
—
—
40,177,807
—
40,177,807
Net income
—
—
—
—
1,539,905,765
—
1,539,905,765
—
1,539,905,765
Loss from equity in affiliates
—
—
—
—
—
(313,815)
(313,815)
—
(313,815)
Income from financial investments
—
—
—
—
—
292,799
292,799
—
292,799
Foreign currency translation adjustments
—
—
—
—
—
11,596,395
11,596,395
—
11,596,395
Dividend to shareholders
—
—
—
—
(57,413,424)
—
(57,413,424)
—
(57,413,424)
Balance at December 31, 2024
250,678,439
206,793
(509,643,763)
3,207,028,391
4,174,511,191
81,052,030
6,953,154,642
—
6,953,154,642
Retained
Accumulated
Equity
Common
Treasury
earnings
other
attributable
Non-
Common
share
stock
Additional
(Accumulated
comprehensive
to
controlling
Total
share
amount
amount
paid-in capital
deficit)
income
X Financial
interests
equity
number
(US$)
(US$)
(US$)
(US$)
(US$)
(US$)
(US$)
(US$)
Balance at December 31, 2023
293,553,607
29,126
(15,707,305)
450,279,902
379,162,925
9,785,582
823,550,230
—
823,550,230
Repurchase of common shares
(52,202,798)
—
(58,542,208)
(139,813)
—
—
(58,682,021)
—
(58,682,021)
Transfer to employee stock ownership plans
9,327,630
—
3,999,516
(3,999,516)
—
—
—
—
—
Exercise of share option
—
—
—
16,783
—
—
16,783
—
16,783
Share-based compensation (Note 16)
—
—
—
5,504,337
—
—
5,504,337
—
5,504,337
Net income
—
—
—
—
210,966,225
—
210,966,225
—
210,966,225
Loss from equity in affiliates
—
—
—
—
—
(42,992)
(42,992)
—
(42,992)
Income from financial investments
—
—
—
—
—
40,113
40,113
—
40,113
Foreign currency translation adjustments
—
—
—
—
—
1,588,699
1,588,699
—
1,588,699
Dividend to shareholders
—
—
—
—
(7,865,607)
—
(7,865,607)
—
(7,865,607)
Balance at December 31, 2024
250,678,439
28,331
(69,820,909)
439,361,088
571,905,688
11,104,082
952,578,280
—
952,578,280
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-9
X FINANCIAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
811,996,439
1,186,793,974
1,539,905,765
210,966,225
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
6,646,312
5,260,605
7,198,776
986,228
Share-based compensation
53,537,815
42,598,210
40,177,807
5,504,337
Impairment losses on financial investments
8,874,750
—
—
—
Loss (gain) from equity in affiliates, net of tax
42,251,538
1,930,792
(10,159,031)
(1,391,782)
(Gain) loss from financial investments at equity method, net of tax
(30,425,847)
18,722,720
(41,118,352)
(5,633,191)
Dividends from equity in affiliates
—
15,000,000
7,500,000
1,027,496
Dividends from financial investments at equity method
—
4,912,647
—
—
(Gain) loss from disposal of property and equipment
(2,678)
148,198
(56,293)
(7,712)
Loss (income) from financial investments
9,525,822
(6,497,518)
(17,133,677)
(2,347,304)
Provision for accounts receivable and contract assets
21,835,625
12,233,743
35,732,133
4,895,282
Provisions for loans receivable from Xiaoying Credit Loans and other loans
164,641,879
233,350,276
225,815,327
30,936,573
Reversal of provision for loan receivable from Xiaoying Housing Loans
(6,066,176)
(4,213,234)
(4,156,904)
(569,494)
Provision for contingent guarantee liabilities
(14,000,000)
67,519,980
241,738,132
33,117,988
Provision for (reversal of) credit losses on deposits to institutional cooperators
1,295,879
(673,558)
3,222,273
441,450
(Reversal of) provision for credit losses for other financial assets
(764,600)
86,019
155,379
21,286
Fair value adjustments related to Consolidated Trusts
6,168,307
531,202
—
—
Change in fair value of financial guarantee derivative
(137,654,096)
(24,966,242)
(1,038,258)
(142,241)
Deferred tax expenses (benefits)
202,305,809
(17,565,186)
(27,248,759)
(3,733,065)
Other non-cash expenses (income)
658,327
120,025
(2,152,467)
(294,886)
Changes in operating assets and liabilities:
Accounts receivable and contract assets
(436,267,247)
(509,909,978)
(405,694,629)
(55,579,936)
Deposits to institutional cooperators
(271,206,554)
68,518,587
(259,047,121)
(35,489,310)
Prepaid expenses and other current assets
121,759,157
7,921,314
14,315,022
1,961,150
Loan receivable from Xiaoying Housing Loans
8,088,235
5,617,646
12,813,750
1,755,477
Purchase of trading financial investments
—
—
(97,916,010)
(13,414,438)
Collection of trading financial investment
—
—
10,238,000
1,402,600
Other non-current assets
1,562,738
(121,124)
(1,075,299)
(147,315)
Contingent guarantee liabilities
14,000,000
(5,613,471)
(116,003,939)
(15,892,474)
Deferred guarantee income
—
46,597,143
118,127,369
16,183,383
Financial guarantee derivative
(223,943,839)
(82,924,152)
—
—
Accrued payroll and welfare
19,076,221
23,089,279
7,946,312
1,088,640
Other taxes payable
36,144,805
34,130,358
(9,826,898)
(1,346,280)
Income taxes payable
152,940,513
176,410,814
143,866,349
19,709,609
Deposit payable to channel cooperators
(1,312,000)
—
(7,683,820)
(1,052,679)
Accrued expenses and other current liabilities
65,114,595
92,435,321
114,945,354
15,747,449
CASH PROVIDED BY OPERATING ACTIVITIES
626,781,729
1,391,444,390
1,523,386,291
208,703,066
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment and intangible assets
(6,055,110)
(8,468,350)
(14,223,115)
(1,948,559)
Disposal of property and equipment
5,440
18,053
107,949
14,789
Purchase of financial investments
(90,539,800)
(424,149,412)
(148,632,843)
(20,362,616)
Collection of financial investments
—
—
391,081,258
53,577,913
Collection of long-term investment
6,852,347
—
—
—
Principal payment of loans at fair value
(826,042,700)
(70,004,009)
—
—
Principal collection of loans at fair value
1,089,274,133
189,752,419
—
—
Loans made to customers of loans receivables provided by Xiaoying Microcredit
(2,005,548,657)
(2,937,363,564)
(4,302,244,495)
(589,405,079)
Principal collections of loans receivables provided by Xiaoying Microcredit
1,706,218,237
2,360,056,343
3,531,243,300
483,778,349
Principal payment of loans receivables of the Consolidated Trusts and Partnerships at amortized cost
(7,455,098,555)
(9,090,383,262)
(8,695,786,212)
(1,191,317,827)
Principal collection of loans receivables of the Consolidated Trusts and Partnerships at amortized cost
6,263,466,800
8,296,900,075
9,360,488,443
1,282,381,659
Collection of loans’ earnings rights from related party
100,000,000
—
—
—
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
(1,217,467,865)
(1,683,641,707)
122,034,285
16,718,629
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common shares
(146,740,902)
(24,872,828)
(182,204,126)
(24,961,863)
Proceeds from exercise of options
277,342
1,099,619
122,507
16,783
Dividends to shareholders
—
(58,401,356)
(116,639,508)
(15,979,547)
Proceeds from short-term borrowings
70,208,800
802,500,000
133,500,000
18,289,425
Repayments of short-term borrowings
(166,500,000)
(307,708,800)
(370,000,000)
(50,689,792)
Cash paid to institutional funding partners
(21,310,352)
—
—
—
Cash received from investors of Consolidated Trusts at fair value
98,800,000
—
—
—
Cash paid to investors of Consolidated Trusts at fair value
(420,225,590)
(141,288,810)
—
—
Cash received from investors and institutional funding partners of the Consolidated Trusts and Partnerships at amortized
cost
2,497,000,169
3,251,997,048
1,698,154,102
232,646,158
Cash paid to investors and institutional funding partners of the Consolidated Trusts and Partnerships at amortized cost
(1,335,158,227)
(2,295,866,494)
(3,098,109,192)
(424,439,219)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
576,351,240
1,227,458,379
(1,935,176,217)
(265,118,055)
Effect of foreign exchange rate changes
29,255,917
2,286,656
6,894,284
944,514
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
14,921,021
937,547,718
(282,861,357)
(38,751,847)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR
992,038,836
1,006,959,857
1,944,507,575
266,396,446
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT YEAR END
1,006,959,857
1,944,507,575
1,661,646,218
227,644,599
Non-cash investing activities
Switch out from VC funds measured at fair value
—
13,968,313
374,471
51,302
Switch in VC funds measured at fair value
—
(14,342,134)
—
—
Supplemental disclosures of cash flow information:
Income taxes paid, net of refunds
37,369,220
102,284,875
289,084,125
39,604,363
Interest paid for borrowings
1,991,007
23,247,119
24,162,853
3,310,297
Reconciliation to amounts on consolidated balance sheets:
Cash and cash equivalents
602,270,607
1,195,351,730
984,611,409
134,891,210
Restricted cash
404,689,250
749,155,845
677,034,809
92,753,389
Provision of credit losses for other financial assets
—
(86,019)
(241,398)
(33,071)
Total cash and cash equivalents and restricted cash
1,006,959,857
1,944,421,556
1,661,404,820
227,611,528
Note: The presentation of consolidated statements of comprehensive income and classification of consolidated statement of cash flows has been changed since 2024. As a result, certain line items
presented in the consolidated statement of cash flows for the previous fiscal years have been retrospectively adjusted to conform to current presentation. For further information, see Note 2(al)
“Summary of significant accounting policies - Revisions of prior year”.
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-10
X FINANCIAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
1. Organization and principal activities
X Financial (the “Company” or “X Financial”) is an exempted company incorporated with limited liabilities in the Cayman
Islands under the laws of the Cayman Islands on January 5, 2015. The Company, its subsidiaries and its variable interest entities
(collectively referred to as the “Group”) provides personal finance services in the People’s Republic of China (“PRC”) by connecting
borrowers and investors through a proprietary internet platform.
The Group began the operations through Shenzhen Ying Zhong Tong Financial Information Service Co., Ltd. (“Shenzhen Ying
Zhong Tong”), which was founded in March 2014 in the Chinese Mainland by Mr. Tang, Chief Executive Officer and Mr. Zhu (the
“Founders”) who collectively held more than 50% of the equity holdings.
During the period of 2015 to 2016, the Founders also established a number of special purpose vehicles (“SPVs”) to carry out
personal finance business in the Chinese Mainland. At the formation date of each SPV, Shenzhen Ying Zhong Tong entered into a series
of contractual agreements with the SPV and its nominal shareholder(s) include Shareholders’ Voting Rights Proxy Agreements,
Exclusive Call Option Agreements, Exclusive Business Cooperation Agreements, and Equity Pledge Agreements, through which
Shenzhen Ying Zhong Tong (1) has power to direct the activities that most significantly affects the economic performance of the SPV
and (2) can receive the economic benefits of the SPVs that could be significant to the SPV. Accordingly, Shenzhen Ying Zhong Tong is
the primary beneficiary of the SPVs.
On January 5, 2015, X Financial was incorporated in the Cayman Islands by the Founders and one other individual. The
Founders collectively held more than 50% of the equity holdings of X Financial. Further, Mr. Zhu designated all of his shareholder rights
to Mr. Tang through a proxy agreement. As such, Mr. Tang effectively was the controlling shareholder of the Company since its
incorporation.
On August 7, 2015, the Company completed its equity financing by issuing 38,095,238 ordinary shares to an unrelated third-
party investor at a consideration of US$60,000,000. In conjunction with the equity financing, the Company also issued an additional
40,000,000 ordinary shares to Mr. Yue Tang. Mr. Tang remained as the effective controlling shareholder.
In order to raise capital through its initial public offering (“IPO”) in the United States, the Group undertook a series of
transactions since late 2016 with X Financial being proposed as the listing entity (“Reorganization”):
As Chinese Mainland laws and regulations prohibit and restrict foreign ownership of internet value-added businesses, the
Company established a wholly-owned foreign invested subsidiary in the Chinese Mainland, Xiaoying (Beijing) Information
Technology Co., Ltd. (“Beijing WFOE”) on October 28, 2015. The existing contractual agreements with the SPVs and SPVs’
shareholders held by Shenzhen Ying Zhong Tong were assigned to Beijing WFOE.
On October 19, 2016, Shenzhen Xiaoying Technology Co., Ltd. (“Shenzhen Xiaoying”) was incorporated in the Chinese
Mainland by the same shareholders of the Company with identical shareholdings. In December 2016, Shenzhen Xiaoying acquired
Shenzhen Ying Zhong Tong for nominal consideration and Shenzhen Ying Zhong Tong became the wholly-owned subsidiary of
Shenzhen Xiaoying. As both Shenzhen Xiaoying and Shenzhen Ying Zhong Tong were controlled by Mr. Tang at the time, the
transaction was a reorganization under common control.
Table of Contents
F-11
X Financial, through its Chinese Mainland subsidiary, Beijing WFOE, entered into a series of contractual arrangements with
Shenzhen Xiaoying, Beijing Ying Zhong Tong Rongxun Technology Service Co., Ltd. (“Beijing Ying Zhong Tong”) in December 2017,
and Shenzhen Xintang Information Consulting Co., Ltd. (“Shenzhen Xintang”, previously named “Shenzhen Tangren Financing
Guarantee Co., Ltd.”) in December 2016 and the shareholders of these entities respectively. Shenzhen Xiaoying, Beijing Ying Zhong
Tong, Shenzhen Xintang and the SPVs are collectively referred to as “VIEs”. The series of contractual agreements included
Shareholders’ Voting Rights Proxy Agreements, Spouse Consent Agreement, Exclusive Call Option Agreements, Exclusive Business
Cooperation Agreements, and Equity Pledge Agreements. The Group believed that these contractual agreements would enable Beijing
WFOE to (1) have power to direct the activities that most significantly affects the economic performance of the new VIEs and (2) receive
the economic benefits of the VIEs that could be significant to the new VIEs. Accordingly, the Group is the primary beneficiary of the
VIEs through Beijing WFOE.
In conjunction with the Reorganization, the Group completed equity financing of RMB1 billion in June 2017. This round of
equity financing was initially conducted by increasing registered capital of Shenzhen Xiaoying by 9 existing and new investors.
Subsequently, X Financial issued additional shares to the affiliates of the same shareholders of this round of equity financing such that
the shareholder ownership in X Financial mirrored those in Shenzhen Xiaoying.
The Group considered the Reorganization as a reorganization of entities under common control. Accordingly, the accompanying
financial statements have been prepared using historical cost basis as if the Reorganization had occurred at the beginning of the first
period presented.
During December 2017, Beijing WFOE acquired two subsidiaries from Shenzhen Xiaoying at cost. During February and March
2018, one of the Group’s wholly-owned subsidiaries Shenzhen Xiaoying Puhui Technology Co., Ltd. (“Shenzhen Puhui”) acquired four
subsidiaries from one of the VIE entities Shenzhen Ying Zhong Tong at cost. During 2018, predominantly all of the SPVs under
Shenzhen Xiaoying had been transferred to Shenzhen Xiaoying Puhui Technology Co., Ltd. These transactions represented a
reorganization of entities under common control as they were already within the consolidated Group, with no impact to the consolidated
financials.
During September 2018, the Group completed an initial public offering of 11,763,478 American depositary shares (“ADSs”) at
an initial offering price of US$9.50 which included the ADSs sold upon the exercise of the over-allotment option granted to the
underwriters, representing 23,526,956 Class A ordinary shares.
On May 31, 2021, Shenzhen Xiaoying Microcredit Co., Ltd. (“Xiaoying Microcredit”) was incorporated in the Chinese
Mainland with online microcredit business operating license by Shenzhen Xiaoying. Shenzhen Xiaoying had completed the capital
contributions of RMB1 billion to Xiaoying Microcredit by the end of November, 2021.
On May 20, 2022, Tianjin Yuexin Financing Guarantee Co., Ltd. (“Tianjin Yuexin”) was incorporated in the Chinese Mainland
with financing guarantee license by Shenzhen Puhui. Shenzhen Puhui had completed the capital contributions of RMB50 million to
Tianjin Yuexin in 2022. By the end of December 2023, the registered capital of Tianjin Yuexin was increased to RMB1 billion.
Shenzhen Xintang did not renew its financing guarantee license in 2022. The Group settled the remaining business of Shenzhen
Xintang in the first quarter of 2023. And Shenzhen Xintang (VIE) no longer guarantees any loan products. By the end of December
2023, the registered capital of Shenzhen Xintang was decreased to RMB1 million.
Table of Contents
F-12
As of December 31, 2024, the Company’s principal subsidiaries, VIEs and subsidiaries of the VIEs are as follows:
Date of
Place of
Percentage
incorporation/
incorporation/
of legal
establishment
establishment ownership
Principal activities
Wholly-owned subsidiaries
YZT (HK) Limited
January 14, 2015
Hong Kong
100 %
Investment holding
Xiaoying (Beijing) Information Technology Co., Ltd. (“Beijing
WFOE”)
October 28, 2015
Beijing
100 %
Technology development
and service, sale of
products
Shenzhen Xiaoying Puhui Technology Co., Ltd. (“Shenzhen Puhui”)
December 6, 2016
Shenzhen
100 %
Technology development
and service, sale of
products
Shenzhen Xiaoying Information Technology Co., Ltd. (“Shenzhen
Xiaoying IT”)
November 28, 2016
Shenzhen
100 %
Technology development
and service, sale of
products
Tianjin Yuexin Financing Guarantee Co., Ltd. (“Tianjin Yuexin”)
May 20, 2022
Tianjin
100 %
Guarantee services
Dingyue Digital and Information Technology (Shenzhen) Co., Ltd.
(“Dingyue”)
November 5, 2021
Shenzhen
100 %
Technology development
service
VIEs
Shenzhen Xiaoying Technology Co., Ltd. (“Shenzhen Xiaoying”)
October 19, 2016
Shenzhen
100 %
Technology development
and service, sale of
products
Beijing Ying Zhong Tong Rongxun Technology Service Co., Ltd.
(“Beijing Ying Zhong Tong”)
March 27, 2015
Beijing
100 %
Technology development
and service, sale of
products
Shenzhen Xintang Information Consulting Co., Ltd. (“Shenzhen
Xintang”)
December 16, 2016
Shenzhen
100 %
Consulting services
Significant subsidiaries of the VIEs
Shenzhen Ying Zhong Tong Financial Information Service Co., Ltd.
(“Shenzhen Ying Zhong Tong”)
March 7, 2014
Shenzhen
100 %
Technology development
and service, sale of
products
Shenzhen Ying Ai Gou Trading Co., Ltd. (“Shenzhen Ying Ai Gou”)
October 25, 2018
Shenzhen
100 %
E-commerce services
Shenzhen Xiaoying Microcredit Co., Ltd. (“Xiaoying Microcredit”)
May 31,2021
Shenzhen
100 %
Microcredit services
2. Summary of significant accounting policies
(a)
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“U.S. GAAP”).
(b)
Principles of Consolidation
Variable interest entity
The consolidated financial statements include the financial statements of the Company, its wholly-owned subsidiaries, and
consolidated VIEs. All intercompany transactions and balances have been eliminated.
The Company, through its wholly-owned foreign invested subsidiary, Beijing WFOE in the Chinese Mainland, entered into a
series of contractual arrangements (“VIE agreements”) with Shenzhen Xiaoying, Beijing Ying Zhong Tong, and Shenzhen Xintang
(collectively known as “the VIEs”) and their respective shareholders that enable the Company to (1) have power to direct the activities
that most significantly affects the economic performance of the VIEs, and (2) receive the economic benefits of the VIEs that could be
significant to the VIEs.
Table of Contents
F-13
Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between Beijing WFOE and the
VIEs through the aforementioned agreements with the nominee shareholders of the VIEs. The following is a summary of the VIE
agreements:
(1) Shareholders’ Voting Rights Proxy Agreement:
Pursuant to the voting rights proxy agreements signed between the VIEs’ nominee shareholders and Beijing WFOE, each
nominee shareholder irrevocably appointed Beijing WFOE as its attorney-in-fact to exercise on each shareholder’s behalf and all rights
that each shareholder has in respect of its equity interest in the VIEs (including but not limited to executing the exclusive right to the
voting rights and the right to appoint directors and executive officers of the VIEs). The nominee shareholders cannot revoke the
authorization and entrustment as long as the nominee shareholders remain a shareholder of the VIEs. For the arrangements among
Beijing WFOE, each of the VIEs, and their shareholders, the power of attorney will remain in force for ten years. Unless a thirty-day
notice is given by Beijing WFOE, this agreement shall be automatically renewed for another one year upon its expiration. The
arrangement among Beijing WFOE and its shareholder does not specify its effective term.
(2) Spouse Consent Agreement
Under the spouse consent agreement, each signing spouse acknowledges that the shares of the VIEs held by the relevant
shareholder of the VIEs are the personal assets of such shareholder and not jointly owned by the couple. Each signing spouse also
unconditionally and irrevocably gives up his or her rights to such shares and any associated economic rights or interests to which he or
she may be entitled pursuant to applicable laws and undertakes not to make any assertion of rights to such shares and the underlying
assets. Each signing spouse agrees that he or she will not carry out in any circumstances any conduct that are contradictory to the
contractual arrangements and this consent agreement.
(3) Executive Call Option Agreement:
Pursuant to the exclusive call option agreement entered into between the VIEs’ nominee shareholders and Beijing WFOE, the
nominee shareholders irrevocably granted Beijing WFOE a call option to request the nominee shareholders to transfer or sell any part or
all of its equity interests in the VIEs, to Beijing WFOE, or their designees. The purchase price of the equity interests in the VIEs shall be
equal to the minimum price required by Chinese Mainland law. Without Beijing WFOE’s prior written consent, the VIEs and its nominee
shareholders shall not amend its articles of association, increase or decrease the registered capital, sell or otherwise dispose of its assets
or beneficial interest, issue any additional equity or right to receive equity, provide any loans, distribute dividends in any form, etc. For
the agreements among Beijing WFOE, each of the VIEs, and their shareholders, these arrangements will remain effective for ten years.
Unless notified by Beijing WFOE, the parties to these agreements shall extend the term of these agreements for another ten years. The
agreement among Beijing WFOE and its shareholder does not specify its effective term.
(4) Exclusive Business Cooperation Agreement:
Pursuant to the exclusive business cooperation agreement entered into by Beijing WFOE and the VIEs, Beijing WFOE provides
exclusive technical support and consulting services in return for fees based on 100% of the VIE’s total consolidated profit, which is
adjustable at the sole discretion of Beijing WFOE. Without Beijing WFOE’s consent, the VIEs cannot procure services from any third
party or enter into similar service arrangements with any other third party, except for those from Beijing WFOE. For the agreements
between Beijing WFOE and each of the VIEs, unless Beijing WFOE terminates these agreements in advance, these agreements will
remain effective for ten years. Unless agreed by both parties in writing, this agreement shall be automatically renewed for another ten
years upon its expiration.
Table of Contents
F-14
(5) Equity Pledge Agreement
Each nominee shareholder of the VIEs has also entered into an equity pledge agreement with Beijing WFOE, pursuant to which
each shareholder pledged his/her interest in Beijing WFOE to guarantee the performance of obligations of Beijing WFOE and its
shareholders under the exclusive business cooperation agreement, exclusive call option agreement, and shareholders’ voting rights proxy
agreement. If the VIEs or any of the nominee shareholder breaches its contractual obligations, Beijing WFOE will be entitled to certain
rights and interests regarding the pledged equity interests including the right to dispose the pledged equity interests. None of the nominee
shareholders shall, without the prior written consent of Beijing WFOE, assign or transfer to any third party, create or cause any security
interest and any liability in whatsoever form to be created on, all or any part of the equity interests it holds in the VIEs. This agreement is
not terminated until all of the agreements under the shareholders’ voting rights proxy agreement, exclusive call option agreement and the
exclusive business cooperation agreement are fully performed.
The irrevocable power of attorney has conveyed all shareholder rights held by the VIEs’ shareholders to Beijing WFOE or any
person designated by Beijing WFOE, including the right to appoint executive directors of the VIEs to conduct day to day management of
the VIEs’ businesses, and to approve significant transactions of the VIEs. In addition, the exclusive call option agreement provides
Beijing WFOE with a substantive kick-out right of the VIEs shareholders through an exclusive option to purchase all or any part of the
shareholders’ equity interest in the VIEs. In addition, through the exclusive business cooperation agreement, Beijing WFOE
demonstrates its ability and intention to continue to exercise the ability to absorb substantially all of the profits and all of the expected
losses of the VIEs. The equity pledge agreements further secure the obligations of the shareholders of the VIEs under the above
agreements.
Based on these contractual arrangements, the Company consolidates the VIEs in accordance with SEC Regulation S-X Rule 3A-
02 and Accounting Standards Codification (“ASC”) topic 810 (“ASC 810”), Consolidation.
Uncertainties in the Chinese Mainland legal system could limit the Company’s ability to enforce the contractual arrangements.
If the legal structure and contractual arrangements were found to be in violation of Chinese Mainland laws and regulations, the Chinese
Mainland government could:
●
revoke the Group’s and operating licenses;
●
levy fines on the Group;
●
confiscate any of the Group’s income that they deem to be obtained through illegal operations;
●
shut down the Group’s services;
●
discontinue or restrict the Group’s operations in China;
●
impose conditions or requirements with which the Group may not be able to comply;
●
require the Group to change corporate structure and contractual arrangements;
●
restrict or prohibit the use of the proceeds from overseas offerings to finance the Group’s Chinese Mainland consolidated
VIEs’ business and operations; and
●
take other regulatory or enforcement actions that could be harmful to the Group’s business.
Table of Contents
F-15
Consolidated Trusts
As part of the Group’s efforts to develop new product offerings for investors and institutional funding partners, the Group
establishes a business relationship with certain trusts which were administered by third-party trust companies. The trusts are set up to
invest solely in the loans facilitated by the Group on its platform to provide returns to the beneficiaries of the trusts through interest
payments made by the borrowers. The trusts are cooperated with financial institutional cooperators who provide credit
insurance/financial guarantee services to protect funding providers against default for both the principal and interest. Both direct model
and intermediary model are adopted for these trusts. Under direct model, loans are originated from trusts to borrowers while under
intermediary model, the Group typically provides credit to the borrowers through an intermediary first and then transfers the loans to the
trusts, which issue beneficial interests to the investors and institutional funding partners. The Group determines to consolidate these
trusts as the Group is the primary beneficiary, due to the following reasons: 1) the Group has the power to direct the operating activities
of the trusts; 2) the Group absorbs or enjoys the potential residual losses or returns of these trusts. Under intermediary model, the transfer
of loans to the Consolidated Trusts are not eligible for sale accounting because the trust is consolidated and the loan transfer is
considered an intercompany transaction.
For Consolidated Trusts founded before December 31, 2021, the Group elected to apply fair value option to the loans (at the
date of origination) and liabilities due to investors. That is, the loans are continued to be recorded on the Group’s consolidated balance
sheets as loans held for investment under “Loans at fair value” and the proceeds received from the investors are recorded as trust
liabilities under “Payable to investors at fair value”. By the end of 2023, all loans and investor payments related to these trusts were fully
settled. As of December 31, 2023 and 2024, no outstanding balance of loans or liabilities related to these trusts in the Group’s financial
statements.
For Consolidated Trusts founded from January 1, 2022, the Group elected not to apply fair value option but instead apply
amortized cost method to the loans (at the date of origination) and liabilities due to investors or institutional funding partners, to improve
the understandability and relevance of financial information. That is, the loans are continued to be recorded on the Group’s consolidated
balance sheets as loans held for investment under “Loans receivable from Xiaoying Credit Loans and other loans, net”, which is net of
allowance of credit loss, and the proceeds received from the investors or institutional funding partners are recorded as trust liabilities
under “Payable to investors and institutional funding partners at amortized cost”.
As of December 31,2023 and 2024, certain of the subsidiaries of the Group funded RMB115,900,000 and RMB737,200,000 to
loan products facilitated on the Group’s platform through third-party trust companies. The trusts are consolidated by the Group and the
underlying loans are recorded on the Group’s consolidated balance sheets as loans held for investment under “Loans receivable from
Xiaoying Credit Loans and other loans, net”.
Consolidated Partnerships
The Group continues developing the partnership business model, where the Group and certain trusts jointly established several
limited partnership enterprises, or LPs, to invest solely in the loans facilitated by the Group on its platform to provide returns to partners
of the LPs through interest payments made by the borrowers. The Consolidated Partnerships are cooperated with financial institutional
cooperators who provide credit insurance/financial guarantee services to protect funding providers against default for both the principal
and interest. Intermediary model is adopted for the Consolidated Partnerships, the Group typically provides credit to the borrowers
through an intermediary first and then transfers the loans to the LPs. The Group determines to consolidate these LPs as the Group is the
primary beneficiary, due to the following reasons: 1) the Group has the power to direct the operating activities of the LPs; 2) the Group
absorbs or enjoys the potential residual losses or returns of these LPs. The transfer of loans to the Consolidated Partnerships are not
eligible for sale accounting because the LP is consolidated and the loan transfer is considered an intercompany transaction. The Group
further applies amortized cost to the loans and liabilities to trust partners in its consolidated financial statements. That is, the loans are
recorded on the Group’s consolidated balance sheets under “Loans receivable from Xiaoying Credit Loans and other loans, net” and the
proceeds received from the trust partners are recorded as LP liabilities under “Payable to investors and institutional funding partners at
amortized cost”.
As of December 31,2023 and 2024,one of the subsidiaries of the Group funded RMB231,346,839 and RMB145,742,384 to loan
products facilitated on the Group’s platform through the limited partnership enterprises. The LPs are consolidated by the Group and the
underlying loans are recorded on the Group’s consolidated balance sheets under “Loans receivable from Xiaoying Credit Loans and other
loans, net”.
Table of Contents
F-16
The following financial statement amounts and balances of the Consolidated Trusts and Partnerships are included in the
accompanying consolidated financial statements after elimination of intercompany transactions and balances:
As of
December 31,
As of December 31,
2023
2024
2024
RMB
RMB
US$
Assets:
Restricted cash
711,756,581
527,457,300
72,261,354
Accounts receivable and contract assets, net
54,749,985
37,373,243
5,120,113
Loans receivable from Xiaoying Credit Loans and other loans, net
3,571,283,174
2,916,966,912
399,622,828
Total assets
4,337,789,740
3,481,797,455
477,004,295
Liabilities:
Payable to investors and institutional funding partners at amortized cost
3,584,040,757
2,184,085,667
299,218,510
Other taxes payable
4,060,878
3,265,159
447,325
Accrued expenses and other current liabilities
43,599,849
18,335,260
2,511,920
Total liabilities
3,631,701,484
2,205,686,086
302,177,755
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Net revenue
648,893,767
726,005,363
744,531,819
102,000,441
Net income
360,550,889
458,613,718
494,604,464
67,760,534
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Net cash provided by operating activities
273,610,963
172,210,364
550,953,578
75,480,331
Net cash (used in) provided by investing activities
(928,400,322)
(673,734,777)
664,702,231
91,063,832
Net cash provided by (used in) financing activities
840,416,352
814,841,744
(1,399,955,090)
(191,793,061)
Table of Contents
F-17
The following financial statement amounts and balances of the VIEs and Consolidated Trusts and Partnerships were included in
the accompanying consolidated financial statements after elimination of intercompany transactions and balances:
As of
December 31
As of December 31,
2023
2024
2024
RMB
RMB
US$
Assets:
Cash and cash equivalents
295,277,830
180,683,740
24,753,571
Restricted cash
716,870,052
532,603,866
72,966,430
Accounts receivable and contract assets, net
83,535,036
74,750,686
10,240,802
Loans receivable from Xiaoying Credit Loans and other loans, net
4,876,731,346
4,775,126,977
654,189,714
Prepaid expenses and other current assets, net
25,280,941
19,491,239
2,670,289
Deferred tax assets, net
118,587,356
174,395,511
23,892,087
Financial investments
—
33,428,162
4,579,639
Long-term investments
493,411,355
498,038,310
68,230,969
Property and equipment, net
1,054,565
1,138,186
155,931
Intangible assets, net
28,153,262
27,706,487
3,795,773
Loan receivable from Xiaoying Housing Loans, net
8,656,846
—
—
Other non-current assets
22,984
21,976
3,011
Total assets
6,647,581,573
6,317,385,140
865,478,216
Liabilities:
Payable to investors and institutional funding partners at amortized cost
3,584,040,757
2,184,085,667
299,218,510
Short-term borrowings
320,000,000
10,000,000
1,369,994
Accrued payroll and welfare
15,011,080
18,482,497
2,532,092
Other taxes payable
126,900,881
119,683,947
16,396,634
Income taxes payable
28,266,791
174,425,660
23,896,217
Accrued expenses and other current liabilities
69,989,510
94,825,511
12,991,042
Deferred tax liabilities
—
642,602
88,036
Total liabilities
4,144,209,019
2,602,145,884
356,492,525
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Net revenue
1,350,809,649
1,500,275,059
1,809,619,313
247,916,829
Net income
738,032,308
438,091,276
623,964,980
85,482,852
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Net cash provided by operating activities
451,005,598
628,719,431
1,517,583,263
207,908,054
Net cash used in investing activities
(1,225,037,957)
(1,251,376,124)
(106,448,449)
(14,588,857)
Net cash provided by (used in) financing activities
860,416,352
1,114,841,744
(1,709,955,090)
(234,262,887)
The VIEs and Consolidated Trusts and Partnerships contributed 38%, 31% and 31% of the Group’s consolidated revenue for
the years ended December 31, 2022, 2023 and 2024, respectively. As of December 31, 2023 and 2024, the VIEs and Consolidated Trusts
and Partnerships accounted for an aggregate of 57% and 53% of the consolidated total assets, and 71% and 58% of the consolidated total
liabilities.
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 and Consolidated Trusts and Partnerships. However, if the VIEs
were ever to need financial support, the Group may, at its option and subject to statutory limits and restrictions, provide financial support
to its VIEs through loans to the shareholders of the VIEs or entrustment loans to the VIEs.
Table of Contents
F-18
The Group believes that there are no assets held in the VIEs that can be used only to settle obligations of the VIEs, except for
registered capital and the Chinese Mainland statutory reserves. As the VIEs are incorporated as limited liability companies under the
Company Law of the PRC, creditors of the VIEs do not have recourse to the general credit of the Company for any of the liabilities of
the VIEs. Relevant Chinese Mainland 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 17 for disclosure of restricted net assets.
(c)
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 share-
based compensation, allowance for credit losses of accounts receivables and contract assets, deposits to institutional cooperators, prepaid
expenses and other current assets, loans receivables from Xiaoying Housing Loans and loans receivable from Xiaoying Credit Loans and
other loans, provision for contingent guarantee liabilities, allocation of considerations under revenue arrangements with various
performance obligations, variable considerations of revenue recognition, valuation allowance for deferred tax assets, unrecognized tax
benefits, the indefinite reinvestment assertion, fair value of financial guarantee derivatives, contingent guarantee liabilities and financial
investments, loans at fair value and payable to investors at fair value, impairment of long-term investments and financial investments.
(d)
Revenue recognition
The Group provides services as an online marketplace connecting borrowers and investors or institutional funding partners.
Revenue is the transaction price the Group expects to be entitled to in exchange for the promised services in a contract in the ordinary
course of the Group’s activities and is recorded net of value-added tax (“VAT”). The services to be accounted for include loan facilitation
service, post-origination service (e.g., cash processing and collection services) and financial guarantee service.
The major product offered by the Group is Xiaoying Credit Loan, which mainly consists of Xiaoying Card Loan and other
unsecured loan products that the Group introduce from time to time. The major products offered by the Group before 2021 also include
Xiaoying Revolving Loan which mainly consists of Yaoqianhua (previously named as Xiaoying Wallet). The Group ceased facilitation of
Xiaoying Revolving Loan in 2020.
The Group provides services primarily through the use of two business models. The first business model (“Direct Model”)
involves the Group matching borrowers with investors or institutional funding partners who directly funds the credit drawdowns to the
borrowers. The Group has determined that it is not the legal lender or borrower in the loan origination and repayment process, but acting
as an intermediary to bring the lender and the borrower together. Therefore, the Group does not record the loans receivable or payable
arising from the loans facilitated between the investors or institutional funding partners and borrowers on its platform.
The second business model (“Intermediary Model”) involves the Group initially providing credit to borrowers through an
intermediary and subsequently selling the loans including all of the creditor rights in the loans to external investors or institutional
funding partners within a short period of time. For the years in and after 2022, only the operations of Consolidated Trusts and
Partnerships were under Intermediary Model. The Group cooperates with several microcredit companies who use their own funds to
provide credit to borrowers first; these microcredit companies transfer their rights as creditors shortly to SPVs controlled by the Group at
the price of the carrying amount of the outstanding loan principal balance and accumulated accrued interest not paid by the borrowers as
of the day on which the creditor’s rights are legally transferred to SPVs. The SPVs further transfer their creditor’s rights to Consolidated
Trusts and Partnerships in a short period at the price of the carrying amount of the outstanding loan principal balance and the
accumulated accrued interest not paid by the borrowers as of the day on which the creditor’s rights are legally transferred. These loans
carry the same insurance/ guarantee agreement with external financial institutional cooperators as loans facilitated under the Direct
Model, which is attached to the loan and transfers along with the loan. The loans are initially recorded on the consolidated balance sheet
as loans receivable from Xiaoying Credit Loans and other loans. Since the Group consolidates such trusts and partnerships under the VIE
model (see accounting policy on “Consolidated Trusts” and “Consolidated Partnerships”), loans transferred to Consolidated Trusts and
Partnerships do not qualify for sales accounting as the transfers are to consolidated subsidiaries.
Table of Contents
F-19
Loans facilitated by the Group typically have a term of less than 1 year. For each loan facilitated either through the Direct
Model or Intermediary Model, the Group charges a service fee (i) to the borrower indirectly through one of the Group’s VIEs, Shenzhen
Xintang, or (ii) to the borrower indirectly through external financing guarantee company, or (iii) to institutional funding partner directly.
No application fee is charged to borrowers or investors or institutional funding partners.
For the loans the Group is entitled to the full service fee regardless of whether the borrowers choose to early repay or not, the
Group has the unconditional right to the consideration.
For the loans facilitated that the Group collected service fees indirectly through Shenzhen Xintang, when borrowers who have
the option of early repayment and upon termination, they do not have the obligation to pay the remaining monthly service fees, the
Group’s right to consideration for the service fees of facilitation service is conditional on whether or not the borrowers repay in advance.
At contract inception, the Group determines the consideration based on historical experiences as well as the credit due diligence
performed on each borrower prior to loan origination.
For the loans facilitated that the Group collected service fee indirectly through external financing guarantee company or directly
from institutional funding partner, the Group’s transaction price includes variable consideration adjusted for default risk of the borrowers
and prepayment risk of the borrowers. The Group determines the consideration based on historical experiences as well as the credit due
diligence performed on each borrower prior to loan origination.
The Group provides guarantee which is directly provided to or indirectly provided through financial institutional cooperators to
investors or institutional funding partners on certain loan products via its consolidated entities. If a borrower defaults, the Group makes
its best efforts to collect the default loan. The Group directly makes payment to the defaulted principal and interest to investors or
indirectly makes payment to investors or institutional funding partners through institutional cooperators, and deemed the guarantee as a
guarantee service to the investors or institutional funding partners and recognizes a stand ready obligation for its guarantee exposure in
accordance with ASC Topic 460, Guarantees which requires the guarantee to be measured initially at fair value based on the stand-ready
obligation.
For certain loan products that the Group facilitate that are repaid in installments by borrowers, borrowers are required to enter
into guarantee agreements with the Group while at the same time, the Group entered into a series of arrangements with various financial
institutional cooperators and negotiate the upper limit (the “Cap”) of the compensation obligation prospectively with these financial
institutional cooperators based on the expected loss rate. The Group received the guarantee fee at a pre-agreed rate from borrowers
directly or from financial institutional cooperators indirectly. Upon borrower’s default, financial institutional cooperators reimburse the
full loan principal and interest to the investors or institutional funding partner first, and has the right to recourse to both the borrower and
the Group. The Group’s contractual obligation is at any time it limited to the Cap which is either the lower of (1) total amount of
guarantee fees contractually required to be collected from the borrowers for such loans facilitated during the current period on an
aggregated basis, and (2) a certain percentage of the total principal of the loans facilitated stated in an annualized manner, as pre-agreed
with financial institutional cooperators (the “Rate”); or the former (1). The contractual guarantee fees in (1) is not influenced by default
or early repayment of borrowers. The Group has no obligation or intention to compensate financial institutional cooperators for any
losses in excess of the contractual obligation. The Rate will be negotiated prospectively at each quarter between the two parties based on
the expected loss rate. The actual loss in excess of the Cap is absorbed by financial institutional cooperators. Financial institutional
cooperators ultimately bear substantially all of the credit risk. The Group’s exposure in this arrangement is limited to the default and
prepayment risk in relation to the guarantee fee when the Group cannot collect the guarantee fee under the agreement with the borrower
on an individual basis but is still obligated to compensate financial institutional cooperators up to the Cap on a pool basis. The Group
evaluated the guarantee arrangement pursuant to ASC Topic 815, and concluded that the arrangement meets the definition of a derivative
and that it is not eligible for the guarantee scope exception. Therefore, the guarantee is recognized as a derivative liability/asset at fair
value and is not accounted for pursuant to ASC Topic 460 or 450. See accounting policy for financial guarantee derivative.
Direct Model
The Group has adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that
modified ASC 606.
Table of Contents
F-20
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. To achieve that core principle, the Group applies the following steps:
●
Step 1: Identify the contract (s) with a customer
●
Step 2: Identify the performance obligations in the contract
●
Step 3: Determine the transaction price
●
Step 4: Allocate the transaction price to the performance obligations in the contract
●
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
The Group determines its customers to be both the borrowers and the investors or institutional funding partners. The Group
considers the loan facilitation service and post-origination service as two separate performance obligations under ASC 606, as these two
deliverables are distinct in that customers can benefit from each service on its own and the Group’s promises to deliver the services are
separately identifiable from each other in the contract. While the post-origination service is within the scope of ASC Topic 860, the ASC
Topic 606 revenue recognition model is applied due to the lack of definitive guidance in ASC Topic 860.
The Group determines the total transaction price to be the service fees chargeable to the borrowers indirectly through one of the
VIEs, Shenzhen Xintang, or external financing guarantee companies or to certain institutional funding partners directly, including the
guarantee fees charged by the Group under the separate guarantee agreement with the borrowers for certain type of Xiaoying Card
Loans. The transaction price for loan facilitation and post-origination services includes variable consideration adjusted for default risk
and prepayment risk of the borrowers. The Group estimates variable consideration for these contracts using the expected value
methodology, including models to estimate the loss rates, the prepayment rates, and the weighted macroeconomic forecast, which are
based on past events, current conditions, and reasonable and supportable forecasts over the life of the loans. The expected value of the
consideration is the product of multiplying the loan principal and the pre-agreed service fee rates, adjusted for the loss rates and the
prepayment rates. The loss rates are calculated using vintage-based loss rate model, adjusted for a weighted macroeconomic forecast.
The models consider the historical loss experience period for the vintage-based loss rates, the historical prepayment experience period for
the prepayment rates and the weighting of multiple macroeconomic forecast scenarios over the life of the loans and selected economic
variables, including gross domestic product (GDP), unemployment rate and other macro-economic variables. The transaction price is
allocated amongst the financial guarantee service, if any, and two performance obligations.
The Group first allocates the transaction price to the financial guarantee, if any, that is recognized in accordance with either (1)
ASC Topic 460, Guarantees which requires the guarantee to be measured initially at fair value based on the stand-ready obligation or (2)
ASC Topic 815, which requires the guarantee to be measured initially and subsequently at fair value. Then the remaining considerations
are allocated to the loan facilitation services and post-origination services using their relative standalone selling prices consistent with the
guidance in ASC 606. The Group does not have observable standalone selling price information for the loan facilitation services or post-
origination services because it does not provide loan facilitation services or post-origination services on a standalone basis. There is no
direct observable standalone selling price for similar services in the market that is reasonably available to the Group. As a result, the
estimation of standalone selling price involves significant judgment. The Group uses an expected cost plus margin approach to estimate
the standalone selling prices of loan facilitation services and post origination services as the basis of revenue allocation. In estimating its
standalone selling price for the loan facilitation services and post-origination services, the Group considers the cost incurred to deliver
such services, profit margin for similar arrangements, customer demand, effect of competitors on the Group’s services, and other market
factors.
For each type of service, the Group recognizes revenue when (or as) the entity satisfies the service/performance obligation by
transferring a promised good or service (that is, an asset) to a customer. Revenues from loan facilitation are recognized at the time a loan
is originated between the borrower and the investor or institutional funding partner and the principal loan balance is transferred to the
borrower, at which time the facilitation service is considered completed. Revenues from post-origination services are recognized on a
straight-line basis over the term of the underlying loans as the services are provided. The collection of service fees is not conditional on
the provision of subsequent post-origination services.
Table of Contents
F-21
Intermediary Model—Trust Model
The transfer of loans to institutional funding partners under the Intermediary Model often involves transferring the loans to a
trust formed and operated by unrelated third-party trust companies. The Group consolidates such trusts under the VIE model (see
accounting policy on “Consolidated Trusts”). Loans transferred to Consolidated Trusts do not qualify for sales accounting as the transfer
is to a consolidated subsidiary.
Before December 31, 2021, the Group elected to apply fair value option to these loans at the date of origination. The loans are
recorded as “Loans at fair value” in the consolidated balance sheets.
From January 1, 2022, the Group elected to apply amortized cost method to the loans of newly formed Consolidated Trusts at
the date of origination. For loan assets measured at amortized cost, they are recorded as “Loans receivable from Xiaoying Credit Loans
and other loans, net”.
Under both methods, the Group recognizes as revenue under “Financing income” the service fees and interests charged to the
borrowers over the lifetime of the loans using effective interest method.
Intermediary Model—Partnership Model
The transfer of loans to institutional funding partners under the Intermediary Model involves transferring the loans to a limited
partnership enterprise, or LP, formed and operated by unrelated third-party trust companies and the Group. The Group consolidates such
partnerships under the VIE model (see accounting policy on “Consolidated Partnerships”). The Group elects to measure these loans at
amortized cost at the time of origination. Loans transferred to Consolidated Partnerships do not qualify for sales accounting as the
transfer is to a consolidated subsidiary. The loans are recorded as “Loans receivable from Xiaoying Credit Loans and other loans, net” in
the consolidated balance sheets. The Group recognizes as revenue under “Financing income” the service fees and interests charged to the
borrowers over the lifetime of the loans using effective interest method.
Disaggregation of revenues
All of the Group’s revenue for the years ended December 31, 2022, 2023 and 2024 were generated from the PRC. As the
remaining duration of the Group’s performance obligations of the contracts is one year or less, the Group elects to apply the exemption of
disclosing the aggregate amount of transaction price allocated to the performance obligations at the end of 31 December, 2022, 2023 and
2024, The following table illustrates the disaggregation of revenue by product the Group offered in 2022, 2023 and 2024:
Loan
facilitation
Post-origination
Financing
Other
service
service
income
revenue
Total
2022
(RMB)
(RMB)
(RMB)
(RMB)
(RMB)
Major products
Xiaoying Credit Loan
2,044,343,554
372,015,426
959,446,184
20,815,986
3,396,621,150
Xiaoying Revolving Loan
—
435,180
2,815
—
437,995
Other loans
—
—
6,828,467
207,964
7,036,431
Other service(1)
—
—
—
158,854,539
158,854,539
Total
2,044,343,554
372,450,606
966,277,466
179,878,489
3,562,950,115
Table of Contents
F-22
Loan
facilitation
Post-origination
Financing
Guarantee
Other
service
service
income
income
revenue
Total
2023
(RMB)
(RMB)
(RMB)
(RMB)
(RMB)
(RMB)
Major products
Xiaoying Credit Loan
2,740,974,233
596,581,987
1,133,314,422
24,496,658
30,861,036
4,526,228,336
Xiaoying Housing Loan
—
—
—
—
1,601,289
1,601,289
Other loans
—
—
4,022,032
—
—
4,022,032
Other service(1)
—
—
—
—
283,032,373
283,032,373
Total
2,740,974,233
596,581,987
1,137,336,454
24,496,658
315,494,698
4,814,884,030
Loan
facilitation
Post-origination
Financing
Guarantee
Other
service
service
income
income
revenue
Total
2024
(RMB)
(RMB)
(RMB)
(RMB)
(RMB)
(RMB)
Major products
Xiaoying Credit Loan
3,102,344,942
759,538,640
1,372,004,085
201,715,792
38,228,810
5,473,832,269
Other service(1)
—
—
—
—
397,949,477
397,949,477
Total
3,102,344,942
759,538,640
1,372,004,085
201,715,792
436,178,287
5,871,781,746
Loan
facilitation
Post-origination
Financing
Guarantee
Other
service
service
income
income
revenue
Total
2024
(US$)
(US$)
(US$)
(US$)
(US$)
(US$)
Major products
Xiaoying Credit Loan
425,019,514
104,056,367
187,963,789
27,634,950
5,237,325
749,911,945
Other services(1)
—
—
—
—
54,518,856
54,518,856
Total
425,019,514
104,056,367
187,963,789
27,634,950
59,756,181
804,430,801
(1)
Primarily consists of referral service fees for introducing borrowers to other platforms and technology service fees
received for providing assistant technology development services.
Contract balances
The Group did not enter into contracts with customers that were greater than one year for substantially all products for the years
ended December 31, 2022, 2023 and 2024. For the loans the Group is entitled to the full service fee regardless of whether the borrowers
choose to early repay or not, the Group has the unconditional right to the consideration and an accounts receivable is recorded. For the
loans facilitated with borrowers who have the option of early repayment and upon termination they do not have the obligation to pay the
remaining monthly service fees, the Group’s right to consideration for the service fees of facilitation service is conditional on whether or
not the borrowers repay in advance. In these instances, the Group records a corresponding contract asset when recognizing revenue from
loan facilitation service. The contract asset will not be reclassified to a receivable given that the right to invoice and the payment is due
by the end of the credit periods. Revenue for these loan products are recognized when the collection of consideration becomes probable.
Remaining unsatisfied performance obligations as of December 31, 2022, 2023 and 2024 pertained to post-origination service in
the amount of RMB224,461,482, RMB287,607,599 and RMB420,361,656 (US$57,589,311), respectively. All remaining unsatisfied
performance obligations would be recognized as revenue in the subsequent year.
Financing income
Financing income consists primarily the financing fees the Group charges for the loans facilitated through the Consolidated
Trusts and Consolidated Partnerships, including interest income and service fees generated from providing loan facilitation and post-
origination services to the investors and institutional funding partners of the Consolidated Trusts and Consolidated Partnerships, and are
recorded as revenue over the life of the underlying financing using the effective interest method.
Table of Contents
F-23
Financing income also includes financing fees, including interest income and service fee, from loans receivables from Xiaoying
Credit Loans and other loans that have not yet been transferred to external investors or institutional funding partners or have been
transferred but such transaction does not qualify for sale accounting under the Intermediary Model.
Starting from 2021, financing income also includes interest income generated from providing loans by the Group’s own fund
from microcredit business, and are recorded as revenue over the life of the underlying financing using the effective interest method. The
Group maintains the right to terminate the contract in advance based on the credit due diligence performed on each borrower. The
remaining installments of interest would be recognized on non-accrual status after the contract terminated.
Other revenue
Other revenue primarily includes referral service fees for introducing borrowers to other platforms and technology service fees
received for providing assistant technology development services. The referral service fees for introducing borrowers to other platforms
are recognized when the obligation is fulfilled and is confirmed by the other platforms. The technology service fees are recognized when
the assistant technology development services to third parties provided.
(e)
Sales and transfers of financial instruments
Sales and transfers of financial instruments are accounted under authoritative guidance for the transfers and servicing of
financial assets and extinguishment of liabilities. Specifically, a transfer of a financial asset, a group of financial assets, or a participating
interest in a financial asset is accounted for as a sale only if all the following conditions are met:
1.
The financial assets are isolated from the transferor and its consolidated affiliates as well as its creditors;
2.
The transferee or beneficial interest holders have the right to pledge or exchange the transferred financial assets; and
3.
The transferor, its consolidated affiliates included in the financial statements being presented, or its agents do not
maintain effective control of the transferred asset. A transferor’s effective control over the transferred financial assets includes, but is not
limited to, any of the following:
a.
An agreement that both entitles and obligates the transferor to repurchase or redeem the transferred financial assets
before their maturity.
b.
An agreement, other than through a cleanup call that provides the transferor with both of the following: (i) The
unilateral ability to cause the holder to return specific financial assets. (ii) A more-than-trivial benefit attributable to that ability; and
c.
An agreement that permits the transferee to require the transferor to repurchase the transferred financial assets at a
price that is so favorable to the transferee that it is probable that the transferee will require the transferor to repurchase them.
Under the Intermediary Model, the Group, through its intermediary, facilitates credits to borrowers and subsequently transfers
the loans (including the creditor rights) to Consolidated Trusts and Partnerships at face value within a short period of time.
When the loan (including the creditor rights) is transferred, the transferee becomes the direct counterparty to the borrower and
the legal record holder of the loan upon transfer. The transfer is accounted for as a sale, when (1) the transferred loans are considered
legally isolated from the assets of the Group and its creditors even in the bankruptcies under the Chinese Mainland laws and regulations,
(2) the investors or institutional funding partners (transferees) can freely pledge or exchange the transferred loans, and (3) the Group does
not maintain effective control over the transferred loans. When a transfer does not qualify for sale accounting, e.g. when the Group sells
loans with recourse to the Group, the transferred financial asset remains in the statement of financial position and a financial liability is
recognized for any consideration received.
Table of Contents
F-24
For Xiaoying Housing Loans facilitated through the Intermediary Model, which was ceased facilitation in 2019, borrowers are
required to pledge properties to one of the Group’s consolidated VIE entities (other than the intermediary or the SPV conducting the
facilitation and transfer of the loan) as collateral for the guarantee that the Group is providing to a financial institutional cooperator
against borrower’s default. It is a separate arrangement with different counterparties from the loan provided by the Group. While the loan
(including creditor’s rights) is transferred to third party investors or institutional funding partners, the lien remains under the Group’s
name and in security for the Group agreeing to provide the guarantee to a financial institutional cooperator. The holding of the lien does
not affect the creditor’s right in the loan being fully transferred. Provided all aforementioned conditions under sales accounting are met,
the transfer of such loans with collateral are accounted for as a sale.
(f)
Foreign currency translation
The functional currency of X Financial is in US dollars (“US$”). The functional currency of the Group’s subsidiaries and VIEs
in the Chinese Mainland is Renminbi (“RMB”). The determination of the respective functional currency is based on the criteria stated in
ASC 830, Foreign Currency Matters. The Group also uses RMB as its reporting currency. Monetary assets and liabilities denominated in
currencies other than the functional currency are translated into the functional currency at the rates of exchange ruling at the balance
sheet date. Transactions in currencies other than the functional currency are measured and recorded in the functional currency at the
exchange rate prevailing on the transaction date. Translation gains and losses are recognized in the consolidated statements of
comprehensive income.
The Company with functional currency of US$ translates its operating results and financial positions into RMB, the Group’s
reporting currency. Assets and liabilities are translated using the exchange rates in effect on the balance sheet date. Equity amounts are
translated at historical exchange rates. Revenues, expenses, gains and losses are translated using the average rates for the year.
Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component in the consolidated
statements of comprehensive income.
(g)
Guarantee liabilities
The Group has guarantee service which is directly provided to or indirectly provided through financial institutional cooperators
to investors or institutional funding partners. If a borrower defaults, the Group makes its best efforts to collect the default loan. The
Group directly or indirectly makes payment to the defaulted principal and interest to investors or institutional funding partners.
Prior to September 2017, substantially all of the loans facilitated by the Group’s platform are insured by a financial institutional
cooperator. The financial institutional cooperator initially reimbursed the loan principal and interest to the investor or institutional
funding partner upon the borrower’s default. In order to maintain stable business relationship with the financial institutional cooperator,
although not contractually obligated, the Group at its sole discretion compensated the financial institutional cooperator for substantially
all loan principal and interest default but not subsequently collected. The Group deemed the guarantee as a guarantee service recognizes
a stand ready obligation for its guarantee exposure in accordance with ASC Topic 460. The relative business has been ceased in 2020
with no outstanding balance of guarantee liabilities for such business in and after 2021, and only follow-up collections remain.
From September 2017, the Group revised the arrangement with the financial institutional cooperator and the Group no longer
records any guarantee liabilities in accordance with ASC Topic 460, and records financial guarantee derivatives in accordance with ASC
815. See accounting policy of revenue recognition and financial guarantee derivatives.
During 2023, the Group started the financing guarantee business through one of the subsidiaries of the Group that holds the
financing guarantee license and built a new business model that collaborates with external financing guarantee companies to provide
joint guarantee services, on a pro-rata basis, to institutional funding partners. Under this business model, the Group has the contractual
obligation to pay the defaulted principal and interest to institutional funding partners and no obligation to pay to the external financing
guarantee company. The Group recognizes a stand ready obligation for its guarantee exposure in accordance with ASC Topic 460,
Guarantees which requires the guarantee to be measured initially at fair value based on the stand-ready obligation.
Table of Contents
F-25
Guarantee service provided prior to September 2017
At the inception of each loan, the Group recognizes the guarantee liability at fair value in accordance with ASC 460-10, which
incorporates the expectation of potential future payments under the guarantee and takes into both non-contingent and contingent aspects
of the guarantee. Subsequent to the loan’s inception, the guarantee liability is composed of two components: (i) ASC Topic 460
component; and (ii) ASC Topic 450 component. The liability recorded based on ASC Topic 460 is determined on a loan by loan basis
and it is reduced when the Group is released from the underlying risk, i.e., as the loan is repaid by the borrower or when the investor or
institutional funding partner is compensated in the event of a default. This component is a stand-ready obligation which is not subject to
the probable threshold used to record a contingent obligation. When the Group is released from the stand-ready liability upon expiration
of the underlying loan, the Group records a corresponding amount as “Other revenue” in the consolidated statement of comprehensive
income. The other component is a contingent liability determined based on probable loss considering the actual historical performance
and current conditions, representing the obligation to make future payouts under the guarantee liability in excess of the stand-ready
liability, measured using the guidance in ASC Topic 450. The ASC Topic 450 contingent component is determined on a collective basis
and loans with similar risk characteristics are pooled into cohorts for purposes of measuring incurred losses. The ASC 450 contingent
component is recognized as part of operating expenses in the consolidated statement of comprehensive income. At all times the
recognized liability (including the stand-ready liability and contingent liability) is at least equal to the probable estimated losses of the
guarantee portfolio.
The Group measures its guarantee liabilities at inception at fair value based on the Group’s expected payouts and also
incorporating a markup margin. As the Group’s guarantee liabilities are not traded in an active market with readily observable prices, the
Group applies a discounted cash flow methodology to measure the fair value of guarantee liabilities. The impact of credit losses is also
considered by applying discounted cash flow method for the subsequent measurement of guarantee liabilities, based on the consideration
of reasonable and supportable forecasts of future economic conditions. The significant unobservable inputs used include expected future
payout and discount rate. The expected future payouts were estimated based on expected loss rates for each product type, taking into
consideration of historical loss experiences for both contingent and noncontingent elements. The expected future payouts take into
account missed payments initially compensated by the financial institutional cooperator within two business days from borrowers’
payment due date. The expected collection rate of defaulted loans incorporates the proceeds from liquidation of underlying collateral that
would be expected to cover the payouts under the guarantee and was based on the average historical collection rate of the Group’s
products. These inputs in isolation can cause significant increases or decreases in fair value. Increase in the expected net loss rates can
significantly increase the fair value of guarantee liabilities; conversely a decrease in the expected net loss rates can significantly decrease
the fair value of guarantee liabilities. The discount rate applied discounted cash flow methodology to present value the projected cash
flows which is based on market rates. The Group also estimated the markup margin by looking at several comparable business models.
The approximate term of the guarantee service correlates directly with the term of the loan product.
Guarantee service provided in and after 2023
At inception of the guarantee, the Group recognize both a stand ready guarantee liability as deferred guarantee income under
ASC 460 with an associated financial assets receivable, and a contingent guarantee liability for off-balance sheet credit exposures under
Current expected credit loss (“CECL”) model. At initial recognition, deferred guarantee income is recorded at the fair value of the
guarantee contract. The Group apply practical expedient and measures its guarantee service at inception at fair value equal to the total
amount of guarantee service fees contractually required to be collected, since the guarantee contact is independently issued in a
standalone arm’s-length transaction with an unrelated party. Subsequent to initial recognition, deferred guarantee income is released
systematically as “Guarantee income” in the consolidated statement of comprehensive income when the Group is released from the
underlying risk. Contingent guarantee liability represents the guarantee obligations in the event of default related to the guarantee
contract that are determined in accordance with ASC Topic 326, which are initially recorded separate from and in addition to deferred
guarantee income at the amount equal to the expected lifetime credit losses of the underlying loans covered by the guarantee service. The
expected credit losses is calculated using vintage-based loss rate and macroeconomic forecast scenario models, and is the product of
multiplying the estimates of vintage-based loss rates and the individual level exposure at default on an undiscounted basis, adjusted for a
weighted macroeconomic forecast. The models consider the historical loss experience period for the vintage-based loss rates, the
historical prepayment experience period for the prepayment rates and the weighted multiple macroeconomic forecast scenarios over the
life of the loans and selected economic variables, including gross domestic product (GDP), unemployment rate and other macro-
economic variables. The contingent guarantee liabilities are determined on a collective basis and loans share similar risk characteristics
and includes both quantitative and qualitative components, and adjusted each period for changes in expected lifetime credit losses. The
initial recognition and adjustments made to contingent guarantee liabilities are recorded as “provision for contingent guarantee
liabilities” in the consolidated statement of comprehensive income.
Table of Contents
F-26
(h)
Financial guarantee derivatives
The Group entered into a series of arrangements with various financial institutional cooperators for certain guarantee services.
The agreements entitle the Group a right to receive guarantee fees and require the Group to make payment, up to a pre-agreed cap, to
reimburse financial institutional cooperators for a pre-determined portion of borrower payment defaults and the guarantee fee amount
that was not collected due to prepayments. The ‘dual-triggered’ financial guarantee is accounted for as a derivative under ASC 815
because the financial guarantee scope exemption outlined in ASC 815-10-15-58 is not met.
The Group uses the discounted cash flow model to value these financial guarantee derivatives at inception and subsequent
valuation dates. The fair value is categorized in the level 3 valuation hierarchy. This discounted cash flow model incorporates
assumptions of the significant unobservable inputs such as the expected loss rates, prepayment rate and discount rate. The expected loss
rate and prepayment rate is estimated by taking into consideration of historical loss experiences. The Group considers that the impact of
discount rate, which is determined based on the market rates, to the fair value of financial guarantee derivatives is immaterial.
All financial guarantee derivatives are required to be recorded on the Group’s consolidated balance sheet at fair value. The
Group signs contract separately for each project regardless of whether they are same counterparty. As no legally enforceable master
netting agreement exists between the Group and the derivative counterparty, the Group does not net derivative assets and liabilities. The
change in fair value of the financial guarantee derivative is recorded as change in fair value of financial guarantee derivatives in the
consolidated statements of comprehensive income. The relative cash flows associated with the financial guarantee derivatives and their
gains and losses are reported in operating activities in the consolidated statements of cash flow. Refer to Note 3 for further information of
tabular disclosures on the amount and reporting for financial guarantee derivative assets, liabilities, gains and losses.
(i)
Fair value
Fair value is 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 it
considers assumptions that market participants would use when pricing the asset or liability.
Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair
value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the
lowest level of input that is significant to the fair value measurement as follows:
●
Level 1—inputs are based upon unadjusted quoted prices for identical assets or liabilities traded in active markets.
●
Level 2—inputs are based upon quoted prices for similar assets and liabilities in active markets, quoted prices for identical
or similar assets and liabilities in markets that are not active and model-based valuation techniques for which all significant
assumptions are observable in the market or can be corroborated by observable market data for substantially the full term
of the assets or liabilities.
●
Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market
participants would use in pricing the asset or liability. Most fair value is therefore determined using model-based
techniques that include option pricing models, discounted cash flow models, and similar techniques.
(j)
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of cash on hand and cash in bank which are highly liquid and insignificant risk of
changes in value. As of December 31, 2023 and 2024, cash equivalents were comprised of term deposits in banks. All cash and cash
equivalents are unrestricted as to withdrawal and use.
Table of Contents
F-27
(k)
Restricted Cash
Restricted cash consists primarily of cash held by the Consolidated Trusts and Partnerships through segregated bank accounts
which can only be used by the Consolidated Trusts and Partnerships to specified activities as stipulated in the Consolidated Trust or
Partnership agreements. Cash in the Consolidated Trusts and Partnerships is not available to fund the general liquidity needs of the
Group.
Restricted cash also includes cash security deposits set aside in banks cash deposited with banks as collateral for borrowings
from the respective banks. Restriction on the use of such cash and the interest earned thereon is imposed by the banks and remains
effective throughout the terms of the borrowings. See Note 8.
Tianjin Yuexin entered into deposit arrangements with institutional funding partners to pay deposits in accordance with an
agreed payment schedule. The Group establishes an allowance for credit losses based on the credit risk of institutional funding partners
determined by external credit ratings and adjusted for a weighted macroeconomic forecast.
(l) Accounts receivable and contract assets, net
Accounts receivable and contract assets consist of accounts receivable and contract assets from the facilitation and post-
origination service in relation to loans facilitated, from financing income generated from Consolidated Trusts and Partnerships and
Xiaoying Microcredit, from guarantee income generated under a new business model of financing guarantee business, and from other
revenue which mainly including referral service fees. Contract assets represent the Group’s right to consideration in exchange for
facilitation services that the Group has transferred to the customer before payment is due. The Group only recognizes accounts receivable
and contract assets to the extent that the Group believes it is probable that they will collect substantially all of the consideration to which
it will be entitled in exchange for the services transferred to the customer the payment is due by the end of the credit periods. The general
life time of accounts receivable and contract assets lasts no more than 12 months.
Accounts receivable and contract assets is stated at the historical carrying amount net of write-offs and allowance for credit
losses. The Group establishes an allowance for credit losses in accordance with ASC 326 based on estimates, historical experience of net
loss rates, current economic conditions, reasonable and supportable forecasts of future economic conditions and other factors
surrounding the credit risk of customers. The profile of the borrowers is similar under each product therefore the Group applies a
consistent credit risk management framework to the entire portfolio of borrowers under each product. The Group also constantly
monitors the financial condition and evaluates the credit quality of certain institutional funding partners and external financing guarantee
companies from which the Group’s service fees are collected directly or indirectly. For individual counterparty where there is an
observable indicator of loss, an individually evaluated allowance for credit losses is provided. The Group evaluates and adjusts its
allowance for credit losses for accounts receivable and contract assets on a quarterly basis or more often as necessary. Uncollectible
accounts receivable or contract assets are charged off when a settlement is reached for an amount that is less than the outstanding
historical balance or when accounts receivable or contract assets are deemed uncollectible.
The following table presents the accounts receivable and contract assets from facilitation, post-origination, financing income,
guarantee income and other revenue as of December 31, 2023 and 2024, respectively:
Accounts
Accounts
receivable
receivable
Accounts
Accounts
Accounts
Allowance for
and contract
and contract
receivable
receivable
receivable
credit losses
assets from
assets from
and contract
and contract
and contract
for accounts
facilitation
post-origination
assets from
assets from
assets from
receivable and
As of December 31, 2023
services
services
financing income guarantee income other revenue contract assets
Total
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Accounts receivable:
Xiaoying Credit Loan
294,129,400
31,190,408
81,665,859
12,330,093
—
(4,010,770)
415,304,990
Other loans
—
—
275,067
—
—
(12,755)
262,312
Other service
—
—
—
—
32,047,171
(1,757,267)
30,289,904
Contract assets:
Xiaoying Credit Loan
1,058,519,704
112,202,337
240
46,494,315
—
(3,485,827)
1,213,730,769
Total
1,352,649,104
143,392,745
81,941,166
58,824,408
32,047,171
(9,266,619)
1,659,587,975
Table of Contents
F-28
Accounts
Accounts
receivable
receivable
Accounts
Accounts
Accounts
Allowance for
and contract
and contract
receivable
receivable
receivable
credit losses
assets from
assets from
and contract
and contract
and contract
for accounts
facilitation
post-origination
assets from
assets from
assets from
receivable and
As of December 31, 2024
services
services
financing income guarantee income other revenue contract assets
Total
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Accounts receivable:
Xiaoying Credit Loan
287,995,740
33,776,512
75,514,367
145,561,816
—
(17,866,589)
524,981,846
Other service
—
—
—
—
58,991,579
(125,514)
58,866,065
Contract assets:
Xiaoying Credit Loan
1,264,077,497
148,259,098
459,631
39,086,515
—
(6,180,181)
1,445,702,560
Total
1,552,073,237
182,035,610
75,973,998
184,648,331
58,991,579
(24,172,284)
2,029,550,471
Accounts
Accounts
receivable
receivable
Accounts
Accounts
Accounts
Allowance for
and contract
and contract
receivable
receivable
receivable
credit losses
assets from
assets from
and contract
and contract
and contract
for accounts
facilitation
post-origination
assets from
assets from
assets from
receivable and
As of December 31, 2024
services
services
financing income guarantee income other revenue contract assets
Total
US$
US$
US$
US$
US$
US$
US$
Accounts receivable:
Xiaoying Credit Loan
39,455,255
4,627,363
10,345,426
19,941,887
—
(2,447,713)
71,922,218
Other service
—
—
—
—
8,081,813
(17,195)
8,064,618
Contract assets:
Xiaoying Credit Loan
173,177,907
20,311,413
62,969
5,354,831
—
(846,681)
198,060,439
Total
212,633,162
24,938,776
10,408,395
25,296,718
8,081,813
(3,311,589)
278,047,275
The following tables present the aging of accounts receivable as of December 31, 2023 and 2024 respectively. For accounts
receivable to be collected from borrowers, the Group charges off accounts receivable overdue more than 60 days. For accounts receivable
to be collected indirectly through external financing guarantee company or directly from institutional funding partner, the Group charges
off accounts receivable when accounts receivable are deemed uncollectible.
As of December 31, 2023
Aging
Not past-due
1 - 30 days
30 - 60 days
over 60 days
Total
RMB
RMB
RMB
RMB
RMB
Accounts receivables
Xiaoying Credit Loan
384,802,879
11,208,150
9,079,796
14,224,935
419,315,760
Other loans
274,912
—
155
—
275,067
Other service
17,292,087
11,686,750
2,542,468
525,866
32,047,171
Total
402,369,878
22,894,900
11,622,419
14,750,801
451,637,998
As of December 31, 2024
Aging
Not past-due
1 - 30 days
30 - 60 days over 60 days
Total
RMB
RMB
RMB
RMB
RMB
Accounts receivables
Xiaoying Credit Loan
534,221,386
6,046,352
2,580,697
—
542,848,435
Other service
38,166,429
20,825,150
—
—
58,991,579
Total
572,387,815
26,871,502
2,580,697
—
601,840,014
As of December 31, 2024
Aging
Not past-due
1 - 30 days
30 - 60 days over 60 days
Total
US$
US$
US$
US$
US$
Accounts receivables
Xiaoying Credit Loan
73,188,030
828,347
353,554
—
74,369,931
Other service
5,228,779
2,853,034
—
—
8,081,813
Total
78,416,809
3,681,381
353,554
—
82,451,744
Table of Contents
F-29
The following tables present the movement of allowance for credit losses for accounts receivables and contract assets as of
December 31, 2022, 2023 and 2024:
(Reversal of) Provision for
accounts receivable
Charge-off for
As of
and contract assets
accounts
As of
January 1,
(net of recovery)
receivable and
December 31,
2022
(1)
contract assets
2022
RMB
RMB
RMB
RMB
Accounts receivable:
Xiaoying Credit Loan
8,092,404
21,753,517
(14,492,578)
15,353,343
Other loans
—
145,931
(106,799)
39,132
Contract assets
Xiaoying Credit Loan
17,775,553
(66,409)
(11,229,039)
6,480,105
Other loans
—
2,586
—
2,586
Total
25,867,957
21,835,625
(25,828,416)
21,875,166
(Reversal of) Provision for
accounts receivable
Charge-off for
As of
and contract assets
accounts
As of
January 1,
(net of recovery)
receivable and
December 31,
2023
(1)
contract assets
2023
RMB
RMB
RMB
RMB
Accounts receivable:
Xiaoying Credit Loan
15,353,343
13,063,863
(24,406,436)
4,010,770
Other loans
39,132
409,477
(435,854)
12,755
Other service
—
1,757,267
—
1,757,267
Contract assets
Xiaoying Credit Loan
6,480,105
(2,994,278)
—
3,485,827
Other loans
2,586
(2,586)
—
—
Total
21,875,166
12,233,743
(24,842,290)
9,266,619
(Reversal of) Provision for
accounts receivable
Charge-off for
As of
and contract assets
accounts
As of
January 1,
(net of recovery)
receivable and
December 31,
2024
(1)
contract assets
2024
RMB
RMB
RMB
RMB
Accounts receivable:
Xiaoying Credit Loan
4,010,770
34,674,923
(20,819,104)
17,866,589
Other loans
12,755
(5,391)
(7,364)
—
Other service
1,757,267
(1,631,753)
—
125,514
Contract assets
Xiaoying Credit Loan
3,485,827
2,694,354
—
6,180,181
Total
9,266,619
35,732,133
(20,826,468)
24,172,284
Table of Contents
F-30
(Reversal of) Provision for
accounts receivable
Charge-off for
As of
and contract assets
accounts
As of
January 1,
(net of recovery)
receivable and December 31,
2024
(1)
contract assets
2024
US$
US$
US$
US$
Accounts receivable:
Xiaoying Credit Loan
549,473
4,750,445
(2,852,205)
2,447,713
Other loans
1,747
(739)
(1,008)
—
Other service
240,744
(223,549)
—
17,195
Contract assets
Xiaoying Credit Loan
477,556
369,125
—
846,681
Total
1,269,520
4,895,282
(2,853,213)
3,311,589
(1)
The recoveries of charge-off of accounts receivables and contract assets amounted to RMB1,738,580, RMB244,196
and RMB876,116 (US$120,027) during the years ended December 31, 2022, 2023 and 2024, respectively.
During the year ended December 31, 2024, the gross charge-off recorded in the accounts receivables and contract assets
amounted to RMB8,317,028 (US$1,139,428) and RMB13,385,556 (US$1,833,812) which originated from loans facilitated in 2023 and
2024, respectively.
(m)
Loans receivables from Xiaoying Credit Loans and other loans, net
Loans receivables represent loans facilitated through the Consolidated Trusts and Partnerships and loans provided by Xiaoying
Microcredit, which consist of Xiaoying Credit Loans, Xiaoying Revolving Loans and other miscellaneous loans that the Group facilitated
and provided during the years. Loans receivables from Xiaoying Credit Loans and other loans are stated at the historical carrying amount
net of write-offs and allowance for credit losses. The Group establishes an allowance for credit losses in accordance with ASC 326 based
on estimates, historical experience of net vintage-based loss rates, current economic conditions, reasonable and supportable forecasts of
future economic conditions and other factors surrounding the credit risk of borrowers. The profile of the borrowers is similar under each
product therefore the Group applies a consistent credit risk management framework to the entire portfolio of borrowers under each
product. The Group evaluates and adjusts its allowance for credit losses for loans receivables on a quarterly basis or more often as
necessary. Uncollectible loans receivables are charged off when a settlement is reached for an amount that is less than the outstanding
historical balance or when loans receivables are deemed uncollectible.
As of December 31, 2023 and 2024, loans receivables from Xiaoying Credit Loans and other loans amounted to
RMB4,947,833,357 and RMB4,828,316,995 (US$661,476,716) respectively. The general life time of loans receivables from Xiaoying
Credit Loans and other loans lasts no more than 12 months.
The Group excluded the accrued interest receivable balance, net of allowance for credit loss, from the disclosed amortized cost
basis, amounting to RMB77,677,121 and RMB71,667,521 (US$9,818,410) as of December 31, 2023 and 2024. The accrued interest
receivables were recorded in accounts receivable and contract assets from financing income in the consolidated balance sheet. In 2023
and 2024, the Group charges off loan receivables from Xiaoying Credit Loans and other loans overdue more than 60 days.
The following table presents the loans receivable from Xiaoying Credit Loans and other loans originated or facilitated through
the Consolidated Trusts and Partnerships and retained by the Group as of December 31, 2023 and 2024, respectively:
Loans receivables
from Xiaoying
Credit Loans and
other
Allowance for
As of December 31, 2023
loans
credit losses
Total
RMB
RMB
RMB
Xiaoying Credit Loan
5,136,542,858
(188,718,875)
4,947,823,983
Other loans
9,948
(574)
9,374
Total
5,136,552,806
(188,719,449)
4,947,833,357
Table of Contents
F-31
Loans receivables
from Xiaoying
Credit Loans and
other
Allowance for
As of December 31, 2024
loans
credit losses
Total
RMB
RMB
RMB
Xiaoying Credit Loan
5,004,137,624
(175,820,629)
4,828,316,995
Total
5,004,137,624
(175,820,629)
4,828,316,995
Loans receivables
from Xiaoying
Credit Loans and
other
Allowance for
As of December 31, 2024
loans
credit losses
Total
US$
US$
US$
Xiaoying Credit Loan
685,564,043
(24,087,327)
661,476,716
Total
685,564,043
(24,087,327)
661,476,716
The following tables present the movement of provision for loans receivable from Xiaoying Credit Loans and other loans as of
December 31, 2022, 2023 and 2024, respectively:
(Reversal of)
Provision for loans
receivable
from Xiaoying Credit
Loans and
As of December 31,
other loans (net of
As of December 31,
2021
recovery) (1)
Charge-off
2022
RMB
RMB
RMB
RMB
Xiaoying Credit Loans
54,725,057
160,131,434
(111,225,664)
103,630,827
Xiaoying Revolving Loans
610,684
—
(610,684)
—
Other loans
—
4,510,445
(1,662,118)
2,848,327
Total
55,335,741
164,641,879
(113,498,466)
106,479,154
(Reversal of)
Provision for
loans receivable
from Xiaoying Credit
Loans and
As of December 31,
other loans (net of
As of December 31,
2022
recovery) (1)
Charge-off
2023
RMB
RMB
RMB
RMB
Xiaoying Credit Loans
103,630,827
234,237,584
(149,149,536)
188,718,875
Xiaoying Revolving Loans
—
(2,737,290)
2,737,290
—
Other loans
2,848,327
1,849,982
(4,697,735)
574
Total
106,479,154
233,350,276
(151,109,981)
188,719,449
Table of Contents
F-32
(Reversal of)
Provision for
loans receivable
from Xiaoying Credit
Loans and
As of December 31,
other loans (net of
As of December 31,
2023
recovery) (1)
Charge-off
2024
RMB
RMB
RMB
RMB
Xiaoying Credit Loans
188,718,875
226,865,598
(239,763,844)
175,820,629
Xiaoying Revolving Loans
—
(900,606)
900,606
—
Other loans
574
(149,665)
149,091
—
Total
188,719,449
225,815,327
(238,714,147)
175,820,629
(Reversal of)
Provision for loans
receivable from
Xiaoying Credit
Loans and
As of December 31,
other loans (net of
As of December 31,
2023
recovery) (1)
Charge-off
2024
US$
US$
US$
US$
Xiaoying Credit Loans
25,854,380
31,080,459
(32,847,512)
24,087,327
Xiaoying Revolving Loans
—
(123,383)
123,383
—
Other loans
79
(20,503)
20,424
—
Total
25,854,459
30,936,573
(32,703,705)
24,087,327
(1)
The recoveries of charge-off of loans receivables from Xiaoying Credit Loans and other loans amounted to
RMB12,189,107, RMB13,488,360 and RMB9,251,001 (US$1,267,382) during the years ended December 31, 2022, 2023 and 2024,
respectively.
During the year ended December 31, 2024, the gross charge-off recorded in the loans receivables from Xiaoying Credit Loans
and other loans amounted to RMB115,695,330 (US$15,850,196) and RMB132,269,818 (US$18,120,891) which originated from loans
provided by Xiaoying Microcredit in 2023 and 2024, respectively.
The following table presents the aging, which is the primary credit quality indicator, of loans receivable from Xiaoying Credit
Loans and other loans as of December 31, 2023 and 2024, presented by year of origination respectively:
As of December 31, 2023
Aging
Not past-due
1 - 30 days
30 - 60 days
Total
RMB
RMB
RMB
RMB
Loan originated or facilitated in 2022
Xiaoying Credit Loans
23,330
510,844
985,551
1,519,725
Other loans
2,000
—
7,948
9,948
Loan originated or facilitated in 2023
Xiaoying Credit Loans
5,065,782,330
46,127,552
23,113,251
5,135,023,133
Total
5,065,807,660
46,638,396
24,106,750
5,136,552,806
As of December 31, 2024
Aging
Not past-due
1 - 30 days
30 - 60 days
Total
RMB
RMB
RMB
RMB
Loan originated or facilitated in 2023
Xiaoying Credit Loans
306,140
443,897
646,547
1,396,584
Loan originated or facilitated in 2024
Xiaoying Credit Loans
4,927,629,181
47,724,414
27,387,445
5,002,741,040
Total
4,927,935,321
48,168,311
28,033,992
5,004,137,624
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F-33
As of December 31, 2024
Aging
Not past-due
1 - 30 days 30 - 60 days
Total
US$
US$
US$
US$
Loan originated or facilitated in 2023
Xiaoying Credit Loans
41,940
60,814
88,577
191,331
Loan originated or facilitated in 2024
Xiaoying Credit Loans
675,082,429
6,538,218
3,752,065
685,372,712
Total
675,124,369
6,599,032
3,840,642
685,564,043
(n)
Loans and payable to investors at fair value of Consolidated Trusts
For Consolidated Trusts founded before December 31, 2021, the Group elected to apply the fair value option for the loan assets
and liabilities of the Consolidated Trusts on an individual basis at initial recognition, which is irrevocable throughout the existing period
of each Consolidated Trust. For the Consolidated Trusts founded after January 1, 2022, the Group elected to apply amortized cost method
to the loan assets and liabilities of newly formed Consolidated Trusts. During 2022, the Group managed the remaining activities of these
trusts. By the end of 2023, all loans and investor payments related to these trusts were fully settled. As of December 31, 2023 and 2024,
no outstanding balance of loans or liabilities related to these trusts in the Group’s financial statements.
For loan assets and liabilities measured at fair value, the Group uses a discounted cash flow valuation methodology by
discounting the estimated future net cash flows using an appropriate discount rate. The future net cash flows are estimated based on
contractual cash flows, taking into consideration of estimated loss rate and prepayment rate of the loans, and the pre-determined rate of
the Group’s guarantee exposure for certain products. They are recorded as “Loans at fair value” and “Payable to investors at fair value”
in the consolidated balance sheet. Changes in fair value of loans and payable to investors are reported net as recorded in “Fair value
adjustments related to Consolidated Trusts” in the consolidated statement of comprehensive income. See Note 3 for further disclosure on
financial instruments of the Consolidated Trusts for which the fair value option has been elected.
(o)
Loan receivable from Xiaoying Housing Loans, net
Xiaoying Housing Loan is a home equity loan product secured by properties owned by borrowers and had been ceased the
facilitation since 2019.
The Group directly or indirectly guarantees on borrowers’ defaults to the investors of Xiaoying Housing Loan products and
obtains a collateral right from the borrowers for such guarantees. The collaterals include apartments, houses and properties, which can
fully cover the underlying loan principal and interest. Upon default of the loan, the Group compensates the investor or institutional
funding partners for defaulted loan principal and interest and obtains the creditor’s right of the underlying loan. The payout amount in
relation to the original guarantee provision provided at loan inception was recorded as a deduction of guarantee liability, reflected in net
payouts in the guarantee liabilities rollforward. The remaining payout amount in relation to the acquisition of the creditor’s right of the
underlying loan is recorded as loan receivable upon payment of compensation in “Loan receivable from Xiaoying Housing Loans” in the
consolidated balance sheets as the collection cycle typically will be more than one year. No loan receivables are recorded at loan
inception.
Loan receivable from Xiaoying Housing Loans is recorded based on the present value of the expected amount to be collected
from the exercise of the collateral right. Given the deterioration of the credit related to those loans upon acquisition, the Group
determined that those loans are in non-accrual status and should only recognize related service and penalty fees upon cash received in
other revenues.
The outstanding balance of loan receivable from Xiaoying Housing Loans were RMB8,656,846 and nil as of December 31,
2023 and 2024, respectively. The contractually required payments that are receivable for loans acquired during 2023 and 2024 were nil
and nil, respectively. The guarantee related to the default of the outstanding balance of Xiaoying Housing Loan were all settled in 2020.
Table of Contents
F-34
Allowance for credit losses for loan receivable is established through periodic charges to the provision for loan receivable when
the Group believes that the future collection of defaulted loan principal and interest is unlikely. Allowance for credit losses for loan
receivables from Xiaoying Housing loans is also recognized when the fair value is below the original recorded present value of the
expected amount to be collected. In order to accelerate the collection process, the Group transferred the creditor rights of certain
defaulted loans as well as the underlying collateral right to third party companies at a discount in 2020 and 2021. The discounted amount
was recorded as an allowance for credit losses for loan receivables which represent the amount that the Group expects not able to collect
from the proceedings. In addition, the Group also recorded an allowance for credit losses for the remaining outstanding loans not
transferred benchmarked to the discounted amount. The Group also institutes proceedings to collect the payout amount from collaterals.
Uncollectible loan receivable from Xiaoying Housing Loans is charged off when a settlement is reached for an amount that is less than
the outstanding historical balance or when loan receivables are deemed uncollectible.
The following tables presents the movement in provision for loans receivable from Xiaoying Housing Loans for the years ended
December 31, 2022, 2023 and 2024.
Reversal of provision for Loans Receivable
Recoveries of
As of December 31, 2021
from Xiaoying Housing Loans
charge-off
As of December 31, 2022
RMB
RMB
RMB
RMB
—
(6,066,176)
6,066,176
—
Reversal of provision for Loans Receivable
Recoveries of
As of December 31, 2022
from Xiaoying Housing Loans
charge-off
As of December 31, 2023
RMB
RMB
RMB
RMB
—
(4,213,234)
4,213,234
—
Reversal of provision for Loans Receivable
Recoveries of
As of December 31, 2023
from Xiaoying Housing Loans
charge-off
As of December 31, 2024
RMB
RMB
RMB
RMB
—
(4,156,904)
4,156,904
—
Reversal of provision for Loans Receivable
Recoveries of
As of December 31, 2023
from Xiaoying Housing Loans
charge-off
As of December 31, 2024
US$
US$
US$
US$
—
(569,494)
569,494
—
The recoveries of loans receivable from Xiaoying Housing Loans amounted to RMB8,088,235, RMB5,617,646 and
RMB6,929,931 (US$949,397) during the years ended December 31, 2022, 2023 and 2024, respectively.
The following tables presents the aging of Loan receivables from Xiaoying Housing Loans as of December 31, 2023 and 2024,
respectively:
As of December 31, 2023
Overdue 1 – 2 Overdue 2 – 3 Overdue over 3
Aging
years
years
years
Total
RMB
RMB
RMB
RMB
Xiaoying Housing Loans
—
—
8,656,846
8,656,846
As of December 31, 2024
Overdue 1 – 2 Overdue 2 – 3 Overdue over 3
Aging
years
years
years
Total
RMB
RMB
RMB
RMB
Xiaoying Housing Loans
—
—
—
—
(p)
Financial investments
The Group invested in several Venture Capital funds (“VC funds”) in the year 2023 and 2024. These investments are in the legal
form of limited partnership or zero coupon convertible note.
Table of Contents
F-35
For partnership investments, unless the fair value option under ASC 825 is elected, the Group uses equity method to account for
these investments under ASC 323, which means these investments are initially recorded at cost and subsequently adjusted for the
proportionated share of income or loss, impairment as well as contributions made or distributions received. The group elects cumulative
earnings approach for classifying the distributions received from equity method investments. However, for the case that virtually no
influence was exerted by the Group in the partnership agreement, fair value measurement is applied under ASC 321. For VC funds
investment measured under ASC 321, fair value measurement is applied except for the case that readily determinable fair value is not
available thus the Group measures them alternatively at cost minus impairment, plus or minus observable price changes from orderly
transactions of identical or similar investments of the same issuer.
For the investment in the legal form of zero coupon convertible note, it is in substance a prepaid forward contract that entitles
the Group to obtain shares of the VC fund in the future, and because no readily determinable fair value is available, the Group measures
the investment at cost minus impairment, plus or minus observable price changes from orderly transactions of identical or similar
investments of the same issuer under ASC 321.
The Group reviews VC funds investment for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is measured based on the excess of the carrying amount of an investment over its
estimated fair value.
The Group invested in several U.S. Treasury bills with original maturities over three months, wealth management products with
no fixed term, term deposit, and fund linked note. Given its intention and abilities, the Group account these investments under trading,
available-for-sale, or held-to-maturity model.
(q)
Deposits to institutional cooperators, net
Starting from November 2019, the Group enter into a series of deposit arrangements with financing institutional cooperators,
such as insurance company and financing guarantee company. The Group is required to pay deposits to those financial institutional
cooperators monthly or in accordance with an agreed payment schedule. The amount of deposit is separately agreed with each
institutional cooperator, usually calculated by multiplying the outstanding loan balance on the reconciliation date by an agreed percent
rate (“the standard amount “). The agreed percent rate may be adjusted from time to time. If the balance of the deposits exceeds the
standard amount or supplementary payment of deposit is needed, the financial institutional cooperators shall refund the excess part to the
Group or the Group shall make supplementary payment of deposit in accordance with an agreed payment schedule.
Deposits to institutional cooperators is stated at the historical carrying amount net of write-offs and allowance for credit losses.
The Group establishes an allowance for credit losses based on estimates, the current and expected probability of default, insurance
premium/guarantee fee, the historical pay-out amounts, the outstanding loan balances, the forecasted loan facilitation amounts and the
credit risk of institutional cooperators. The Group evaluates and adjusts its allowance for credit losses for deposits to institutional
cooperators on a quarterly basis or more often as necessary. Deposits to institutional cooperators are charged off when deposits are
deemed uncollectible. Deposits to institutional cooperators are recorded as current assets because the term of the underlying loan assets
was 12 months or less. As of December 31, 2023 and 2024, all deposits are refundable and none of them passed the original due date.
(r)
Property and equipment, net
Furniture and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are
calculated on a straight-line basis over the following estimated useful lives:
Computer and transmission equipment
3 years
Furniture and office equipment
5 years
Motor vehicles
4 years
Leasehold improvements
Over the shorter of the lease term or expected useful lives
Gains and losses from the disposal are included in “Other income (loss), net”.
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F-36
(s)
Intangible assets
Intangible assets with finite lives represent domain name and purchased computer software. These intangible assets are
amortized on a straight-line basis over their estimated useful lives of the respective asset, which varies from 1 to 10 years.
Intangible assets with an indefinite useful life represent the insurance broker license purchased during 2018 and insurance sale
on line license authorized in 2019, See Note 7. Intangible assets with an indefinite life are not amortized and are tested for impairment
annually or more frequently if events or changes in circumstances indicate that it might be impaired.
(t)
Impairment of long-lived assets
Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. When these events occur, the Group evaluates the impairment for the long-lived assets by comparing
the carrying amounts of the assets to an estimate of future undiscounted cash flow attributable to these assets. If the sum of the future
undiscounted cash flows is less than the carrying amounts of the assets, the Group recognizes an impairment loss based on the excess of
the carrying amounts of the assets over the fair value of the assets. Meanwhile, annual impairment testing is required for goodwill and
intangible assets that have an indefinite useful life.
(u)
Long-term investments
The Group accounts for long-term investments using equity method of accounting as the Group has the ability to exercise
significant influence over investments. As part of this evaluation, the Group considers the participating and protective rights in the
investments as well as its legal form.
The Group applies the equity method of accounting for the long-term investments when the Group has the ability to
significantly influence the operations or financial activities of the investee. The Group records the investments at cost and subsequently
adjusts the carrying amount each period for share of the earnings or losses of the investee and other adjustments required by the equity
method of accounting. Dividends received from the equity method investments are recorded as reductions in the cost of such
investments. The group elects cumulative earnings approach for classifying the distributions received from equity method investments.
Long-term investments are evaluated for impairment when facts or circumstances indicate that the fair value of the long-term
investments is less than its carrying value. An impairment is recognized when a decline in fair value is determined to be other-than-
temporary. The Group reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not
limited to, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost;
(iv) financial condition and near term prospects of the investments; and (v) ability to hold the security for a period of time sufficient to
allow for any anticipated recovery in fair value. As of December 31, 2023 and 2024, long-term investments of the Group consist of three
equity investments of Chinese Mainland private companies, respectively.
(v)
Deposit payable to channel cooperators
The Group co-operates with selected Fintech and other financial companies by connecting the borrowers referred by those
companies to investors on the Group’s platform. As part of the arrangements, the selected companies also provide credit enhancements
on the loans facilitated to the borrowers referred by them and are required to pay a certain amount of cash as deposit to the Group, from
which the Group is entitled to deduct if they fail to compensate the defaulted loans on a timely basis. Any remaining balance of the
deposit is released upon expiry of the co-operation agreements or newly signed settlement agreements. As of December 31, 2023 and
2024, the outstanding balance of the deposit that the Group received from Fintech and other financial companies were RMB19,700,235
and RMB12,016,415 (US$1,646,242) respectively.
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F-37
(w)
Employee defined contribution plan
Full time employees of the Group in the Chinese Mainland participate in a government mandated multi-employer defined
contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other
welfare benefits are provided to employees. Chinese labor regulations require that the Group make contributions to the government for
these benefits based on a certain percentage of the employee’s salaries. The Group has no legal obligation for the benefits beyond the
contributions. The total amount that was expensed as incurred were RMB41,757,571, RMB47,040,770 and RMB53,796,095
(US$7,370,035) for the years ended December 31, 2022, 2023 and 2024, respectively.
(x)
Advertising cost
Advertising costs are expensed as incurred in accordance with ASC 720-35 Other Expense—Advertising costs. Advertising
costs were RMB8,491,724, RMB8,105,126 and RMB8,563,551 (US$1,173,202) for the years ended December 31, 2022, 2023 and 2024,
respectively. Advertising costs are included in borrower acquisitions and marketing expense in the consolidated statements of
comprehensive income.
(y)
Origination and servicing expense
Origination and servicing expense consists primarily of variable expenses and vendor costs, including labor costs, costs related
to credit assessment, payment processing services, fees paid to third party collection agencies, as well as interest expense paid to
investors and institutional funding partners of the Consolidated Trusts and Partnerships.
(z)
Income taxes
Current taxes are recognized in accordance with the laws of the relevant taxing authorities.
The Group’s income tax expense includes Chinese Mainland and Hong Kong income taxes plus the recognition of Chinese
Mainland taxes on undistributed earnings of Beijing WFOE not considered to be indefinitely reinvested.
Deferred taxes are provided using 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 or tax return. Under this
method, deferred tax assets and liabilities are recognized for the differences between the financial statement carrying amount and the tax
basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax
assets are then evaluated to determine the extent to which they are more likely than not to be realized. In making such a determination,
management considers all positive and negative evidence, including future reversals of existing taxable temporary differences and
projected future taxable income exclusive of reversing temporary differences and carryforwards. Deferred tax assets are then reduced by
a valuation allowance to the amount, in the opinion of management, that is more likely than not to be realized.
The Group accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step
process to determine the amount of the benefit to be recognized. First, each tax position is evaluated to determine the likelihood that it
will be sustained upon examination by the taxing authorities. If a tax position is deemed more-likely-than-not to be sustained (defined as
a likelihood of more than fifty percent of being sustained upon an examination, based on the technical merits of the tax position), the tax
position is then assessed to determine the amount of benefits to recognize in the consolidated financial statements. The amount of the
benefits that may be recognized is the largest amount that is greater than 50 percent likely of being realized upon settlement. Interest and
penalties on income taxes are classified as a component of income taxes.
(aa)
Value added taxes (“VAT”)
The Group is subject to VAT at the rate of 6% and 13% given that they are classified as general tax payers and at the rate of 3%
as certain Consolidated Trusts and Partnerships of the Group are classified as small-scale tax payers. VAT is reported as a deduction to
revenue when incurred and amounted to RMB234,931,501, RMB301,613,913, and RMB401,550,251 (US55,012,159) for the years
ended December 31, 2022, 2023 and 2024, respectively. Entities that are VAT general taxpayers are allowed to offset qualified input VAT
paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in the line item of
accrued expense and other liabilities on the consolidated balance sheets.
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F-38
(ab)
Segment information
The Group uses management approach to determine operation segment. The management approach considers the internal
organization and reporting used by the Group’s chief operating decision maker (“CODM”) for making decisions, allocation of resource
and assessing performance.
The Group’s CODM has been identified as the Chief Executive Officer who reviews the consolidated results of operations when
making decisions about allocating resources and assessing performance of the Group. The Group operates and manages its business as a
single segment.
All of the Group’s revenue for the years ended December 31, 2022, 2023 and 2024 were generated from the Chinese Mainland.
As the Group generates all of its revenues in the PRC, no geographical segments are presented.
The Group generates revenues primarily from (i) the fees that the Group charges for service of matching institutional funding
partners with borrowers (i.e., loan facilitation service) and for other services the Group provides over the lifetime of the loan (i.e., post-
origination service and guarantee service); (ii) interests from borrowers from microcredit business and the financing fees the Group
charges for the loans facilitated through the Consolidated Trusts and Partnerships (i.e., financing income). The Group charges a service
fee to the borrower indirectly through financial institutional cooperators or to certain institutional funding partners directly.
The accounting policies of the segment profit or loss and assets are the same as those described in the summary of significant
accounting policies. The Group’s CODM assesses performance for the segment and decides how to allocate resources based on net
income that also is reported on the consolidated statements of comprehensive income as net income. The measure of segment assets is
reported on the consolidated balance sheet as total assets. The regularly provided significant segment expense information is the same as
that included in the consolidated statements of comprehensive income. The Group’s CODM uses net income to evaluate income
generated from segment assets in deciding whether to reinvest profits into the segment or to pay dividends.
(ac)
Treasury shares
The Group accounts for treasury shares using the cost method. Under this method, the cost incurred to purchase the shares is
recorded in the treasury shares account in the consolidated balance sheets. In the event that treasury shares are transferred to Employee
Stock Ownership Plans (“ESOP”), the Company recognized the amount in addition paid-in capital. The treasury shares account includes
35,564,336 and 78,439,504 ordinary shares as of December 31, 2023 and 2024, respectively, which will be canceled or held as treasury
shares.
(ad)
Leases
The Group adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) from January 1, 2019 by using the modified
retrospective method and did not restate the comparable periods. The Group has elected the package of practical expedients, which
allows the Group not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease
classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any expired or existing leases as of
the adoption date. The Group also elected the practical expedient not to separate lease and non-lease components of contracts. Lastly, the
Group elected the short-term lease exemption for all contracts with lease terms of 12 months or less.
The Group determines if an arrangement is a lease or contains a lease at inception. Right-of-use (“ROU”) assets and liabilities
are recognized at lease commencement date based on the present value of remaining lease payments over the lease terms. As most of the
Group’s leases do not provide an implicit rate, the Group estimates its incremental borrowing rate based on the information available at
the commencement date in determining the present value of lease payments. The incremental borrowing rate is estimated to approximate
the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is
located. The Group’s leases often include options to extend lease terms and such extended terms are included in lease terms when the
Group is reasonably certain to exercise those options. Lease terms also include periods covered by options to terminate the leases when
the Group is reasonably certain not to exercise those options. Lease expense is recorded on a straight-line basis over the lease term. For
operating leases, ROU assets were recorded as “Other non-current assets”, and the current and non-current portions of the lease liabilities
were recorded as “Accrued expenses and other current liabilities” and “Other non-current liabilities” in the consolidated balance sheets.
The Group does not have any finance leases for the year ended December 31, 2023 and 2024.
Table of Contents
F-39
As of December 31, 2023 and 2024, the Group recognized ROU assets of RMB50,628,099 and RMB39,239,747
(US$5,375,823), and total lease liabilities of RMB50,423,551 and RMB40,249,266 (US$5,514,127), including current portion of
RMB12,852,494 and RMB12,732,875 (US$1,744,397).
The Group’s operating leases mainly related to office facilitates. As of December 31, 2024, the weighted average remaining
lease term was 3.15 years and the weighted average discount rate was 5.22% for the Group’s operating leases.
Operating lease cost for the year ended 31 December, 2024 was RMB18,612,688 (US$2,549,928), which excluded cost of short-
term contracts. Short-term lease cost for the year ended 31 December, 2024 was insignificant. For the year ended 31 December, 2023 and
2024, no lease cost for operating leases was capitalized. Supplemental cash flow information related to operating leases was as follows:
As of December 31, 2024
RMB
US$
Cash payments for operating leases
26,914,809
3,687,314
ROU assets obtained in exchange for operating lease liabilities
12,972,725
1,777,256
Future lease payments under operating leases as of December 31, 2024 were as follows:
Operating leases
RMB
US$
Year ending December 31,
2025
15,691,876
2,149,778
2026
12,414,733
1,700,811
2027
11,926,988
1,633,991
2028
4,950,501
678,216
Total future lease payments
44,984,098
6,162,796
Less: Imputed interest
4,734,832
648,669
Total lease liability balance
40,249,266
5,514,127
As of December 31, 2024, additional operating leases that have not yet commenced were immaterial.
(ae)
Net income (loss) per share
Basic income (loss) per share is computed by dividing net income (loss) attributable to the holders of ordinary shares by the
weighted average number of ordinary shares outstanding during the year. Diluted income (loss) per share is calculated by dividing net
income (loss) attributable to the holders of ordinary shares as adjusted for the effect of dilutive ordinary share equivalents, if any, by the
weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. Ordinary share
equivalents of stock options are calculated using the treasury stock method. However, ordinary share equivalents are not included in the
denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in
which a net loss is recorded.
(af)
Share-based compensation
Share-based payment transactions with employees and directors, such as stock options and restricted stocks, are measured based
on the grant date fair value of the awards in accordance with ASC 718, Compensation-Stock Compensation, with the resulting expense
generally recognized on a straight-line basis in the consolidated statements of income over the period during which the employee is
required to perform service in exchange for the award.
(ag)
Certain risks and concentrations
Financial instruments that potentially expose the Group to concentrations of credit risk consist principally of cash, restricted
cash, financial investments, accounts receivable and contract assets, deposits to institutional cooperators, loans receivables and financial
guarantee derivative.
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F-40
The Group’s investment policy requires cash and restricted cash to be placed with high-quality financial institutions and to limit
the amount of credit risk from any one issuer. The Group regularly evaluates the credit standing of the counterparties or financial
institutions.
Financial investments that potentially subject the Group to market risk mainly consist of investments in VC funds. The Group
limits its exposure to market risks associated with financial investments by regularly conducting post-investment management of the
funds.
Accounts receivable and contract assets are typically unsecured and are derived from revenue earned from customers in the
PRC. The risk with respect to accounts receivable and contract assets is mitigated through the Group’s consistent credit risk management
framework to the entire portfolio of borrowers under each product. The Group also constantly monitors the financial condition and
evaluates the credit quality of certain institutional funding partners and external financing guarantee companies from which the Group’s
service fees are collected.
Deposits to institutional cooperators are placed with financial institutional cooperators, which are also the counterparties to the
financial guarantee derivative. The Group regularly monitors the financial condition and evaluates the credit quality of each institutional
cooperator.
Credit of loans receivables is controlled by the application of credit approval, limit and monitoring procedures.
No investor or institutional funding partner represented greater than 10% or more of the total net revenues for the years ended
December 31, 2022, 2023 and 2024.
During the years ended December 31, 2023 and 2024, there were two and two institutional cooperators individually provided
credit insurance or guarantee services for greater than 10% or more of the total loans the Group facilitated and provided.
Year ended
Year ended
December 31,
December 31,
2023
2024
Institutional cooperator A
21.5 %
25.2 %
Institutional cooperator B
10.3 %
*
Institutional cooperator C
*
10.2 %
There were one and three contract assets due from institutional funding partners/institutional cooperators that individually
accounted for greater than 10% of the Group’s carrying amount of accounts receivable and contract assets as of December 31, 2023 and
2024, respectively.
As of December 31,
As of December 31,
2023
2024
Institutional cooperator A
14.0 %
12.2 %
Institutional cooperator C
*
14.1 %
Institutional cooperator D
*
10.8 %
As of December 31, 2023 and 2024, two and one institutional cooperators individually accounted for more than 10% of the
Group’s deposits to institutional cooperators, respectively.
As of December 31,
As of December 31,
2023
2024
Institutional cooperator B
10.8 %
*
Institutional cooperator C
*
15.1 %
Institutional cooperator E
11.9 %
*
* Less than 10%.
The Group manages current payment risk of financial guarantee derivative through a self-developed risk management model.
The rating scale of risk management model takes into account factors such as identity characteristics, credit history, payment overdue
history, payment capacity, behavioral characteristics and online social network activity.
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F-41
(ah)
Allowance for credit losses
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments—Credit
Losses (Topic 326). The ASU introduced a new credit loss methodology, the current expected credit losses (“CECL”) methodology,
which requires earlier recognition of credit losses while also providing additional disclosure about credit risk. The Group adopted the
ASU as of January 1, 2020, which resulted in an increase in the Group’s Allowance for credit losses (“ACL”) and a decrease to opening
Retained earnings, net of deferred income taxes, at January 1, 2020. The financial guarantees provided for the Group’s off - balance sheet
loans accounted for under ASC 460 are in the scope of ASC 326 and subject to the CECL methodology.
The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for
loans, receivables, contract assets and other financial assets measured at amortized cost at the time the financial asset is originated or
acquired. The ACL is measured based on the financial assets that share similar risk characteristics and includes both quantitative and
qualitative components, and adjusted each period for changes in expected lifetime credit losses. The Group establishes the CECL
methodology, which is based on past events, current conditions, and reasonable and supportable forecasts over the life of the financial
assets.
For the Group’s accounts receivable and contract assets, loans receivable that are not covered by the financing guarantee
companies and certain off-balance sheet credit exposures, such as financial guarantees not accounted for as derivatives, generated from
financing guarantee business, discussed in note 2(g), the ACL for these financial assets is driven by the default risk of underlying loans.
The ACL is calculated using vintage-based loss rate and macroeconomic forecast scenario models, and is the product of multiplying the
estimates of vintage-based loss rates and the individual level exposure at default on an undiscounted basis, adjusted for a weighted
macroeconomic forecast. The model to estimate the loss rates considers the historical loss experience period for the vintage-based loss
rates.
For the Group’s accounts receivable and contract assets generated from the loans facilitated that the Group collected indirectly
through external financing guarantee company or directly from institutional funding partner, loans receivables are covered by the
financing guarantee companies, deposits to financial institutional cooperators and certain financial assets, the ACL for these financial
assets is mainly driven by the credit risk of financial institutional cooperators or institutional funding partners. The ACL is calculated
using probability of default, loss given default and macroeconomic forecast scenario models, and is the product of multiplying the
probability of default determined by the external credit ratings of financial institutional cooperators or institutional funding partners, loss
given default and individual loan level exposure at default on an undiscounted basis, and adjusted for a weighted macroeconomic
forecast.
For the Group’s other financial assets, the ACL is mainly determined to be the amount of probable incurred credit losses based
on historical experience and other factors surrounding the credit risk of the counterparty. For individual counterparty where there is an
observable indicator of loss, an individually evaluated allowance for credit losses is provided.
Under the CECL methodology, macroeconomic forecast scenario model is also applied to the ACL for a weighted
macroeconomic forecast adjustment. The Group develops the macroeconomic forecast scenario model by establishing the weighted
multiple macroeconomic forecast scenarios over the life of the loans and a pool of selected economic variables, including gross domestic
product (GDP), unemployment rate and other macro-economic variables that were determined to be the most relevant to the credit losses.
The CECL methodology’s impact on expected credit losses, among other things, reflects the Group’s view of the current state of the
economy, forecasted macroeconomic conditions and the Group’s portfolios.
The qualitative component of the CECL methodology represents the Group’s judgment of additional considerations to account
for internal and external risk factors that are not adequately measured in the quantitative component, including consideration of
idiosyncratic risk factors or other relevant factors.
The net increase to the ACL amounted to the RMB194.1 million for the year ended December 31, 2024 primarily resulted from
the increase in contingent guarantee liability and accounts receivable balances generated from financing guarantee business, driven by
the increased volume of loans facilitated covered by the guarantee service in 2024.
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F-42
(ai)
Other comprehensive income
For the years ended December 31, 2022, 2023 and 2024, the Group recognized a gain of RMB204,444, a loss of RMB6,852 and
a loss of RMB313,815 (US$42,992) from its long - term investments, which were net of tax effect of RMB68,148, RMB2,284 and
RMB104,605 (US$14,331), in other comprehensive income.
For the years ended December 31, 2022, 2023 and 2024, the Group recognized nil, a gain of RMB474,792 and a gain of
RMB292,799 (US$40,113) from its financial investments, which were net of tax effect of nil, nil and RMB1,696,625 (US$232,437), in
other comprehensive income. Of the amounts recognized in other comprehensive income, the Group has reclassed nil, nil and
RMB4,259,490 (US$583,548), which were net of tax effect of nil, nil and RMB1,440,761 (US$197,383), from other comprehensive
income to earnings for the years ended December 31, 2022, 2023 and 2024.
(aj)
Recent accounting pronouncements
The FASB issued Accounting Standards Update No. 2023-07 Segment Reporting—Improvements to Reportable Segment
Disclosures (Topic 280) in November, 2023. which is effective for fiscal years beginning after December 15, 2024. The standard
improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The
Group adopted this ASU during the year ended December 31, 2024. The adoption of this ASU affected only the Group’s disclosures, see
Note 1(ab), with no impact to its consolidated financial statements.
The FASB issued Accounting Standards Update No. 20243-03 Disaggregation of Income Statement Expenses (DISE), which is
effective for annual reporting periods beginning after December 15, 2026, requiring additional disclosure of the nature of expenses
included in the income statement. The new standard requires disclosures about specific types of expenses included in the expense
captions presented on the face of the income statement as well as disclosures about selling expenses.
The FASB issued Accounting Standards Update No. 2023-09 Income Taxes—Improvements to Income Tax Disclosures (Topic
740) in December, 2023. which will be effective for fiscal years beginning after December 15, 2024. The standard requires disaggregated
information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.
The Group is currently evaluating the impact of these recent accounting pronouncements on the consolidated financial
statements.
(ak)
Translation into United States Dollars
The financial statements of the Group are stated in RMB. Translations of amounts from RMB into United States dollars are
solely for the convenience of the reader and were calculated at the rate of US$1.00 = RMB7.2993, on December 31, 2024, as set forth in
H.10 statistical release of the Federal Reserve Board. The translation is not intended to imply that the RMB amounts could have been, or
could be, converted, realized or settled into United States dollars at that rate on December 31, 2024, or at any other rate.
(al)
Revisions of prior year
Correction of immaterial misstatements
The Group has revised the presentation of the gain (loss) from financial investments at equity method after income tax expense,
which previously reported as “Income (loss) from financial investments” before income tax expense. Additionally, “Impairment losses on
long-term investments” accounted under the equity method have been reclassified into the gain (loss) from equity in affiliates after
income tax expense. As a result of the change in presentation of consolidated statements of comprehensive income, for the years ended
December 31, 2022 and 2023, the Group’s income before income taxes decreased by RMB3.6 million from RMB1,223.5 million to
RMB1,219.9 million, and increased by RMB65.5 million from RMB1,403.1 million to RMB1,468.6 million, respectively. This change in
presentation does not affect the net income for any periods presented. The relevant reconcilable items, such as the cash flow line items,
have been revised to reflect such changes.
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F-43
The Group has reclassed Xiaoying Microcredit’s loan origination and collection activities from operating activities to investing
activities in the consolidated statement of cash flows for each comparable information of the years ended December 31, 2022 and 2023.
This change in classification corrected the previous understatement of cash provided by operating activities and cash used in investing
activities. As a result of the change in classification of consolidated statements of cash flows, for the years ended December 31, 2022 and
2023, the Group’s cash provided by operating activities increased by RMB304.1 million from RMB322.7 million to RMB626.8 million,
and by RMB577.3 million from RMB814.1 million to RMB1,391.4 million, respectively; the Group’s cash used in investing activities
increased by RMB304.1 million from RMB913.4 million to RMB1,217.5 million, and by RMB577.3 million from RMB1,106.3 million
to RMB1,683.6 million, respectively. And this change in classification did not affect the net increase (decrease) in cash, and cash
equivalents and restricted cash for any periods which remain unchanged.
The comparable information related to corrections of these errors in this annual report has been adjusted to conform to current
presentation.
Presentation Reclassifications of Financial Statement Line Items
The Group has concluded to separate expenses related to borrower acquisitions from origination and servicing expenses and
indirect expenses of the borrower acquisitions from general and administrative expenses to a single line item as these expenses have
become more significant and thus deemed to be useful to financial statement users. Further, the Group has determined not to present the
sales and marketing expenses, which are considered immaterial, in a separate line item. In conclusion, the Group has decided to combine
these two line items into one captioned borrower acquisitions and marketing expenses. The Group has correspondingly conformed prior
period presentation to current period presentation to enhance comparability. This change in presentation does not affect any subtotal line
on the face of the consolidated statements of comprehensive income.
As a result of the reclassifications, for the years ended December 31, 2022 and 2023, the Group embedded its sales and
marketing expense of RMB15.4 million and RMB12.5 million, respectively, along with borrower acquisitions expenses of RMB817.7
million and RMB1,358.4 million, respectively, into “Borrower acquisitions and marketing expenses” in the consolidated statements of
comprehensive income. And for the years ended December 31, 2022 and 2023, the Group’s origination and servicing expenses decreased
by RMB789.3 million from RMB2,126.7 million to RMB1,337.4 million, and by RMB1,325.8 million from RMB2,869.8 million to
RMB1,544.0 million, respectively; the Group’s general and administrative expenses decreased by RMB28.3 million from RMB171.5
million to RMB143.2 million, and by RMB32.6 million from RMB186.5 million to RMB153.9 million, respectively.
The Group has considered the facts that fair value change related to financial guarantee services and Consolidated Trusts are
generated from ordinary course of businesses, and has concluded to reclass the amount to captions above total operating costs and
expenses. Prior to the reclassification, the Group classified all amount of fair value changes to captions below total operating costs and
expenses. This reclassification does not have impact on net income for any prior periods presented.
The comparable information related to changes to financial statement line item in this annual report has been adjusted to
conform to current presentation.
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F-44
3. Fair value of assets and liabilities
For a description of the fair value hierarchy and the Group’s fair value methodologies, see “ Note 2—Summary of Significant
Accounting Policies”.
Financial Instruments Recorded at Fair Value on a Recurring Basis
The following tables present the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:
Balance at Fair
Level 1
Level 2
Level 3
Value
December 31, 2023
(RMB)
(RMB)
(RMB)
(RMB)
Assets
Financial investments
56,181,082
—
367,765,216
423,946,298
Total assets
56,181,082
—
367,765,216
423,946,298
Balance at Fair
Level 1
Level 2
Level 3
Value
December 31, 2024
(RMB)
(RMB)
(RMB)
(RMB)
Assets
Financial guarantee derivative
—
—
1,038,258
1,038,258
Financial investments
—
—
266,684,257
266,684,257
Total assets
—
—
267,722,515
267,722,515
Balance at Fair
Level 1
Level 2
Level 3
Value
December 31, 2024
(US$)
(US$)
(US$)
(US$)
Assets
Financial guarantee derivative
—
—
142,241
142,241
Financial investments
—
—
36,535,593
36,535,593
Total assets
—
—
36,677,834
36,677,834
(1) There were no transfers between Level 1 and Level 3 of financial assets and liabilities measured at fair value.
Financial guarantee derivative
The following tables summarize the notional amount and total fair value of financial guarantee derivatives as of December 31,
2023 and 2024. The maturity profile of the derivatives is generally within one year. While the notional amounts disclosed below give an
indication of the volume of the Group’s derivatives activity, the notional amounts significantly exceed, in the Group’s view, the possible
losses that could arise from such transactions. The notional amount is simply a reference amount used to calculate payments. The
maximum payout is subject to pre - agreed cap.
Notional Amount Maximum Potential Payout
Fair Value
December 31, 2023
RMB
RMB
RMB
Financial guarantee derivative assets
—
—
—
Financial guarantee derivative liabilities
—
—
—
Notional Amount Maximum Potential Payout
Fair Value
December 31, 2024
RMB
RMB
RMB
Financial guarantee derivative assets
130,290,057
21,975,258
1,038,258
Financial guarantee derivative liabilities
—
—
—
Notional Amount Maximum Potential Payout
Fair Value
December 31, 2024
US$
US$
US$
Financial guarantee derivative assets
17,849,665
3,010,598
142,241
Financial guarantee derivative liabilities
—
—
—
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F-45
The following table presents fair value change recorded on financial guarantee derivatives for the years ended December 31,
2022, 2023 and 2024, respectively.
Change in fair value of financial guarantee derivative
For the year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Financial guarantee derivative assets
15,743,564
—
1,038,258
142,241
Financial guarantee derivative liabilities
121,910,532
24,966,242
—
—
Total gains recorded in income
137,654,096
24,966,242
1,038,258
142,241
Loans at fair value and Payable to investors at fair value
The Group has elected the fair value option for the loan assets and liabilities of the Consolidated Trusts that formed before
December 31, 2021, which otherwise would not have been carried at fair value. Such election is irrevocable and is applied to financial
instruments on an individual basis at initial recognition.
As the Group’s loans and payable to investors in the Consolidated Trusts do not trade in an active market with readily
observable prices, the Group uses significant unobservable inputs to measure the fair value of these assets and liabilities. Financial
instruments are categorized in the Level 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value
measurement. At December 31, 2023, the discounted cash flow methodology is used to estimate the fair value of loans and payables to
investors.
As of December 31, 2023, the significant unobservable inputs used in the fair value measurement of the loans and payables to
investors of the Consolidated Trusts included the discount rate and net cumulative expected loss. These inputs in isolation can cause
significant increases or decreases in fair value. Increases or decrease in the discount rate can significantly impact the fair value results.
The discount rate is determined based on the market rates.
Significant Unobservable Inputs
December 31, 2023
December 31, 2024
Range of Inputs
Range of Inputs
Financial Instrument
Unobservable Input
Weighted-Average
Weighted-Average
Loans and payable to investors at fair value
Discount rates
6.48 %
—
Net cumulative expected loss rates (1)
6.10 %
—
(1) Represents the net of loss rate and prepayment rate, expressed as a percentage of the loan volume.
The following table presents additional information about Level 3 loans and payable to investors measured at fair value on a
recurring basis for the years ended December 31, 2023. Changes in fair value of loans and payable to investors are reported net as “Fair
value adjustments related to Consolidated Trusts” in the consolidated statements of comprehensive income.
RMB
Changes in fair
value related to
balance
Balance at
Origination
Balance at
outstanding at
December 31,
of loan
Collection of
Reinvestment
Change in
December
December 31,
2022
principal
principal
of principal
fair value
31, 2023
2023
Xiaoying Credit Loan
120,279,612
—
(189,752,419)
70,004,009
(531,202)
—
—
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F-46
Payable to investors at fair value of the
Consolidated Trusts
RMB
Balance at December 31, 2022
141,288,810
Initial contribution
—
Principal payment
(141,288,810)
Changes in fair value
—
Balance at December 31, 2023
—
Changes in fair value related to balance outstanding at December 31,
2023
—
The unpaid balance of loans at fair value as of December 31, 2023 and 2024 were nil and nil. The difference between the
aggregate fair value and unpaid principal balance for loans at fair value is primarily attributable to the credit risk associated with the loan
collections and time value of money, amounted to nil and nil as of December 31, 2023 and 2024, respectively.
The unpaid balance of payable to investors as of December 31, 2023 and 2024 were nil and nil. The difference between the
aggregate fair value and unpaid principal balance for payable to investors at fair value is primarily due to the time value of money,
amounted nil and nil respectively as of December 31, 2023 and 2024.
The difference between the aggregate fair value and unpaid principal balance for both loans at fair value and payable to
investors at fair value was recorded in “Fair value adjustments related to Consolidated Trusts” in the consolidated statements of
comprehensive income.
Financial investments
Financial investment measured at fair value represents the investment in two VC funds, which are open-ended funds with most
underlying investments measured at fair value, in wealth management products, whose fair value provided by banks, in fund linked note,
whose fair value provided by a financial institution. The Group uses the statements which directly obtained from third - parties without
adjustment with approximate fair value of the VC funds, the wealth management products and of the fund linked note to measure fair
value of the investment, which is categorized in the level 3 valuation hierarchy.
Financial Instruments Not Recorded at Fair Value
Financial instruments, including cash and cash equivalents, accounts receivable and contract assets, financial investments at
amortization cost, other payable and short-term borrowings. The carrying values of cash and cash equivalents, accounts receivable and
contract assets, other payable and short-term borrowings approximate their fair value reported in the consolidated balance sheets due to
the short-term nature of these assets and liabilities.
4. Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
As of
December 31,
As of December 31,
2023
2024
2024
RMB
RMB
US$
Prepaid expenses(1)
8,424,956
10,679,051
1,463,024
Input VAT to be deducted
24,549,816
17,918,681
2,454,849
Others
15,793,215
5,480,762
750,862
Total prepaid expenses and other current assets
48,767,987
34,078,494
4,668,735
(1)
Prepaid expenses mainly relate to prepaid service fee to the Group’s service providers.
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F-47
5. Deposits to institutional cooperators, net
The following table presents the deposits to institutional cooperators as of December 31, 2023 and 2024, respectively:
As of
December 31,
As of December 31,
2023
2024
2024
RMB
RMB
US$
Deposits to institutional cooperators
1,705,121,413
1,964,168,534
269,089,986
Provision for credit losses on deposits to institutional cooperators
(2,649,017)
(5,871,290)
(804,364)
Deposits to institutional cooperators, net
1,702,472,396
1,958,297,244
268,285,622
Deposits to institutional cooperators relate to the pledged cash to the Group’s financial institutional cooperators and the amount
of deposit is separately agreed with each institutional cooperator.
The following table presents the movement of the provision for deposits to institutional cooperators:
Reversal of provision for
As of
credit losses on
Charge-off for
As of
December 31,
deposits to
deposits to
December 31,
2022
institutional cooperators
institutional cooperators
2023
RMB
RMB
RMB
RMB
Deposits to institutional cooperators
3,322,575
(673,558)
—
2,649,017
Provision for
As of
credit losses on
Charge-off for
As of
December 31,
deposits to
deposits to
December 31,
2023
institutional cooperators
institutional cooperators
2024
RMB
RMB
RMB
RMB
Deposits to institutional cooperators
2,649,017
3,222,273
—
5,871,290
Provision for
As of
credit losses on
Charge-off for
As of
December 31,
deposits to
deposits to
December 31,
2023
institutional cooperators
institutional cooperators
2024
US$
US$
US$
US$
Deposits to institutional cooperators
362,914
441,450
—
804,364
6. Property and equipment, net
Property and equipment, net consists of the following:
As of
December 31,
As of December 31,
2023
2024
2024
RMB
RMB
US$
Computer and transmission equipment
25,295,660
31,286,142
4,286,184
Furniture and office equipment
543,160
1,715,512
235,024
Leasehold improvements
24,306,234
27,530,407
3,771,650
Motor vehicles
816,103
816,103
111,806
Total property and equipment
50,961,157
61,348,164
8,404,664
Accumulated depreciation
(42,318,765)
(45,514,674)
(6,235,485)
Property and equipment, net
8,642,392
15,833,490
2,169,179
Depreciation expense was RMB4,393,055, RMB3,026,574 and RMB4,866,123 (US$666,656) for the years ended December
31, 2022, 2023 and 2024, respectively. Disposal of property and equipment resulted in gain of RMB2,678, in loss of RMB148,198 and in
gain of RMB56,293 (US$7,712) in the years ended December 31, 2022, 2023 and 2024, respectively.
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F-48
7. Intangible assets, net
Intangible assets, net consists of the following:
Weighted Average
As of
Remaining
December 31,
As of December 31,
Amortization
2023
2024
2024
Period in Years
RMB
RMB
US$
Licenses (1)
26,600,000
26,600,000
3,644,185
—
Software and others
21,216,094
23,330,332
3,196,242
6.32
Accumulated amortization
(11,005,710)
(13,338,363)
(1,827,348)
—
Intangible assets, net
36,810,384
36,591,969
5,013,079
—
(1)
The Group acquired an insurance broker license at a cost of RMB26,000,000 during 2018 and further acquired an
insurance sale on line license at a cost of RMB600,000.
Amortization expenses were RMB2,253,257, RMB2,234,031 and RMB2,332,653 (US$319,572) for the years ended December
31, 2022, 2023 and 2024, respectively. The Group expects to record amortization expenses of RMB2,049,341 (US$280,759),
RMB1,823,224 (US$249,781), RMB1,761,094 (US$241,269), RMB1,619,948 (US$221,932) and RMB1,236,538 (US$169,405) for the
years ending December 31, 2025, 2026, 2027, 2028 and 2029 respectively.
8. Short - term borrowings
As of December 31, 2023, the Group’s short-term borrowings were RMB565,000,000. This comprised RMB330,000,000 from
banks, with RMB300,000,000 secured, and RMB235,000,000 from other financial institutions. The secured were pledged by the Group’s
certain accounts receivables.
As of December 31, 2024, the Group’s short-term borrowings were RMB328,500,000. This comprised RMB113,500,000
(US$15,549,436) from banks, with RMB5,000,000 (US$684,997) secured, and RMB215,000,000 (US$29,454,879) from other financial
institutions. The secured were pledged by the Group’s cash deposited with banks.
The weighted average interest rate for the outstanding short-term borrowings was approximately 6.35% and 4.08% per annum
as of December 31, 2023 and 2024, respectively.
Interest expenses from short-term borrowings were RMB1,967,825, RMB30,660,399 and RMB22,886,523 (US$3,135,441) for
the years ended December 31, 2022, 2023 and 2024, respectively.
9. Financial investments
VC funds measured at equity method
Investment in Dragonfly Ventures Ⅱ Feeder, L.P. and IOSG Fund II LP were both made in the year 2021 in the form of limited
partnership at RMB63,726,000 and RMB19,117,800, respectively. Since the interest is not considered so minor that the Group has
virtually no influence over those VC funds operating and financial policies, the equity method of accounting was used. Given that there
is generally a time lag of one quarter for the VC funds to provide the most recent financial statements, the Group used the VC funds’
financial statements as of September 30, 2023 and 2024 to process the equity method under ASC 323 for the years ended December 31,
2023 and 2024, respectively. As of December 31, 2023 and 2024, there were no differences between the amount at which these VC funds
were carried and the amount of the underlying equities in net assets.
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F-49
The table below summarizes the carrying value of investments in VC funds measured at equity method in the form of
partnership measured at equity method as of December 31, 2023 and 2024:
As of
December 31,
As of December 31,
Ownership
2023
2024
2024
%
RMB
RMB
US$
Investment in Dragonfly Ventures Ⅱ Feeder, L.P.
5.73 %
78,586,955
114,164,666
15,640,495
Investment in IOSG Fund II LP
3.00 %
24,803,120
27,176,853
3,723,214
Total
103,390,075
141,341,519
19,363,709
The table below summarizes the combined financial information for the VC funds as above as of the nine months ended
September 30, 2023 and 2024:
As of September 30,
As of September 30,
2023
2024
2024
RMB
RMB
US$
Assets:
Cash and cash equivalents
207,486,569
26,095,749
3,575,103
Investments
1,956,499,315
3,107,977,290
425,791,143
Other current or non-current assets
4,315,717
11,686,260
1,601,011
Total assets
2,168,301,601
3,145,759,299
430,967,257
Liabilities:
Payable and accruals
2,001,575
12,085,677
1,655,731
Total liabilities
2,001,575
12,085,677
1,655,731
Nine months ended
September 30,
Nine months ended September 30,
2023
2024
2024
RMB
RMB
US$
Net investment loss
(24,856,047)
(22,646,794)
(3,102,598)
Net realized gain on investments
14,582,478
126,355,211
17,310,593
Net unrealized (loss) gain on investments
(50,420,352)
203,174,322
27,834,768
Net (loss) income
(40,043,826)
316,374,217
43,343,090
VC funds measured at cost minus impairment
During the year of 2022, the Group invested an aggregate amount of RMB69,646,000 in two VC funds, in the form of
partnership and zero coupon convertible note. These VC funds were measured at cost minus impairment because readily determinable
fair value is not available. Other than impairment of RMB8,874,750 during the year of 2022, there was no any upward adjustment,
redemption nor disposal of investment of the VC funds. And the Group did not become aware of any observable price changes accounted
for.
The table below summarizes investments measured at cost minus impairment, plus or minus observable price changes from
orderly transactions of identical or similar investments of the same issuer as of December 31, 2023 and 2024:
As of December 31,
As of December 31,
2023
2024
2024
RMB
RMB
US$
Opening balance
60,940,250
80,861,876
11,078,032
Contribution
18,747,966
18,132,017
2,484,076
Exchange differences
1,173,660
1,445,451
198,026
Ending Balance
80,861,876
100,439,344
13,760,134
Table of Contents
F-50
VC funds measured at fair value
During the year ended December 31, 2022, the Group invested in one VC fund in the form of partnership. The investment was
measured at fair value. During the year ended December 31, 2023, the Group entered into a withdrawal letter to withdraw all of its
limited partnership interest from the VC fund and, subsequently, entered into a switch request agreement to reinvest its net withdrawal
proceeds to another VC fund in form of partnership. The transactions did not result in cash receipts or cash payments. During the years
ended December 31, 2022, 2023 and 2024, the Group recognised fair value with respect to RMB9,525,822, RMB6,497,518 and
RMB17,133,677 (US$2,347,304) of favorable change respectively as “Income (loss) from financial investments” in consolidated
statements of comprehensive income.
The table below summarizes investments in VC funds in the form of partnership measured at fair value as of December 31,
2023 and 2024:
As of December 31,
As of December 31,
2023
2024
2024
RMB
RMB
US$
Opening balance
10,713,953
17,227,629
2,360,175
Switch in
13,968,313
374,471
51,302
Switch out
(14,342,134)
—
—
Fair value adjustment
6,497,518
17,133,677
2,347,304
Exchange differences
389,979
488,438
66,916
Ending Balance
17,227,629
35,224,215
4,825,697
financial investments accounted under AFS model
During the year ended December 31, 2023, the Group invested RMB55,401,446 (US$7,803,130) of U.S. Treasury bill with
original maturities over three months, and RMB350,000,000 (US$49,296,469) of wealth management products which is no fixed term
and redeemable on demand and in which other than insignificant risk of underlying assets was incorporated, consigned by banks. Given
its intention and abilities, the Group accounts these investments under available-for-sale model. The Group measure wealth management
product in accordance with statements provided by the bank due to lack of quoted prices on an active market. As of December 31, 2023,
no allowance for credit losses was recognized for the investments in wealth management products since fair value is greater than
amortized cost. As of December 31, 2023, no allowance for credit losses was recognized for the investments in US Treasury securities
since the quoted price of US Treasury securities does not show a downward trend subsequently till the date of the most recent statement
of financial position. Also, the unrealized loss recognized for US Treasury securities was immaterial and, thus, the Group decided not to
record in profit or loss.
The table below summarizes investments measured under available-for-sale model as of December 31, 2023:
Fair value
Unrealized gains
Total
Fair value
Amortized cost
As of December 31,
Additions
(losses) accumulated in
realized
As of December 31,
As of December 31,
2022
during the year other comprehensive income
gains
2023
2023
RMB
RMB
RMB
RMB
RMB
RMB
US Treasury securities
with original maturities
over three months
—
55,401,446
(62,795)
842,431
56,181,082
56,243,877
Wealth management
products with no fixed
term
—
350,000,000
537,587
—
350,537,587
350,000,000
Total
—
405,401,446
474,792
842,431
406,718,669
406,243,877
During the year ended December 31, 2024, the Group invested RMB125,500,826 (USD$17,193,543) of fund linked note which
is fixed term with maturity within one year and in which other than insignificant risk of underlying assets was incorporated, consigned by
a financial institution. Given its intention and abilities, the Group accounts these investments under available-for-sale model. The Group
measure fund linked note in accordance with statements provided by the financial institution without adjustment due to lack of quoted
prices on an active market. As of December 31, 2024, no allowance for credit losses was recognized for the investments in wealth
management products and fund linked note, since fair value is greater than amortized cost. Further, the Group redeemed all the U.S.
Treasury bill with original maturities over three months and RMB326,818,365 (USD$44,773,932) of wealth management products.
Table of Contents
F-51
For the financial investments accounted under AFS model, the Group recognized realized gains as “Interest income (expenses),
net” in consolidated statements of comprehensive income, and recognized unrealized gains or losses as “Income from financial
investments” in other comprehensive income.
The table below summarizes investments measured under available-for-sale model as of December 31, 2024:
Unrealized
Fair value
gains accumulated
Fair value
Amortized cost
As of December 31,
Additions
Subtraction
in other comprehensive
Total realized
Exchange
As of December 31,
As of December 31,
2023
during the year
during the year
income
gains
differences
2024
2024
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
US Treasury securities
with original
maturities over three
months
56,181,082
—
(56,243,877)
—
62,795
—
—
—
Wealth management
products with no fixed
term
350,537,587
—
(326,818,365)
485,868
6,818,365
—
31,023,455
30,000,000
Fund linked note
—
125,500,826
(15,934,002)
—
1,033,826
1,085,278
111,685,928
111,685,928
Total
406,718,669
125,500,826
(398,996,244)
485,868
7,914,986
1,085,278
142,709,383
141,685,928
Unrealized
Fair value
gains accumulated
Fair value
Amortized cost
As of
December
31,
Additions
Subtraction
in other
comprehensive
Total realized
Exchange
As of December 31,
As of December 31,
2023
during the
year
during the
year
income
gains
differences
2024
2024
US$
US$
US$
US$
US$
US$
US$
US$
US Treasury securities with original
maturities over three months
7,696,777
—
(7,705,380)
—
8,603
—
—
—
Wealth management products with no
fixed term
48,023,453
—
(44,773,932)
66,564
934,112
—
4,250,197
4,109,983
Fund linked note
—
17,193,543
(2,182,950)
—
141,634
148,682
15,300,909
15,300,909
Total
55,720,230
17,193,543
(54,662,262)
66,564
1,084,349
148,682
19,551,106
19,410,892
financial investments accounted under trading model
During the year ended December 31, 2024, the Group invested RMB97,916,010 (US$13,414,438) of wealth management
products which is no fixed term and redeemable and in which other than insignificant risk of underlying assets was incorporated,
consigned by banks. Given its intention and abilities, the Group accounts these investments under trading model. The Group measure
wealth management product in accordance with statements provided by the banks without adjustment due to lack of quoted prices on an
active market.
The Group recognized the investments accounted under trading model. Both realized gain or loss and fair value change are
recognized as “Interest income (expenses), net” in consolidated statements of comprehensive income.
The table below summarizes investments measured under trading model as of December 31, 2024:
Fair value
Fair value
As of December 31,
Additions
Subtraction
Total
Fair value change
As of December 31,
2023
during the year
during the year
realized gain
during the year
2024
RMB
RMB
RMB
RMB
RMB
RMB
Wealth management products with
no fixed term
—
97,916,010
(10,417,600)
179,600
1,072,649
88,750,659
Fair value
Fair value
As of December 31,
Additions
Subtraction
Total
Fair value change
As of December 31,
2023
during the year
during the year
realized gain
During the year
2024
US$
US$
US$
US$
US$
US$
Wealth management products with no
fixed term
—
13,414,438
(1,427,205)
24,605
146,952
12,158,790
Table of Contents
F-52
financial investments accounted at amortization cost
During the year ended December 31, 2024, the Group invested RMB5,000,000 (US$684,997) of a fixed term deposit in
commercial bank with maturity within one year. The Group has positive intention and ability to hold the investment to maturity. As of
December 31, 2024, the amortization base of the investment, net of allowance for credit loss, was RMB5,010,417 (US$686,424). Fair
value of the deposit was considered negligible difference from its amortization base. During the year ended December 31, 2024, the
Group recognized accrued interests of RMB10,417 (US$1,427) as “Interest income (expenses), net” in consolidated statements of
comprehensive income. Also, the allowance for credit loss to be recognized for the fixed term deposit was immaterial and, thus, the
Group decided not to record in profit or loss.
10. Long-term investments
During the year ended December 31, 2018, the Group invested RMB225,000,000 in cash for 15% equity interest of Jiangxi
Ruijing Financial Asset Management Co., Ltd. (‘‘Jiangxi Ruijing’’), a Chinese Mainland based asset management company through a
nominee arrangement where the Group obtained all shareholder rights associated with the 15% equity holdings through contractual
agreements with the nominal shareholder. Given that the Group has the ability to significantly influence Jiangxi Ruijing, the equity
method of accounting was used.
During the year ended December 31, 2021, the Group invested RMB315,000,000 in cash for 45% equity interest of Shenyang
Tianxinhao Technology Limited, a Chinese Mainland based software and information technology services company. As stated in the
shareholder agreement, the historical assets (which refer to assets other than equity of Newup Bank of Liaoning, same below), claims or
debts and other actual or potential profits or losses, which are generated before the closing date or after the closing date but attributable
to reasons before the closing date, as descried in the agreement, shall be enjoyed and borne by the original shareholder, the Group will
not bear any historical assets, claims or debts set forth. The significant influence can be given by the Group as the Group has its
representation on the board and thus equity method was applied. The carrying amount of the long-term investment exceeded the amount
of the underlying equities in net assets by RMB1,303,096 as of December 31, 2023 and was lower than the equities’ proportionate net
assets value by RMB20,936,986 (US$2,868,355) as of December 31, 2024. The Group impaired the investment amounting to
RMB26,865,733, RMB46,771,435 and RMB22,240,082 (US$3,046,879) during the years of 2022, 2023 and 2024 and considered that
such impairment is other than temporary.
The following table presents the summary combined financial information for the investee companies as of and for the years
ended December 31, 2023 and 2024.
As of December 31,
As of December 31,
2023
2024
2024
RMB
RMB
US$
Assets:
Cash and cash equivalents
156,369,105
580,989,751
79,595,270
Financial investments
5,313,961,988
4,408,605,503
603,976,478
Prepaid expenses and other current assets, net
466,272,257
656,666,733
89,962,974
Long-term investments
527,245,707
667,927,748
91,505,726
Other non-current assets
1,560,057,412
3,019,189,760
413,627,301
Total assets
8,023,906,469
9,333,379,495
1,278,667,749
Liabilities:
Accrued expenses and other current liabilities
4,406,921,935
5,232,335,603
716,827,039
Long-term borrowings
1,014,200,000
1,501,000,000
205,636,157
Other non-current liabilities
1,258,733
2,143,675
293,682
Total liabilities
5,422,380,668
6,735,479,278
922,756,878
Year ended
December 31,
Year ended December 31,
2023
2024
2024
RMB
RMB
US$
Net revenues
383,611,655
326,706,200
44,758,566
Net income
193,845,592
120,087,725
16,451,951
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F-53
11. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
As of
December 31,
As of December 31,
2023
2024
2024
RMB
RMB
US$
Fund attributable to institutional funding partners (1)
76,559,633
129,963,039
17,804,863
Accrued interest payable of Consolidated Trusts
37,714,338
9,246,536
1,266,770
Professional fee payable
38,682,222
14,689,968
2,012,517
Commission fee payable (2)
142,115,583
248,760,119
34,079,997
Transaction cost payable (3)
146,694,453
202,940,226
27,802,697
Share repurchase payable (4)
—
245,113,010
33,580,345
Receipts in advance
73,188,645
16,680,512
2,285,221
Lease liabilities
12,852,494
12,732,875
1,744,397
Other accrued expenses
47,919,895
49,364,151
6,762,861
Total accrued expenses and other current liabilities
575,727,263
929,490,436
127,339,668
(1)
Fund attributable to institutional funding partners relate to the principal and interest collected on behalf of the
institutional funding partners but have not yet been passed onto them as of December 31, 2023 and 2024.
(2)
Commission fee payable relates to the commission fees payable to channel partners who introduce borrowers to the
platform of the Group. The commission is typically determined based on the volume of traffic introduced.
(3)
Transaction cost payable mainly includes payables to external suppliers for credit assessment service, payment
processing services, and fees payable to collection agencies.
(4)
Share repurchase payable relates to the payable to a major shareholder regarding a share repurchase transaction on
December 16, 2024 with a total repurchase price of approximately US$48.7 million, which has been paid as of the date of this annual
report.
12. Guarantee liabilities
The Group recognized both a stand-ready guarantee liability as “deferred guarantee income“ under ASC 460 with an associated
financial assets receivable, and a contingent guarantee liability under CECL model.
Deferred guarantee income
The following table sets forth the activities of the Group’s obligations associated with the deferred guarantee income, originated
from guarantee service commenced for the years ended December 31, 2023 and 2024.
As of
Fair value
As of
January 1,
of deferred guarantee income
Release of
December 31,
2023
at inception of new loans
deferred guarantee income
2023
Xiaoying Credit Loan (RMB)
—
72,160,875
(25,563,732)
46,597,143
Table of Contents
F-54
As of
Fair value
As of
January 1,
of deferred guarantee income
Release of
December 31,
2024
at inception of new loans
deferred guarantee income
2024
Xiaoying Credit Loan (RMB)
46,597,143
332,919,374
(214,792,005)
164,724,512
Xiaoying Credit Loan (USD)
6,383,782
45,609,768
(29,426,384)
22,567,166
Contingent guarantee liabilities
The movement of contingent guarantee liabilities originated from guarantee services prior to September 2017 are as follows:
Reversal of
As of
provision for
As of
January 1,
Released on
contingent
December 31,
2022
Net payout(1)
expiration
liability
2022
Xiaoying Credit Loan
—
2,011,850
(2,011,850)
—
—
Internet Channel
—
14,000,000
—
(14,000,000)
—
Total
—
16,011,850
(2,011,850)
(14,000,000)
—
The movement of contingent guarantee liabilities originated from guarantee services commenced in and after 2023 are as
follows:
RMB
As of
Provision for
As of
January 1,
contingent
December 31,
2023
Net payout(1)
liability
2023
Xiaoying Credit Loan
—
(5,613,471)
67,519,980
61,906,509
As of
Provision for
As of
January 1,
contingent
December 31,
2024
Net payout(1)
liability
2024
Xiaoying Credit Loan
61,906,509
(116,003,939)
241,738,132
187,640,702
USD
As of
Provision for
As of
January 1,
contingent
December 31,
2024
Net payout (1)
liability
2024
Xiaoying Credit Loan
8,481,157
(15,892,474)
33,117,988
25,706,671
(1)
Net payouts represent the amount paid to institutional funding partners upon borrowers’ default net of the amount
subsequently collected from the borrower if they paid back the loan.
The maximum potential undiscounted future payment was RMB667,733,409 and RMB2,572,977,752 (US$352,496,507) as of
December 31, 2023 and 2024, respectively.
13. Related party balances and transactions
In 2019, the Group purchased earnings rights of two loans from Jiangxi Ruijing. The considerations paid amounted to
RMB100,000,000 and RMB280,000,000, respectively, which equal to the principal amounts of the underlying loans. In 2020, earnings
right of the former loan had been fully repaid. Earnings right of the latter loan had been partially repaid in 2020 and 2021, and the
remaining RMB100,000,000 had been fully repaid in January 2022. The associated interest income amounted to RMB412,341 in 2022.
As of December 31, 2021 and 2022, the Group recognized dividend receivable of RMB15,000,000, which has been
subsequently collected in 2023, from the nominal shareholder of Jiangxi Ruijing, the nominal shareholder is controlled by Mr. Yue
(Justin) Tang. For the year ended December 31, 2024, the Group furtherly received dividend of RMB7,500,000 from the nominal
shareholder of Jiangxi Ruijing.
Table of Contents
F-55
In 2021, the Group entered into agreements with a financing guarantee company, which is a wholly-owned subsidiary of the
Group’s equity investee obtained in 2020 and disposed in 2022. Following the disposal, it no longer constitutes a related party to the
Group. This financing guarantee company provides guarantee service for an identified portfolio of loans the Group facilitated and
charges borrowers a guarantee fee, a portion of which will be subsequently paid to the Group as the service fee for the intermediary
service the Group provided. During the year of 2022, this financing guarantee company provided guarantee service for 29.6% of the total
loans the Group facilitated and provided. The Group recognized total net revenue of RMB542,719,679 during 2022 in connection with
the service fees of facilitation service for loans that covered by this financing guarantee company. As of December 31, 2022, accounts
receivable and contract assets balance amounted to RMB313,992,225, which had been fully settled in 2023.
In 2022, the Group entered into agreements with Newup Bank of Liaoning (“Newup Bank”), according to which the Group
charged service fees directly to Newup Bank for the intermediary service the Group provided. The Group recognized total net revenue of
RMB13,100,669 and RMB11,370,044 during the year of 2022 and 2023 in connection with the service fees of facilitation service for
loans. Accounts receivable and contract assets amounted to RMB13,886,710 and RMB1,096,251 with respect to December 31, 2022 and
December 31, 2023, which had been fully settled in 2024.
The Group believes that the terms of the transactions with the related parties are comparable to the terms of arm’s‑length
transactions with third parties.
14. Income taxes
Cayman Islands
X Financial is a company incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is
not subject to tax on either income or capital gain.
Hong Kong
Under the current Hong Kong Inland Revenue Ordinance, YZT (HK) Limited and YX (HK) Limited, subsidiaries of the Group
located in Hong Kong, are subject to 16.5% income tax on their taxable income generated from operations in Hong Kong. No income tax
expense for these entities has been recognized in the consolidated financial statements as they have no assessable income for the years
ended December 31, 2022, 2023 and 2024.
Chinese Mainland
Under the Law of the PRC on Enterprise Income Tax (the “EIT Law”), the Company’s subsidiaries, VIEs and subsidiaries of the
VIEs established in the Chinese Mainland are subject to an income tax rate of 25% for the years presented. A subsidiary was granted a
15% preferential income tax rate as a qualified enterprise under an incentive regime, initially effective from 2020 to 2022, with the
eligibility subsequently extended through 2025. Additionally, under a different incentive regime, one VIE and another Group subsidiary
operating in a specific preferential tax jurisdiction were eligible to be levied at a reduced income tax rate of 15%. The VIE has been
eligible for reduced tax rate from 2020 to 2025, while the subsidiary’s eligibility period runs from 2023 through 2025.
Uncertainties exist with respect to how the current income tax law in the Chinese Mainland applies to the Group’s overall
operations, and more specifically, with regard to its tax residency status. The EIT Law includes a provision specifying that legal entities
organized outside of the Chinese Mainland will be considered residents for Chinese Income Tax purposes if the place of effective
management or control is within the Chinese Mainland. The implementation rules to the EIT Law provide that non-resident legal entities
will be considered Chinese Mainland residents if substantial and overall management and control over the manufacturing and business
operations, personnel, accounting and properties, occurs within the Chinese Mainland. Despite the present uncertainties resulting from
the limited Chinese Mainland tax guidance on the issue, the Group does not believe that the legal entities organized outside of the
Chinese Mainland within the Group should be treated as residents for EIT Law purposes and, therefore, has not recorded an
unrecognized tax benefit for this tax position. If the Chinese Mainland taxing authorities subsequently determine that the Company and
its subsidiaries registered outside the Chinese Mainland should be deemed resident enterprises, the Company and its subsidiaries
registered outside the Chinese Mainland will be subject to Chinese Mainland income taxes, at a statutory income tax rate of 25%.
Table of Contents
F-56
According to PRC Administration of the Levy and Collection of Taxes Law, the statute of limitations is three years if an
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
ten years. There is no statute of limitations in the case of tax evasion. Tax years from 2015 to the current year for the Group’s Chinese
Mainland subsidiaries are subject to examination by the Chinese Mainland taxing authorities.
Current tax expense and deferred tax expense (benefit), which are substantially all for Chinese Mainland income taxes, are as
follows:
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Current tax expense
193,768,237
278,695,689
432,950,473
59,313,972
Deferred tax expense (benefit)
202,305,809
(17,565,186)
(27,248,759)
(3,733,065)
Total income tax expense
396,074,046
261,130,503
405,701,714
55,580,907
Income before income taxes for different jurisdictions is shown as follows:
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Cayman Islands entity
(5,585,777)
(3,703,756)
(7,595,959)
(1,040,642)
Hong Kong entities
(17,758,020)
1,137,814
11,787,138
1,614,831
Chinese Mainland entities
1,243,239,973
1,471,143,931
1,890,138,917
258,947,970
Total
1,219,896,176
1,468,577,989
1,894,330,096
259,522,159
A reconciliation between income tax expense computed by applying the Chinese Mainland income tax rate of 25%, the income
tax jurisdiction where the Group has substantially all of its operations, to income before income taxes and the reported amount of income
tax expense is as follows:
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Expected income tax at Chinese Mainland income tax rate
304,974,043
367,144,498
473,582,524
64,880,540
Share based compensation expense not deductible for income
tax purposes
13,384,454
10,649,553
10,044,452
1,376,084
Other expenses not deductible for income tax purposes
4,399,168
916,343
1,671,017
228,928
Effect of preferential tax rate(1)
(15,977,099)
(134,240,494)
(207,311,932)
(28,401,618)
Effect of different tax rate of subsidiary operation in other
jurisdictions
2,905,876
(214,788)
2,299,728
315,061
Research and development tax deduction
(16,996,590)
(20,676,415)
(21,231,000)
(2,908,635)
Change in valuation allowance
101,490,352
11,432,693
81,585,304
11,177,140
Income tax on subsidiary earnings
—
24,459,727
57,750,000
7,911,718
Others
1,893,842
1,659,386
7,311,621
1,001,689
Total
396,074,046
261,130,503
405,701,714
55,580,907
(1) The aggregate amount and per share effect of the preferential tax rate are as follows:
Table of Contents
F-57
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
The aggregate amount income tax expense of the preferential
tax rate
15,977,099
134,240,494
207,311,932
28,401,618
The aggregate effect on basic and diluted net income per share:
—Basic
0.05
0.47
0.72
0.10
—Diluted
0.05
0.46
0.71
0.10
The tax effects of temporary differences and carry forwards that give rise to the deferred tax balances at December 31, 2023 and
2024 are as follows:
As of December 31,
As of December 31,
2023
2024
2024
RMB
RMB
US$
Deferred tax assets:
Long-term investments, net of impairment
20,723,436
20,191,218
2,766,186
Advertising and market related expense carryforwards (1)
22,251,219
11,251,555
1,541,457
Accounts receivable and contract assets
7,123,587
16,048,561
2,198,644
Guarantee liabilities
16,879,995
77,314,528
10,592,047
Financial guarantee derivatives
159,210,663
159,210,663
21,811,771
Loan receivable from Xiaoying Housing Loans
13,887,028
14,318,757
1,961,662
Loans receivable from Xiaoying Credit Loans and other loans
166,027,798
220,392,866
30,193,699
Operating loss carryforwards
45,998,381
43,757,115
5,994,700
Deposits to institutional cooperators
662,254
1,467,822
201,091
Lease liabilities
13,019,736
10,351,392
1,418,135
Others
21,505
60,350
8,267
Total deferred tax assets
465,805,602
574,364,827
78,687,659
Valuation allowance
(226,317,275)
(307,902,579)
(42,182,480)
Total deferred tax assets, net of valuation allowance
239,488,327
266,462,248
36,505,179
Deferred tax liabilities:
Property and equipment
1,678,634
2,867,083
392,789
Financial guarantee derivatives
—
259,565
35,560
Long-term investments, net of impairment
3,751,275
4,375,796
599,482
Right-of-use assets
12,657,331
9,809,937
1,343,956
Investment in Consolidated Trusts
36,643,382
26,959,491
3,693,435
Investment in Consolidated Partnerships
62,339,878
31,309,764
4,289,420
Undistributed earnings
16,500,000
58,600,000
8,028,167
Others
—
526,630
72,149
Total deferred tax liabilities
133,570,500
134,708,266
18,454,958
(1)
Advertising and market related expenses carryforwards are those in excess of deduction limit, that can be carried
forward indefinitely, arising from the operation of the Group’s Chinese Mainland subsidiaries, amounting to RMB89,004,878 and
RMB45,006,219 (US$6,165,827) as of December 31, 2023 and 2024, respectively. Under Chinese Mainland tax rules, advertising and
market related expenses that exceed the limit can be claimed and deducted in the following tax year.
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F-58
Movement of the valuation allowance is as follows:
As of
As of
December 31,
December 31,
As of December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Balance as of January 1
(113,394,230)
(214,884,582)
(226,317,275)
(31,005,340)
Addition
(101,665,571)
(20,828,173)
(86,384,559)
(11,834,636)
Reductions
175,219
9,395,480
4,799,255
657,496
Net change in the valuation allowance
(101,490,352)
(11,432,693)
(81,585,304)
(11,177,140)
Balance as of December 31
(214,884,582)
(226,317,275)
(307,902,579)
(42,182,480)
The Company operates through its subsidiaries, VIEs and subsidiaries of the VIEs. The valuation allowance is considered on an
individual entity basis.
As of December 31, 2023 and 2024, the Company had operating loss carryforwards of RMB227,566,693 and RMB178,363,447
(US$24,435,692) respectively from its subsidiaries, VIEs and subsidiaries of the VIEs registered in the Chinese Mainland. The net
operating loss carryforwards will expire in years 2025 to 2029, if not utilized.
The tax benefit, net of valuation allowance, recognized during the years ended December 31, 2022, 2023 and 2024 due to the
generation of net operating losses carryforwards that can be carried forward to future years amounted to RMB805,389, RMB883,214 and
nil, respectively. The tax benefit realized during the year ended December 31, 2023 and 2024 from the utilization of carryforwards where
the related deferred tax asset was offset by a valuation allowance amounted to RMB3,927,259, RMB4,876,301 and RMB233,258
(US$31,956) respectively.
The tax benefit, net of valuation allowance, recognized during the years ended December 31, 2022, 2023 and 2024 due to
generation of advertising and market related expenses carryforwards amounting to nil, RMB8,239,531 and nil, respectively.
For the years ended December 31, 2022, 2023 and 2024, the Company recorded deferred tax expenses of RMB101,490,352,
RMB11,432,693 and RMB81,585,304 (US$11,177,140), respectively, relating to valuation allowance adjustments. The valuation
allowance increases during the year ended December 31, 2022 and 2023 were primarily due to change in judgment about the ability of a
subsidiary to utilize a beginning-of-the-year deferred tax asset in future years. The change in valuation allowance during the year ended
December 31, 2024 primarily reflects (1) a RMB16,931,438 (US$2,319,597) change in judgment about the ability of a subsidiary to
utilize a beginning-of-the-year deferred tax asset in future years, (2) establishing RMB67,447,028 (US$9,240,205) allowance for certain
deferred tax assets deemed unrecoverable upon initial assessment, with the remaining RMB2,793,162 (US$382,662) attributable to
changes in deferred tax assets.
The Group assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated
to use the existing deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the ability to generate sufficient
future taxable income within the carryforward periods provided for in the tax law based on the periods in which the temporary
differences become deductible. When assessing the realization of deferred tax assets, the Group has considered possible sources of
taxable income including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing
temporary differences and carryforwards, including consideration of specific known trends of profits expected to be reflected within the
industry, (iii) taxable income in prior carryback years and (iv) tax-planning strategies. On the basis of this evaluation, as of December 31,
2023 and 2024 a valuation allowance of RMB226,317,275 and RMB307,902,579 (US$42,182,480) was recorded respectively to reduce
the deferred tax assets to the amount that is more likely than not to be realized. The amount of the deferred tax assets considered
realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if
objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence
such as the Group’s projections for growth.
In accordance with the EIT Law, dividends, which arise from profits of foreign invested enterprises (“FIEs”), are subject to a
10% withholding income tax. In addition, under tax treaty between the Chinese Mainland and Hong Kong, if the foreign investor is
incorporated in Hong Kong and qualifies as the beneficial owner, the applicable withholding tax rate is reduced to 5%, if the investor
holds at least 25% in the FIE. A deferred tax liability should be recognized for the undistributed profits of Chinese Mainland subsidiaries
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.
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F-59
The Group constantly assesses its intent to reinvest the offshore earnings. As of December 31, 2024, the Group does not intend
to reinvest certain undistributed earnings of the FIEs that have been generated in the Chinese Mainland, while for the remainder of the
undistributed earnings, the Group intended to indefinitely reinvest. The Group has recorded a deferred tax liability of RMB58,600,000
(US$8,028,167) associated with the earnings that are not indefinitely reinvested. The Group paid withholding tax of RMB15,650,000
(US$2,144,041) on distributed earnings during the year. For the earnings the Group intended to indefinitely reinvest, no deferred tax
liabilities for withholding taxes have been recorded.
Undistributed earnings of FIEs that are considered to be indefinitely invested amounted to RMB3,761,829,057 on December 31,
2023 and RMB4,255,686,362 (US$583,026,641) on December 31, 2024. All undistributed earnings are still subject to certain taxes upon
repatriation, primarily where withholding taxes apply. The related unrecognized deferred tax liabilities were RMB376,182,906 and
RMB425,568,636 (US$58,302,664) at a 10% tax rate.
Unrecognized tax benefits
A roll-forward of unrecognized tax benefits is as follows:
Year ended December 31,
Year ended December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Balance at beginning of the year
120,195,925
259,386,286
364,866,929
49,986,564
Additions for tax positions taken in current year
259,386,286
262,052,034
310,256,632
42,504,984
Reductions for tax positions taken in prior years
(110,342,989)
(156,571,391)
(211,667,472)
(28,998,325)
Settlements
(9,852,936)
—
—
—
Balance at end of the year
259,386,286
364,866,929
463,456,089
63,493,223
The accrued interest and penalties related to income taxes as of December 31, 2023 and 2024 is set forth below:
Year ended December 31,
Year ended December 31,
2023
2024
2024
RMB
RMB
US$
Accrued interest and penalties
4,127,348
9,195,253
1,259,745
As of December 31, 2022, 2023 and 2024, the Group’s unrecognized tax benefits consisted of: 1) RMB2,349,049,
RMB50,384,562 and RMB107,202,546 (US$14,686,688) arising from charge-offs of loans receivable from Xiaoying Credit Loans and
other loans and accounts receivable and contract asset; and 2) RMB257,037,237, RMB314,482,367 and RMB356,253,543
(US$48,806,535) arising from difference in timing for including certain taxable income in tax return.
As of December 31, 2022, 2023 and 2024, nil, RMB102,814,895 and RMB102,814,895 (US$14,085,583) of the unrecognized
tax benefit balance, if recognized upon examination settlement or statute expiration, would affect the effective tax rate.
For the year ended December 31, 2022, 2023 and 2024, the increase of accrued interest and penalties related to income taxes
was RMB846,825, RMB2,126,378, and RMB5,067,905 (US$694,300), respectively, which were recorded as part of the income tax
expense in the consolidated financial statements.
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F-60
15. Net income per share and net income attributable to common stockholders
The following table details the computation of the basic and diluted net income per share:
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Net income attributable to X Financial
811,996,439
1,186,793,974
1,539,905,765
210,966,225
Shares (denominator):
Weighted average number of ordinary shares used in computing
basic EPS
316,444,826
288,115,969
288,828,371
288,828,371
Basic net income per share
2.57
4.12
5.33
0.73
Diluted effects of stock options and RSUs
5,958,561
2,717,245
4,526,300
4,526,300
Weighted average number of ordinary shares used in computing
diluted EPS
322,403,387
290,833,214
293,354,671
293,354,671
Diluted net income per share
2.52
4.08
5.25
0.72
Diluted income per share do not include the following instruments as their inclusion would have been anti-dilutive:
Year ended
Year ended
Year ended
December 31, December 31, December 31,
2022
2023
2024
Stock options
29,293,014
3,602,998
3,399,998
Restricted stocks units
21,398,126
12,613,046
6,585,270
16. Share-based compensation
Share options
On January 25, 2015, the Board of Directors of X Financial approved the Share Incentive Plan for the purpose of providing
incentives and rewards to employees and executives who contribute to the success of the Company’s operations, and granted 13,843,645
of stock options. On June 29, 2015, May 3, 2016, October 11, 2017, April 30, 2018, October 31, 2018 and April 30, 2019, the Board of
Directors of X Financial granted 630,000, 7,425,000, 16,616,000, 841,054, 475,000 and 155,000 stock options respectively to certain
employees, directors and officers. The stock options shall expire 10 years from the date of grant and vest over a period from three to four
years.
On May 9, 2018, the Board of Directors of X Financial granted 40,000,000 share options to certain senior management. The
exercise price was the offering price per share of the Group’s IPO which was US$4.75, and were eligible to vest, in whole or in part,
when both the market capitalization milestone as well as the targeted adjusted net earnings were achieved subsequent to the IPO. The
Company determined the service inception date to be May 9, 2018 and the grant date to be the date of the IPO.
On November 10, 2021, the board of directors of X Financial decided to cancel 9,429,984 of unvested share options granted to
certain senior management.
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F-61
The Company used the Binomial model to estimate the fair value of the options granted on the respective grant dates with
assistance from independent valuation firms. The fair value per option was estimated at the date of grant using the assumptions. The
weighted-average grant date fair value of the options for the years ended December 31, 2022, 2023 and 2024 were RMB9.87, RMB10.39
and RMB10.80 per share respectively.
January 25, June 29,
May 3,
October 11,
April 30,
May 9,
October 31,
April 30,
2015
2015
2016
2017
2018
2018
2018
2019
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Fair value of underlying
ordinary shares
4.91
9.66
16.98
30.29
41.33
38.14
26.74
16.65
Exercise Price
0.27
0.27
0.27 - 10.71
0.27 - 27.02
25.42
30.27
27.93
31.96
Expected Volatility per annum
(“p.a.”)
43.00 % 38.00 %
42.00 %
38.60 % 45.47 %
39.3 %
43.90 % 30.15 %
Risk-Free Rate (p.a.)
1.81 %
2.33 %
1.81 %
2.35 %
2.96 %
2.94 %
3.15 %
2.97 %
Exercise Multiple
2.5
2.5
2.5
2.5
2.5
5.58-38.33
2.5
NIL
Dividend Yield (p.a.)
NIL
NIL
NIL
NIL
NIL
NIL
NIL
NIL
Time to Maturity (Years)
10
10
10
10
10
5
10
10
The risk-free rate of interest is based on the yield curve of government bonds in the Chinese Mainland as of valuation date. The
expected volatility is estimated based on annualized standard deviation of daily stock price return of comparable companies for the
period before valuation date and with similar span as the expected expiration term. Prior to the IPO, the fair value of the ordinary shares
was through a retrospective valuation as at each grant date, which used management’s best estimate for projected cash flows as of the
valuation date with the assistance of an independent third-party appraiser. Subsequent to the IPO, the fair value of ordinary shares was
determined by observable market price.
A summary of option activity during the year ended December 31, 2024 is presented below:
Intrinsic
value of
Number of
Exercise Price
Remaining
options
Options
RMB
Contractual
RMB
Outstanding, as of January 1, 2024
6,197,825
0.27-31.96
1.06-5.33
10,639,290
Granted
—
—
—
—
Exercised
1,991,311
0.27
—
—
Forfeited/Cancelled
203,000
10.71-30.27
—
—
Outstanding, as of December 31, 2024
4,003,514
0.27-31.96
0.06-4.32
5,954,422
Vested and expected to vest as of December 31, 2024
4,003,514
0.27-31.96
0.06-4.32
5,954,422
Exercisable as of December 31, 2024
4,003,514
0.27-31.96
0.06-4.32
5,954,422
The Group recognized the compensation cost for the stock options on a straight-line basis.
For the years ended December 31, 2022, 2023 and 2024, the Group recorded compensation expenses of RMB10,740,648,
RMB414,747 and nil respectively for the stock options granted to the Group’s employees. The Group allocated share-based
compensation expense for share option as follows:
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Origination and servicing
905,756
70,740
—
—
General and administrative
9,340,416
344,007
—
—
Borrower acquisitions and marketing
494,476
—
—
—
As of December 31, 2022, there were RMB619,557 of total unrecognized compensation expense related to unvested stock
options granted. All compensation expense related to unvested stock options was recognized by the end of December 31, 2023.
There were no income tax benefits recognized for the years ended December 31, 2022, 2023 and 2024 for share options
exercised and for share-based compensation expense related.
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F-62
Restricted stocks unit
On April 15, 2019, the Board of Directors of X Financial granted 150,000 of restricted stock units to certain directors. The
restricted stock units shall vest over a period from two to three years. The restricted stock units have no expiration period. On November
20, 2019, the Board of Directors of X Financial granted 1,789,400 of restricted stock units to certain employees. On January 21, April 30,
October 31, 2020, the Board of Directors of X Financial granted 4,600,000, 673,300 and 550,000 of restricted stock units to certain
employees, respectively. The restricted stocks shall expire 10 years from the date of grant and vest over a period from three to four years.
On November 10, 2021, the Board of Directors of X Financial granted 26,657,998 of restricted stock units to certain senior managements
and employees. The restricted stock units shall expire 10 years from the date of grant and vest over a period from three to four years. On
March 3, 2022, the Board of Directors of X Financial granted 810,000 restricted stock units to certain directors. The restricted stock units
shall vest over a period of three years. On December 1, 2023, the Board of Directors of X Financial granted 180,000 restricted stock units
to certain directors. The restricted stock units shall vest over a period of three years. On January 10, 2024, the Board of Directors of X
Financial granted 6,400,000 restricted stock units to certain directors. The restricted stock units shall vest over a period of three years. On
June 1, 2024, the Board of Directors of X Financial granted 270,000 restricted stock units to certain directors. The restricted stock units
shall vest over a period of three years. On August 1, 2024, the Board of Directors of X Financial granted 540,000 restricted stock units to
certain directors. The restricted stock units shall vest over a period of three years.
On August 13, 2019 and November 20, 2019, the Board of Directors decided to cancel 1,500,000 and 250,000 of unvested
options of certain senior managements and concurrently granted 1,500,000 and 250,000 of restricted stock units as replacement awards to
the senior managements. The incremental compensation expenses of RMB360,592 (US$52,281) was equal to the excess of the fair value
of the modified award immediately after the modification over the fair value of the original award immediately before the modification.
A summary of restricted share units’ activity during the year ended December 31, 2024 is presented below:
Weighted-Average Grant-Date
Number of
Fair Value
Restricted Shares
RMB
Outstanding, as of January 1, 2024
13,915,643
4.95
Granted
7,210,000
4.91
Vested
7,341,375
4.93
Forfeited
408,998
4.97
Outstanding, as of December 31, 2024
13,375,270
4.94
For the year ended December 31, 2022, 2023 and 2024, the Group recorded compensation expenses of RMB42,797,167,
RMB42,183,463 and RMB40,177,807 (US$5,504,337) respectively for the restricted shares granted to the Group’s directors and
employees. The Group allocated share-based compensation expense for restricted share as follows:
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Origination and servicing
26,040,888
25,396,830
14,643,365
2,006,133
General and administrative
16,743,484
16,617,520
22,078,845
3,024,789
Borrower acquisitions and marketing
12,795
169,113
3,455,597
473,415
As of December 31, 2022, 2023 and 2024, there was RMB102,650,058, RMB61,832,598 and RMB8,277,516 (US$1,134,015)
respectively of total unrecognized compensation expense related to unvested restricted shares granted. As of December 31, 2024, the cost
is expected to be recognized over a weighted-average period of 0.86 years.
There were no income tax benefits recognized for the years ended December 31, 2022, 2023 and 2024 for restricted stocks unit
related to share-based compensation expense.
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F-63
17. Statutory reserves and restricted net assets
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its
subsidiaries. Relevant Chinese Mainland statutory laws and regulations permit payments of dividends by the VIEs and subsidiaries of the
VIEs incorporated in Chinese Mainland only out of their retained earnings, if any, as determined in accordance with Chinese Mainland
accounting standards and regulations. The consolidated results of operations reflected in the consolidated financial statements prepared in
accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries.
Under Chinese Mainland law, the Company’s subsidiaries, VIEs and the subsidiaries of the VIEs located in the Chinese
Mainland (collectively referred as the “Chinese Mainland entities”) are required to provide for certain statutory reserves, namely a
general reserve, an enterprise expansion fund and a staff welfare and bonus fund. The Chinese Mainland entities are required to allocate
at least 10% of their after tax profits on an individual company basis as determined under Chinese Mainland accounting standards to the
statutory reserve and has the right to discontinue allocations to the statutory reserve if such reserve has reached 50% of registered capital
on an individual company basis. In addition, the registered capital of the Chinese Mainland entities is also restricted.
Amounts restricted that include paid-in capital, additional paid-in capital and statutory reserve funds, as determined pursuant to
China Accounting Standard, are RMB5,517,847,025 and RMB4,816,033,362 (US$659,793,865) as of December 31, 2023 and 2024
respectively.
18. Commitments and contingencies
Operating lease as lessee
As disclosed in Note 2, the Group has adopted ASC Topic 842 on 1 January, 2019. Current and non-current portions of lease
liabilities have been recorded as “Accrued expenses and other current liabilities” and “Other non-current liabilities” in the balance sheet
as at December 31, 2023 and 2024, except for short-term leases.
Short-term borrowings
As of December 31, 2024, the Group had short-term borrowings amounting to RMB328,500,000, such borrowings will be
repaid with interests amounting to RMB2,653,075 in 2025. Interest payments are calculated using the interest rate as of December 31,
2024.
Contingencies
The Group is subject to periodic legal or administrative proceedings in the ordinary course of business. The Group does not
have any pending legal or administrative proceeding to which the Group is a party that will have a material effect on its business or
financial condition.
19. Subsequent events
In first quarter of 2025, the Group has set up several one-year loans in aggregation to RMB304,500,000, which apply weighted
average fixed rate at 4.81%.
In the first quarter of 2025, the Group has declared a semi-annual dividend of US$0.25 per ADS (approximately US$0.042 per
ordinary share).
Table of Contents
F-64
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
BALANCE SHEETS
(in Renminbi “RMB”, except share and per share data)
As of
December 31,
As of December 31,
2023
2024
2024
RMB
RMB
US$
Assets:
Cash and cash equivalents
1,202,355
1,359,623
186,268
Prepaid expenses and other current assets
410,826
390,721
53,528
Amount due from subsidiaries and VIEs
1,047,722,447
910,228,376
124,700,776
Investments in subsidiaries and VIEs
4,857,619,732
6,286,783,144
861,285,759
Total assets
5,906,955,360
7,198,761,864
986,226,331
Liabilities:
Accrued expenses and other current liabilities
604,989
245,607,222
33,648,051
Dividend payable
59,226,084
—
—
Total liabilities
59,831,073
245,607,222
33,648,051
Equity:
Common shares
206,793
206,793
28,331
Treasury stock
(111,520,291)
(509,643,763)
(69,820,909)
Additional paid-in capital
3,196,942,284
3,207,028,391
439,361,088
Retained earnings
2,692,018,850
4,174,511,191
571,905,688
Accumulated other comprehensive income
69,476,651
81,052,030
11,104,082
Total equity
5,847,124,287
6,953,154,642
952,578,280
Total liabilities and equity
5,906,955,360
7,198,761,864
986,226,331
Table of Contents
F-65
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in Renminbi “RMB”, except share and per share data)
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
General and administrative expenses
(8,739,084)
(5,899,484)
(7,502,575)
(1,027,849)
Interest income
1,518
29,662
33,062
4,529
Equity in profit of subsidiaries and VIEs
817,582,216
1,190,497,730
1,547,501,724
212,006,867
Other income, net
3,151,789
2,166,066
(126,446)
(17,323)
Net income
811,996,439
1,186,793,974
1,539,905,765
210,966,224
Other comprehensive income
57,289,037
5,878,060
11,575,379
1,585,820
Comprehensive income
869,285,476
1,192,672,034
1,551,481,144
212,552,044
Table of Contents
F-66
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENT OF CASH FLOWS
(in Renminbi “RMB”, except share and per share data)
Year ended
Year ended
December 31,
December 31,
Year ended December 31,
2022
2023
2024
2024
RMB
RMB
RMB
US$
Net cash used in operating activities
(9,559,741)
(5,736,205)
(8,157,418)
(1,117,562)
Received from subsidiaries and VIEs
164,707,863
25,363,652
188,678,532
25,848,853
Dividends received from subsidiaries
—
49,338,235
118,338,313
16,212,282
Net cash provided by investing activities
164,707,863
74,701,887
307,016,845
42,061,135
Contribution from shareholders
277,342
1,099,619
122,507
16,783
Repurchase of common shares
(146,740,902)
(24,872,828)
(182,204,126)
(24,961,863)
Dividend paid
—
(58,401,356)
(116,639,508)
(15,979,547)
Net cash used in financing activities
(146,463,560)
(82,174,565)
(298,721,127)
(40,924,627)
Effect of foreign exchange rate changes
824,099
131,100
18,968
2,599
Net increase (decrease) in cash and cash equivalents
9,508,661
(13,077,783)
157,268
21,545
Cash and cash equivalents, beginning of year
4,771,477
14,280,138
1,202,355
164,723
Cash and cash equivalents, end of year
14,280,138
1,202,355
1,359,623
186,268
Table of Contents
F-67
SCHEDULE I—NOTES TO CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
1.
Schedule I has been provided pursuant to the requirements of Rule 12-04 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 date and for the same period for which audited consolidated financial statements have been presented when the restricted
net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed
fiscal year.
2.
The condensed financial information has 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 its subsidiaries and VIEs. For
the parent company, the Company records its investments in subsidiaries and VIEs under the equity method of accounting as prescribed
in ASC 323, Investments—Equity Method and Joint Ventures. Such investments are presented on the Condensed Balance Sheet as
“Investments in subsidiaries and VIEs” and the subsidiaries and VIEs’ profit or loss as “Equity in profit (loss) of subsidiaries and VIEs”
on the Condensed Statements of Comprehensive Income (loss). Ordinarily under the equity, an investor in an equity method investee
would cease to recognize its share of the losses of an investee once the carrying value of the investment has been reduced to nil absent an
undertaking by the investor to provide continuing support and fund losses. For the purpose of this Schedule I, the parent company has
continued to reflect its share, based on its proportionate interest, of the losses of subsidiaries and VIE regardless of the carrying value of
the investment even though the parent company is not obligated to provide continuing support or fund losses.
3.
For the years ended December 31, 2022, 2023 and 2024, except as disclosed in Note 18, there were no material
contingencies, significant provisions of long-term obligations, guarantees of the Company.
Translations of balances in the additional financial information of Parent Company—Financial Statements Schedule I from RMB into
US$ as of and for the year ended December 31, 2024 are solely for the convenience of the readers and were calculated at the rate of
US$1.00= RMB7.2993, as set forth in H.10 statistical release of the Federal Reserve Board on December 31, 2024. The translation is not
intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into United States dollars at that rate
on December 31, 2024, or at any other rate.
Exhibit 12.1
Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I,
Yue (Justin) Tang, certify that:
1.
I have reviewed this Form-20-F of X Financial (the “Company”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in
this report;
4.
The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal
control over financial reporting; and
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s
internal control over financial reporting.
Date: April 25, 2025
By:
/s/ Yue (Justin) Tang
Name: Yue (Justin) Tang
Title: Chief Executive Officer and Chairman
Exhibit 12.2
Certification by the Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I,
Frank Fuya Zheng, certify that:
1.
I have reviewed this Form-20-F of X Financial (the “Company”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in
this report;
4.
The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period
covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal
control over financial reporting; and
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s
internal control over financial reporting.
Date:
April 25, 2025
By:
/s/ Frank Fuya Zheng
Name: Frank Fuya Zheng
Title:
Chief Financial Officer
Exhibit 13.1
Certification by the Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report of X Financial (the “Company”) on Form 20-F for the year ended December 31, 2024 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Yue (Justin) Tang, Chief Executive Officer and Chairman
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: April 25, 2025
By:
/s/ Yue (Justin) Tang
Name:Yue (Justin) Tang
Title: Chief Executive Officer and Chairman
Exhibit 13.2
Certification by the Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report of X Financial (the “Company”) on Form 20-F for the year ended December 31, 2024 as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Frank Fuya Zheng, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: April 25, 2025
By:
/s/ Frank Fuya Zheng
Name:Frank Fuya Zheng
Title: Chief Financial Officer
Exhibit 15.1
KPMG Huazhen LLP
15th Floor
China Resources Tower
2666 Keyuan South Road
Nanshan District
Shenzhen 518052
China
Telephone +86 (755) 2547 1000
Fax +86 (755) 2547 3366
Internet kpmg.com/cn
毕马威华振会计师事务所
(特殊普通合伙)
中国深圳
南山区科苑南路2666号
中国华润大厦15楼
邮政编码:518052
电话 +86 (755) 2547 1000
传真 +86 (755) 2547 3366
网址 kpmg.com/cn
KPMG Huazhen LLP, a People's Republic of China
partnership and a member firm of the KPMG global
organisation of independent member firms affiliated with
KPMG International Limited, a private English company
limited by guarantee.
毕马威华振会计师事务所(特殊普通合伙) — 中国合伙制
会计师事务所，是与英国私营担保有限公司 — 毕马威
国际有限公司相关联的独立成员所全球性组织中的成
员。
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statement (No. 333-227938) on Form S-8 of our reports dated April 25,
2025, with respect to the consolidated financial statements of X Financial and the effectiveness of internal control over financial
reporting.
/s/ KPMG Huazhen LLP
KPMG Huazhen LLP
Shenzhen, China
April 25, 2025
Exhibit 99.3
X Financial
7-8F, Block A, Aerospace Science and Technology Plaza
No. 168, Haide Third Avenue, Nanshan District
Shenzhen, 518067, the People’s Republic of China
Dear Sir/Madam:
We hereby consent to the use of our name and the summary of our opinion under the headings, “VIE Structure and Risks Relating to Our
Corporate Structure”, “Risks Associated with Being Based in or Having the Majority of our Operations in China”, “Item 3. Key
Information—3.D. Risk Factors”, “Item 4.B. Business Overview—Regulation” and “Item 4.C—Organizational Structure” included in X
Financial’s Annual Report on Form 20-F for the year ended December 31, 2024 (the “Annual Report”), which will be filed with the
Securities and Exchange Commission (the “SEC”) in the month of April 2025.We also consent to the filing of this consent letter with the
SEC as an exhibit to the Annual Report.
In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated
thereunder.
Yours Sincerely,
/s/ Han Kun Law Offices
Han Kun Law Offices
April 25, 2025